Whitepaper 12.6.2009
1/6
More effective chain operations
through department store
replenishment automation!
Author:
Antti Lähde
By improving the efficiency and accuracy of outlet-specific ordering, results can be
increased in all types of retail trade. The accuracy of ordering and order batches affect
shelf availability and, by extension, sales. Ordering also affects the work and stocking
expenses. In department store trade, loss and discount costs that are related to product
stocking play an important role, as seasonal products lose their value extremely rapidly.
As a result, the opportunities for improved efficiency are often greater than in other
areas of retail trade as the environment is genuinely challenging.
Department store retail is demand-oriented and seasonal
When automatic replenishment is being discussed, the operations are often compared
to grocery retail. Department store retail is vastly divergent from grocery retail in
terms of product-specific differences as well as its seasonal nature. While in grocery
retail supply can be adjusted based on demand, in all forms of specialty retail and
department store retail, supply is used to significantly affect demand. However, it
should be kept in mind that many product areas are very similar to grocery retail in
terms of their operating models.
The following lists the special characteristics that influence product replenishment in
department store retail:
■■ Product quantities and turnovers are very high
■■ A large number of seasonal products that are provided only for a single season
■■ A large number of suppliers all the way down to retail
outlets, and often fragmented supply routes
■■ Considerable differences in product displays
■■ Backroom stock plays a significant role
© RELEX
• www.relexsolutions.co.uk
[email protected]
2/6
Different supply models must be considered in
the department store environment
What we can conclude from the above is that, due to the variety of operating models
involved and the seasonal nature of product demand, department store retail is an extremely
difficult environment for product replenishment. Therefore, as a result of the diversity
of product areas and needs, product replenishment in department store retail requires
multiple operating models. A single model is insufficient to successfully automate the entire
operations.
From the perspective of product replenishment, products can be divided into two primary
supply models: seasonal products and continuously replenished products. The latter remain
in an outlet’s product selection beyond a single season, and they are typically replenished
several times within their service life. However, there can be special circumstances that affect
continuously replenished products. In other words, their demand can fluctuate significantly
due to, for example, campaigns or seasons. Seasonal products are in turn included in an
outlet’s selection only for a particular season, and they are often ordered in a single batch, at
least for the main warehouse.
All products
Products in continuous replenishment
Normal
Special occasions
Season
Seasonal products
Replenished
In-season
replenishment
One of buys
Initial allocation
Promotion
New products,
code changes,
ramp-downs
Picture 1. Logistics flows for different product categories.
© RELEX
• www.relexsolutions.co.uk
[email protected]
3/6
For the replenishment of department store products, it is essential to construct suitable
solutions for both alternatives. It is easier to automate the entire ordering process of
continuously replenished products, whereas the replenishment of seasonal products can be
supported by demand-based orders following the initial replenishment. If a seasonal product
must be reordered, a good option is to employ the so-called PUSH-PULL-PUSH control logic,
which functions as follows:
■■ The first batch is allocated to outlets based on a forecast or total purchase quantity (=PUSH)
■■ Upon the commencement of sales, the process automatically transitions to demand-based
replenishment, in which orders from the main warehouse are made as necessary (=PULL)
■■ At the end of the season, any possible surplus is allocated to those
department stores where it is predicted to sell the most (=PUSH)
In the initial replenishment of seasonal products, the role of the replenishment itself is rather
small – management of selection, pricing, purchasing and even campaigning take the center
stage. As such, the automation of replenishment calculation yields relatively minor benefits.
Product handling in outlets must support ordering
In department store retail, the route by which products arrive on the shelves can be
considerably complex.
As in many things, simplicity is key because every time a product is handled it significantly
increases the overall costs.
Some of the handling work in department stores is mandatory. Pricings, alerts and, in some
respects, inspections are measures that are directly linked to product attributes.
In the last decade, however, these operations have largely been moved backwards in the
supply chain to industry or the wholesale sector.
As with the separation of the order flows described above, the physical handling of products
must be segregated according to product attributes. If the products that require handling are
delivered to the outlet mixed in with the direct-to-shelf products, the entire bulk of products
must be sorted one cargo unit at a time. In practice, this method forces continued backroom
stocking of products, which means that the benefits of automated product replenishment are
lost.
The segregation of the flow of goods effectively, means that continuously replenished
products are ordered according to demand and shelved immediately upon arrival, preferably
directly from the cargo unit in which they were delivered. Correspondingly, products that
require handling are delivered to the outlet separately with consideration of the time
required for the handling. The majority of products that require handling are seasonal.
© RELEX
• www.relexsolutions.co.uk
[email protected]
Back-room
4/6
Product delivered
directly to shop floor
Product requiring
handling
Products to be tagged
Promotional products
(initial batch)
Claims
Back-room storage
Store
Seasonal products
Shelving and inspection
- On store floor
Handling at back-room
- Inspection
- Price labels
- Sorting
Shelving
Picture 2: Physical handling in stores
The visual appearance of the outlet must be considered in replenishment
More often than not, the aim of automatic replenishment is to reduce inventories and achieve
a new level of efficiency, whereas the aim of retail trade is to sell products.
