About Flowcasting

Imagine that you could somehow know every product movement that will be taking place in the retail supply chain, every day for the upcoming 52 weeks:

Future point-of-sale transactions for every product at every store on every day.

Every replenishment and shipment request between every store, distribution center and manufacturing plant in the extended supply chain.

The inventory balance for any product at any location on any future day.

Imagine that this information is completely updated and refreshed on a daily basis. When sales come in higher or lower than expected at the retail store, the precise impact to every other node in the supply chain is instantly and automatically modeled in near real time. Today’s DC and manufacturing schedules are completely synchronized with what happened on the store shelves yesterday.

Imagine how your fill rate would soar with these early warning signals continually hopping through the supply chain – not only with the most current “news from the front” but with specific, unambiguous responses that need to be made by each partner in the supply chain.

And imagine how productive your assets (particularly inventory) would be if planning information was so up-to-date and accessible that you could wait until the last possible moment to deploy them and still make your service commitments.

No matter where you play in the retail consumer products supply chain, you’ve been aching to work this way for years, but it’s been just beyond your grasp. The point-of-sale (POS) data is being collected and stored. The communication links and standards have been established. The computing horsepower is finally here. What you lack is a concrete, simple and transparent approach for using it all.

In the past, most of the planning effort in the retail supply chain focused on distribution and manufacturing. But failing to include retail stores in the planning process is like ignoring 95% of the inventory locations in the supply chain. Even worse, the locations being neglected are the ones that directly face the customer and hold the most costly inventory. Flowcasting is the first approach that makes consumer demand at the retail store the focal point for the time-phased planning of inventory and replenishment throughout the retail supply chain.

Starting with a forecast of sales, by product, at the store shelf, Flowcasting uses the same time-tested approach at the retail level that’s been used in distribution (DRP) and manufacturing (MRPII) for years. The idea is simple: Once each store has forecasted what they expect to sell, they can calculate what they’ll need to bring in as a simulation based on their current on hand balances and ordering rules.

In essence, every inventory location is treated like a bank account – if you know your current account balance (current on hand inventory) and can estimate your future planned withdrawals (sales forecast), you can figure out when your future account balance (projected on hand) will drop below your minimum balance (safety stock or merchandising requirements). Before that actually happens, you need to make sure you make a deposit (planned arrival).

Planning Your Cash

People’s Bank – Account #9876543

Today’s Balance

$1650

Minimum Balance

$1000

 

 

 

 

 

 

 

 

 

 

 

Wk1

Wk2

Wk3

Wk4

Wk5

Wk6

Wk7

...

Wk52

Withdrawals

$250

$750

$900

$800

$450

$1100

$675

...

$500

Deposits

 

$1500

 

$1500

 

$1500

 

...

$1500

Balance

$1400

$2150

$1250

$1950

$1500

$1900

$1225

...

$1750

Planning Your Inventory

Product #1234567 @ Store #330

Current On Hand

28 units

Safety Stock

15 units

 

 

 

 

 

 

 

 

 

 

 

Wk1

Wk2

Wk3

Wk4

Wk5

Wk6

Wk7

...

Wk52

POS Forecast

6

10

8

35

5

9

11

...

15

Planned Arrivals

 

12

 

36

12

 

12

...

 

Projected On Hand

22

24

16

17

24

15

16

...

19


Furthermore, because the rules governing bank accounts are so simple, transparent and standardized, you can quickly and easily recalculate your entire plan if one of your future planned withdrawals (e.g. your phone bill), turns out to be higher or lower than you were expecting.

So it is also when you plan the supply chain with Flowcasting. Because the sum of the stores’ planned arrivals represent a stream of planned withdrawals from the retail DC (and so on, right back to the manufacturing plant), the chain reaction of demand throughout the entire supply chain is recalculated on a daily basis as market conditions change. The retail store is the only place where future withdrawals (i.e. POS sales) need to be estimated.

As a result, the Flowcasting approach differs considerably from traditional approaches and improves upon a number of key challenges in retail supply chain planning:

Flowcasting Approach

Traditional Approaches

Avoiding Out-of-Stocks

Rarely would stores be given the chance to run out of stock. If POS sales on any given day are higher than expected, the chain reaction of demand will immediately and automatically react.

Shelves could be in a stock low status for days between order reviews. Often, it’s only caught when a customer complains that the shelf is empty.

Forecasting Your Customers’ Needs

Suppliers receive actionable information (how much needs to be shipped and when) from their retailer customers, giving them unprecedented visibility into what demands will be placed on them, weeks and months into the future. As a result, they can eliminate key account shipment forecasting and offer shorter commit times and supply protection to their retail customers who Flowcast. Suppliers invest significant effort in determining what their customers are going to do because the supply chain isn’t completely connected from a planning point of view. It often boils down to two choices: angry customers or clogged warehouses.

Developing Aggregate Plans

Future dated demand, supply and inventory information exists in selling units at every level in the retail supply chain. As a consequence, it’s possible to convert and aggregate Flowcasting plans to any level desired in any unit of measure. Functional areas develop their own separate methods for forecasting capacity requirements, budget requirements, transportation requirements and labor requirements. Rarely do these forecasts all agree, unless by coincidence.

Continuous Re-Planning Based on New Information

Forecasting is completely decoupled from supply planning. Because the rules of Flowcasting are simple and transparent, network changes, web retailing, VMI, store direct shipments, cross-docking and temporary supply changes can all be re-mapped and recalculated quickly and accurately. Nothing is seamlessly connected, so it takes days or weeks of analysis to try to judge the impact of a network change. At the end of it all, flawless execution of the change is dependent on a huge number of assumptions all coming true – a rare occurrence.

The Result?
These unprecedented improvements in responsiveness and control provided by Flowcasting means that store level customer fill rates of 98 percent plus are achievable by simultaneously reducing total supply chain inventory by 30 percent or more!

* Flowcasting is the extension of the Distribution Resource Planning (DRP) process created and implemented by Andrė Martin at Abbott Laboratories in the mid 1970’s.

 

Copyright © 2006 Andre Martin, Mike Doherty, Jeff Harrop