Contribution by Vijay Baweja – Senior Supply Chain Consultant at Bristlecone
If you ask any supply chain consultant, what benefits an organization can expect if they were to implement point of sale systems, the first answer he/she would give you is better demand forecasts. And without a shadow of doubt, he/she is right. This is because point of sale data will give you a picture of ‘True Demand.’ In the past few years, we have seen point of sale systems becoming very common in modern trade outlets, retail stores, restaurants, multiplexes, etc. Though the data these systems collect is generally used for purposes of demand management, it is also extremely valuable for supply chain planning in the entire network.
In a traditional setup of supply chains, demand information is passed from retailer to manufacturer to supplier in the form of orders. However due to large number of intermediate partners, this order information gets distorted as we move upstream. This is generally known as ‘bullwhip effect.’ One of the easiest ways to avoid this distortion on actual customers’ demand is to share the POS data with the suppliers. This will not only help the suppliers in meeting the demand properly but also in improved production planning through better sell-through visibility, better on-shelf availability, more accurate determination of re-order points and reduction of noise from demand trends and seasonality. For example, any supplier would assume that if its customer faces high level of order variability, its fill rates are bound to go down. However if POS data reveals that fill rate is steady, it implies the customer is stocking very high levels of inventory. Thus without POS data, the supplier never gets to know the complete sell –through picture and the customer may continue to carry higher than necessary inventory. Thus POS data will enable suppliers to calculate certain key metrics like ‘Sell through percentage’, ‘Ratio of Stock to Sales’ and ‘Days of Supply’. These can be highly powerful in decision making. Apart from this, in various industries, the large number of distributors and retailers makes it difficult to improve demand planning beyond a certain point. Thus the incremental value of improving supply planning can be more than improving forecast accuracy. For example, companies with mature supply chains may not see much benefit from improving forecasting as compared to reducing lead times for their critical products.
Thus POS data can be leveraged not only to reflect true demand but also in making better supply side decisions. A proactive organization can make use of POS data to overcome problems related to supply chain shortages. Thus an improved visibility in supply chain enabled by POS data can also improve supply chain flexibility of the entire network.