Ideally, as inventory goes off the shelves,
vendors should replace it immediately—
assuming those vendors have visibility
into what’s being consumed and have
created a logistics system to automatically replenish the goods. Software such
as Demantra helps them automate many
of these decisions. According to Clark,
executives selected the Demantra software
because they liked its advanced forecasting capabilities, comprehensive handling
of point-of-sale data, and vendor-managed
inventory capabilities. “Demand plan-ners and forecasters are always trying to
improve the accuracy of their forecasts,”
explains Muzumdar. “Oracle Demantra
enables JOAG to introduce causal factors
into their forecasts, such as price, season-ality, and social trends.”
Causal factors have been a staple in
the retail industry for decades. Price is the
most obvious causal factor that retailers
consider. But JOAG knew that region-alization is another area to explore. For example,
downhill skis sell better closer to the mountains.
Surfboards sell better near the ocean. In JOAG’s case, baseball
games such as Major League Baseball 2K7 sell briskly in cities
that have major league ball teams, especially at certain times of
the year. The Demantra software lets the company adjust these
causal factors and set multipliers to account for specific variables, such as which type of game sells best during the playoffs
or when to promote particular titles based on the standings of
certain teams.
“A retailer might have just sold five baseball video games,
but based on certain causal factors, we might recommend
that they replenish them with ten more to reflect escalating
demand,” Clark explains. “It’s all about prepositioning products
that are expected to sell quickly. We’ve found that properly
accounting for causal factors can dramatically improve the accuracy of our planning and forecasting processes.”
“In today’s global business environment,” explains Alcoa’s Craig Kerney, “you’re
not only managing inventory within a plant, you’re linking up warehouses and
providing access from customer sites.”
managers in the warehouse to level-load the supply chain, so
workers aren’t scrambling to fill every order. “Instead of peaks
and valleys of activity in the warehouse, we have a more measured operation,” says Clark. “We are filling customer orders
more accurately and efficiently by better organizing products
within our warehouse. Correct warehouse slotting means warehouse personnel are less likely to grab the wrong item.”
Over time, as more JOAG customers adopt the VMI system,
Clark and his team expect to reduce out-of-stocks at their retailers as well as eliminate excess and obsolete inventory. JOAG also
expects to reduce price-protection spending by not overstocking
products on customer shelves, and to increase revenue through
better assortment planning at the local store level, so retailers
always have the titles that are in demand. The Demantra software
helps JOAG determine which orders to fill first. For example, if a
retailer has 1,500 stores, JOAG can prioritize its shipments based
on geography, so the farthest stores are sent the earliest shipments. Warehouse personnel select the most economical stocking, shipping, and inventory methods based on when the retailer
actually needs each item. “Keeping the shelves stocked is our
main priority for the retailer,” Clark says. “They’re thrilled that
we’re keeping them stocked with the items that actually sell.”
MEASURABLE RETURNS
JOAG’s VMI program has been well received by its retail customers, many of which have seen their fill rates improve from
70 percent to nearly 100 percent, along with a corresponding
boost in profitability. (Fill rate refers to how much of the desired
order is actually filled.) “The online links we have established—
from the retail point-of-sale all the way through to our order
management and replenishment systems—are responsible for
increasing our expected sell-through,” Clark explains.
These online links also help JOAG coordinate its inventory
management practices with the promotions its retailers are
running, and to optimize the efficiency of workers in its distribution centers. As an added benefit, fresh information enables
RIPPLE EFFECT
While VMI may seem like a very specific type of business
venture, it represents a concept that pertains to companies in
nearly every industry: the benefit of capturing and exchanging
real-time information. The most highly evolved business networks rely on a unified data model to provide a single, accurate view of activities spanning multiple departments, plants,
