Marshall Fisher, UPS Professor at the Wharton School of the University of Pennsylvania.
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Wharton School of the University of Pennsylvania. The impact can be huge because “most retailers tend to have relatively low profit after tax.”
On October 19, Fisher led participants of the Retail Consortium for Management Education through the world of supply chain management in today’s retailing environment. Fisher is one of the world’s leading authorities on the subject.
For retailers and manufacturers, supply chain management is “one of the most important areas of differentiation that a company can have if you do it well, and obviously a major burden if you don’t,” says Fisher. His most recent research focuses on improving the ability to match supply and demand for short life cycle products, which are becoming the trend for many companies.
“As companies compete, you see a growing breadth of product offerings. Which means that every time you introduce a new product, it tends to shorten the life of some other product. So you’ve got a lot of products on the front end and on the back end of their life cycle,” he says. These life cycles vary anywhere from six weeks to two years.
Most of the forecasting tools available today focus on long life cycle products. “Short life cycle is different in that when you introduce it, you really don’t have a lot of data on how it’s selling. So you’ve got a huge amount of uncertainty on the front end and then on the back end you’ve got an obsolescence risk,” he says. Long lead times and inaccurate forecasts (the average error rate is over 50 percent) contribute to that uncertainty.
“Basically, we’ve moved to a world where you’ve got to make a lot of big bets with a lot of inaccurate information. So you’ve got two kinds of inventory: too much and too little.”
Fisher and his colleagues studied 32 retailers to discover how information technology is changing the way retailers forecast demand and supply. The findings of the Harvard/Wharton Rocket Science Retailing Project are published in the July/August (2000) issue of the Harvard Business Review.
“We tried to do two things. First, to be a vehicle for sharing: for identifying best practices and sharing it amongst the group. Secondly, we worked on projects with about a dozen of the retailers to try to advance the state of the art,” he says.
One Japanese apparel company in the study, World, has developed a remarkably responsive supply chain with a two-week production lead time, compared to four to nine months for traditional soft goods firms. World makes frequent purchases, produces locally, and moves products overnight. Buyers, planners, and designers are “empowered” to talk to each other, to coordinate quickly, and make decisions. A tremendous amount of interaction is what it takes to find out what sells.
Zara, a Spanish retail chain with stores in 18 countries, polls its stores daily to find out what’s selling. If a customer doesn’t buy something, employees will ask why, and what the customer doesn’t like about an item. Daily conference calls funnel information from store managers to merchandising managers.
Although these tactics have proved successful, the difficulty with this approach, says Fisher, is that there’s a “huge amount of energy that actually goes into making the process work, a huge amount of decision making. Empowerment in the trenches is incredibly labor intensive, and so far not scalable. People work incredibly long hours,” which erodes profit margins.
Marshall Fisher addresses RCME attendees on "Advances in Retail Supply Chain Management" held on the Santa Clara University campus.
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Recent developments in information technology are driving changes in supply chain management, according to Fisher. “The ability to collect data exceeds the ability to analyze the data. The story we got from most retailers is, we’ve got lots of data, we feel like it ought to be useful to us, but we feel we haven’t quite got a handle on how to extract any meaningful information.”
How can retailers achieve improvement in their supply chain management? “You need a foundation. You need good people, incentives, you need to execute well, and you need data. On top of that, we see key ingredients that effective retailers blend well: accurate forecasting, a supply chain that’s responsive enough to respond to signals from the marketplace, the ability to produce in small quantities, and effective inventory management.
“We found that the best retailers don’t do it all by computer, and they don’t do it all manually. They artfully blend the left brain (scientific merchandising) and right brain (intuitive merchandising) approach,” says Fisher. As in many things in life, success depends upon a balance of art and science.
The Retail Workbench faculty at Santa Clara University have been conducting research in merchandise planning and supply chain management jointly with retail sponsors for the past ten years. Recent projects have included multi-vendor sourcing, assortment selection, micro-marketing, store inventory allocation, promotion planning and clearance markdown management. Additional information can be obtained from our website at: http://rmi.scu.edu/rwb-research
Next in the 2002 RCME Series:
June 12, 2002 - Barry Posner, Ph.D., Dean, SCU Leavey School of Business, Coauthor of The Leadership Challenge.
BEING AT OUR PERSONAL BEST AS LEADERS: HOW TO GET EXTRAORDINARY THINGS DONE
October 2, 2002 - Dale Achabal, Ph.D. Associate Dean & Director Retail Management Institute; and Kirthi Kalyanam, Ph.D. Professor of Marketing and Director of e.Commerce Initiatives, Leavey School of Business, Santa Clara University.
BEST PRACTICES IN INTEGRATED MULTI-CHANNEL RETAILING
For Information on future RCME programs and membership....contact:
Cynthia Gamage at 408.554.4961 or e-mail: cgamage@scu.edu
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