Therefore, it is by no means unheard of that automated replenishment in turn results in there
being more shelves and racks on display than actual products. This problem is pronounced in
department store retail as the wide product selection includes a great deal of items with a
relatively low turnover. Moreover, in the department store concept, it is vital to sales that the
products are displayed in an appealing manner.
One possible solution is to increase the products’ period of storage or backup stocks,
whereupon the visual presentation of the products can be improved. The problem with this
is that the measures will simultaneously increase the stock quantities of products that do not
require higher stock volumes, and, on the other hand, the increase in the in-store display of
small and inexpensive products (such as socks) may still be insufficient. A more functional
solution is to implement product-specific shelf minimums. In this way, a sufficient quantity
of products for an appealing display can be maintained in stock even if the product demand
is relatively low. At the same time, implementing a shelf minimum for a product in no way
prevents the product from being replenished based on demand. Shelf minimums can be
placed manually for each respective outlet (for example, with a PDA device) or, if shelf images
are used, automatically based on face data.
© RELEX
• www.relexsolutions.co.uk
[email protected]
5/6
Exception management brings efficiency to product discontinuations
Managing the final phase of a product’s service life is a pivotal issue with regard to obtaining
profitable results in department store retail. However, producing sufficiently accurate demand
forecasts for seasonal products is extremely difficult due to a high product turnover and long
forecasting horizon.
It is often necessary to order the products in one batch based on the initial forecast. Although
it is always prudent to strive for the highest possible accuracy in forecasting, this alone will not
yield the desired results.
Product management at the end of a product’s service life must be based on continuous
monitoring and the channeling of the supply to where the demand is. Therefore, there is
no sense in flooding the outlets with the entire product batch. It is likely that product sales
will vary between different outlets, which mean that it is a good idea to leave, for example,
20% of the products in the main warehouse and replenish the outlets as necessary. This
naturally requires the product to be suitable for storage at the main warehouse or that it is
available from the supplier without any imposed limitations. Traditionally, the problem has
been that monitoring the stock status more or less manually is largely impossible. However,
automatic replenishment allows for this work phase to be automated. Moreover, with systembased management of deviations, situations relating to overstocking, for example, can be
highlighted and automatic measures can be implemented to handle them. In practice, this
means that the person in charge of product recalls only needs to work on those exceptions
that can plausibly be handled within the prevailing time constraints. This ensures that,
upon stock shortage, products are automatically directed to where the demand is. The
arrangement also enables efficient and early responses to overstocking. The end result is that
fewer write-offs are made as mandatory seasonal discounts.
A logistical operating model does not affect an
outlet’s automatic replenishment
In department store retail, there are usually a large number of suppliers and the number of
direct deliveries is high. Many think that a product must be stored in the main warehouse for
its automatic replenishment to be possible, but this is actually incorrect. If the supplier makes
its deliveries at defined intervals, the product can be automatically replenished directly from
the supplier. As regards direct suppliers, however, it is true that entering products as income
and managing balances is often more challenging, which also affects ordering operations.
RELEX solutions for department store replenishment
RELEX solutions create significant benefits. The following lists the typical benefits for retail
replenishment:
■■ Considerable improvement of shelf availability
■■ Increased level of automation and less time spent on ordering
■■ Reduced handling costs for outlets by means of efficient
order batches and optimal delivery intervals
■■ More accurate forecasts of challenging situations, such as seasons and campaigns
© RELEX
• www.relexsolutions.co.uk
[email protected]
6/6
In department store retail, RELEX solutions primarily focus on the replenishment of
continuously replenished products as well as on handling the outlet replenishment of the
remaining batches of seasonal products. Although, if measured by the number of articles,
clearly more than half of the selection comprises seasonal products, 60-80% of the flow of
goods typically consists of continuously replenished products. The same ratio also applies to
the work involved.
The most essential benefits that RELEX solutions provide for department store retail are:
■■ Combining the improved visual presentation of department stores with reduced stock
quantities by means of minimum stocks and automatically updated control parameters
■■ Individual forecast and replenishment models that are suitable for campaign management
as well as filtration of campaign demands from the normal sales forecasts
■■ Optimized replenishment of products requiring different handling by means of
flexible cost parameterization (including the replenishment of the main warehouse)
■■ Life cycle management of products by means of exception management
■■ Increased replenishment intervals, particularly for large
products, by means of a high level of automation
■■ Accurate and efficient seasonal forecasts also for novelty
products by means of demand modeling
What next?
We at RELEX have extensive experience in developing product replenishment procedures
for retail trade in a process-oriented manner. An hour’s meeting is enough to go through
your company’s current situation and to define the first steps. Feel free to contact us:
[email protected] / +44 7546 124031.
© RELEX
• www.relexsolutions.co.uk
[email protected]