ponents to help offset higher demand variability or to
reduce costs for products that have different service
requirements.
Figure 5 shows a simplified example of a company moving away from a one-size-fits-all fulfillment strategy to multiple strategies for different customer/product profiles. This
simple example illustrates the ability to reduce downstream
inventories by serving some customer/product segments
from upstream sources, thus taking advantage of the pooling effect.
4. Implement differentiated customer replenishment
programs
Different customers will have different replenishment
relationships, based on the service required, the volume and
profitability of that customer, and the channel used to support that customer. For example, a high-tech consumer
electronics company typically deals with multiple channels:
retail, distributor, enterprise, and Web. Each of these channels should have different replenishment programs.
Enterprise customers might be served through a combination of configure-to-order and build-to-stock strategies.
Retail customers, meanwhile, could be served through
build-to-stock along with a combination of distribution
resource planning (DRP); vendor-managed inventory
(VMI); collaborative planning, forecasting, and replenishment (CPFR); and emerging point-of-sale (POS), analytics-
[FIGURE 5] MOVING TOWARD
DIFFERENTIATED FULFILLMENT
$500M
inventory
$500M
inventory
“One-size-fits
-all”service
1 day
BEFORE
Central
distribution
Regional
distribution
All
customers
$500M
inventory
$400M
inventory
Differentiated
service
1 day
AFTER
Central
distribution
Regional
distribution
Strategic (large)
customers
3 days
Pooling
effect
results in
$100M
inventory
savings
(10%)
Other (small)
customers
driven collaboration. Further segmentation within each of
these channels would provide differentiated service based
on customer/product dynamics. The type of replenishment
relationship between a manufacturer and a giant, big-box
retail chain will be different than that with smaller retailers.
An emerging trend in retail replenishment is the increasing use of analytical information based on point-of-sale
data to drive orders from the retailer to the manufacturer.
This is part of a larger trend toward manufacturers looking
further downstream to leverage independent demand
(demand for an actual end product that is bought and used
by a consumer or customer) to drive their upstream operations. The intention is to reduce the “bullwhip effect” that
comes from using dependent demand, which is derived
from independent demand.
Sony Electronics has successfully used this POS-analytic-driven replenishment approach with its customer Wal-Mart
Stores to improve its in-store availability while reducing
channel inventories. These sophisticated approaches are
appropriate for certain segments, but other replenishment
approaches are necessary for other segments.
5. Implement differentiated supplier replenishment
programs
Similar to customer replenishment programs, supplier
replenishment programs should be segmented based on
supplier/component dynamics.
Many companies today use a combination of owned and
outsourced factories as well as a combination of shorter-lead-time, nearshore capacity and longer-lead-time, offshore capacity. These different supply modes must also be
synchronized with the ordering and customer replenishment programs on the front end of the supply chain.
For example, nearshore capacity can be used for enterprise customers requiring configure-to-order capabilities
with short lead times, while offshore capacity with longer
lead times can be used for make-to-stock retail channels.
Lead-time responses using offshore capacity will be driven
by the transportation mode—ocean freight (long lead
times, low cost) versus air freight (short lead times, high
cost). A company with high-gross-margin products can
afford the flexibility provided by air freight; however, for
low-gross-margin, commodity products, moving from
ocean freight to air freight will mean the difference between
making and losing money.
6. Implement regular total-landed-cost sourcing analysis
One of the challenges confronting supply chain managers
is that supply chain cost structures have become very
dynamic. Labor costs, fuel costs, and currency exchange
rates for low-cost countries all fluctuate significantly, caus-
