Meeting commitments to high-priority customers in times of fluctuating supply and demand
May 13 2020
Retail businesses are often challenged by the need to reserve or segment inventory across competing channels in an omnichannel environment. In this insightful article, retail supply chain expert, Jeremy Laun describes how to manage this using Bulk Order Agreements in Infor M3.
Across industry verticals and the different supply chain elements within them, we find consistently that businesses have a requirement to reserve inventory for specific commitments. Examples range from traditional wholesalers, who have long term commitments for particular customers over a season or product launch period, to online retailers wanting to ensure inventory is reserved for specific upcoming promotional activities, where significant marketing effort and investment has been made. It is unfortunately an all-too-common experience that when the inevitable demand materialises, the inventory is nowhere to be seen. The result is damaged customer relationships or poor return on marketing investment spend. Not to mention the internal costs of process duplication and increased inventory holdings.
We see a couple of solutions that are commonly utilized, which are equally inefficient in their effectiveness.
Some businesses create virtual warehouses for each channel reservation, or they sometimes even have physically different warehouses with unique locations, stock zones and stock flows under the same roof. Others use ‘Dummy’ customer orders to reserve inventory, decrementing those orders manually as real demand is received, but requiring users to manually manipulate allocations so that the newly available inventory is correctly allocated.
These types of solutions, while assisting in the reservation of inventory, have a mixture of negative side effects that include:
Reduction of Distribution Centre efficiency
- Complex inventory accounting where a single location contains inventory from multiple virtual warehouses
- Poor space utilisation through duplicate pick bins
- Longer pick paths reducing picking efficiency
- The addition of transfers between warehouses as demand requirements change
Duplication of Process
- Duplicate inbound tasks of manufacturing and/or receiving for each warehouse.
- Duplication of all planning processes throughout the supply chain for each warehouse.
Increased Working Capital
- The maintenance of inventory Silo’s results in multiple inventory ‘buffers’ leading to greatly increased Stock levels.
- Reduced inventory visibility due to the separated warehouses results in lower stock utilisation effectiveness, again leading to increased stock levels.
How this can be addressed with Bulk Order Agreements in Infor M3
Infor M3 includes Bulk Order Agreement functionality which extends the functionality of the longstanding Sales Agreement module. By creating an overall demand that cannot be shipped, bulk orders have the ability to run across sales, planning, manufacturing and procurement.
How Bulk Order Agreements Work
In simple terms the Bulk Order Agreements are a single place for recording items and quantities that a customer plans to buy. Utilising business chains, the agreements inventory reservation can be consumed automatically by a single customer or a group of otherwise unrelated customers.
How is this achieved?
A demand order is created, which can be seen along with any other planned transaction in the Material Plan. As each call-off order for the customer or business chain is received, the demand order quantity is reduced. The bulk order is updated with details of the total called-off quantities and lists orders that make up the consumption. Releasing of reserved inventory is as simple as closing the bulk order or individual line, or reduction of the reserved quantity.
Being directly linked to an item’s supply chain policy, configurations can be determined that apply sourcing of inventory specific to the bulk order, whether it’s via procurement or manufacturing, or as a consolidated operation with other existing demands and or forecasts.
At ComActivity, we have implemented various configurations and workflows for our customers, using Bulk Order Agreements to deliver tailored solutions that have solved the challenges of reserving inventory without the side effects. Some examples in brief:
An Omnichannel retailer experiencing high online volumes as well as traditional bricks and mortar store demand found that significant marketing effort and spend was often wasted when by the time a future planned promotion became live, much of the inventory had been consumed by their regular store replenishment cycle. This resulted in inventory remaining unsold in store while the inventory could easily have sold online and shipped efficiently from the DC. The implementing of Bulk Orders enabled the reserving of inventory at the planning stage, ensuring the spend and effort associated with the promotion isn’t derailed by competing demands.
A Fashion Retailer, constrained by a single order cycle per season included a wholesale channel to market where a single commitment to buy from their customer prior to the initial manufacturing run was required to be available for drawdown throughout the season. In this solution the Bulk Order Agreement was created automatically as part of an EDI implementation and became in integral part of the procurement planning process as well as managing the reservation of inventory throughout the season.
A Consumer electronics wholesaler during product launch periods was frequently hampered by limited supply of inventory from the OEM (Original Equipment Manufacturer). Despite this constraint they were held to supply agreements with their major customers specifying DIFOT rates for their orders. In order to balance limited supply and surplus demand during these periods this customer used bulk orders to set agreed total on constrained items that their customers chain of stores could draw down on as they needed. Ensuring both no negative surprises for the customer but equally allowing the wholesaler to easily report on unconsumed commitments.
We have been able to use Bulk Order Agreement functionality in Infor M3 to streamline supply chain processes and reduce inventory while ensuring customer service levels are maintained. If you would like to know more about this, then get in touch – we will be more than happy to talk to you about how it could work for you.