Get Smart (about replenishment)

This is an excerpt of the original article. It was written for the January-February 2018 edition of Supply Chain Management Review. The full article is available to current subscribers.

January-February 2018

If you frequent supply chain conferences, as I do, you’ve probably noticed that some of the best-attended sessions are the ones that focus on emerging technologies—or what we’re calling the NextGen Supply Chain. You may have noticed something else: While topics like Big Data, artificial intelligence, augmented reality, blockchain and robotics play to standing room audiences, there’s a lot of confusion about what to do with the information. At the 2016 APICS conference, one member of the audience asked a direct question at the end of an excellent session on Big Data by Hannah Kain, the CEO of Alom: “This sounds great. But there’s not a…

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Sensors, computing power and connectivity are becoming cheaper, smaller and more powerful every day. Many companies leverage these advanced technologies to remotely access machine data to schedule maintenance operations, optimize the daily performance of assets and help customers who experience problems with their products. With Internet-of-Things (IoT) technology, transparency and visibility across the entire supply chain is now possible. This also enables manufacturers to change their interactions with consumers—and their business models—when it comes to re-ordering products.

Currently, most manufacturers sell consumables (such as toothpaste, laundry detergent or ink cartridges) to the end consumer using traditional retailers. However, with the retail channel as an intermediary, manufacturers have little knowledge of consumers’ actual demand and consumption patterns. Retailers often charge for the point-of-sale data that provides some insights into consumer behavior. In addition, retailers ask for a large share of the product margin, run costly promotions to lure customers into the store and tempt customers to purchase a competitor’s product if they run out of stock. Some manufacturers have developed subscriptions models whereby customers receive products in regular time intervals to lock in the customer relationship and thereby bypass retailers. This approach works fine if consumers have stable usage patterns. However, because consumption often fluctuates widely, time-based replenishment and actual consumption may not match, resulting in stock-outs and high overstocks, which require manual intervention.

With the advancement of IoT technology, companies now have the opportunity to develop new business models by directly interacting with their customers through smart replenishment systems. Amazon’s Dash button is probably the best-known “smart” replenishment system. A consumer triggers replenishment by pressing a button for a product that is linked to a corresponding button on Amazon’s Website. However, Dash buttons have a number of drawbacks. First, customers need not just one or two of those buttons, but require a separate Dash button for each product they reorder. To appreciate the resulting inconvenience, imagine a refrigerator decorated with dozens of buttons for detergent, coffee capsules or dishwasher tabs instead of your children’s artwork. In addition, the Dash buttons are not really smart because the consumer must manually push the button to place an order. This may occur on time, too early, or, as is often the case, too late. Because consumers aren’t logisticians, they don’t think in terms of lead times and inventory management and risk running out of products when they really need them.

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