- The importance of demand sensing
- How Walmart implements demand sensing in its supply chain
- The changes to supply chains wrought by the coronavirus pandemic
When enhancing the supply chain, assessing potential is among the most challenging trials. Forecasting demand is not sufficient. If there would be a possibility of synchronizing the demand and supply lifecycle with real-time data, would that ease the process of forecasting?
Of course, that is what the largest retailer in the world, Walmart, has implemented successfully.
The secrets to Walmart’s capability to reign supreme in the market are its proficient and hassle-free collaboration of suppliers, manufacturers, warehouses, and distribution centers in its supply chain.
Why is demand sensing important?
We have discussed the importance of creating a demand plan to create a well-oiled supply chain. The addition of a supply plan also helps. Walmart uses demand sensing to supplement its suppliers’ forecasts.
If suppliers value the demand beyond what it is, this inaccurate forecast can cause excessive inventory, which in turn causes a hike in labor and storage expenses. For consumer packaged goods companies, it increases waste and acts to reduce profit further. On the other hand, if suppliers undervalue the demand, they run the risk of failing to fulfill customers’ needs.
Sensing demand is one of the most challenging parts of supply chain optimization. Apart from doing demand forecasting, suppliers must also organize operations to satisfy needs within the company. Suppose coordinating the supply and demand cycle with real-time data would promote the process of forecasting. Walmart is beyond doubt among the most efficient enabler of this strategy.
How does Walmart do demand forecasting?
Walmart has become the market leader because of its efficient combination of suppliers, manufacturers, warehouses, and DCs. Walmart makes optimum use of technology in its supply chain.
Take, for instance, its application of the first across-the-organization Universal Product Codes (UPC), which instantly collate and analyze store-level data. Using this data, Walmart store managers know which items are performing well. Thus, the store manager can send orders to the supplier.
To enhance demand sensing, Walmart created Retail Link. This application is a real-time center for the information, paperwork, reports, and apps used by suppliers to manage their business with Walmart. Retail Link offers suppliers a means to manage their merchandise by enabling them to track their data, including sales and inventory volumes, in-stock percentage, gross margin, and inventory turnover.
Retail Link makes it possible for suppliers to sense inventory risk and keep linked expenses at a minimum. Using a satellite network, analysts make use of the Retail Link databank and convey future customer demands to the supplier network. This network displays real-time data from cash registers to Walmart’s supply units.
With the help of an effective CPFR (Collaborative Planning, Forecasting, and Replenishment) strategy, suppliers and manufacturers who are part of the supply chain can accurately and adequately sense their demand in coordination.
Walmart has also established a system to connect with its suppliers, known as the VMI (Vendor Managed Inventory). In this system, the accountability to manage merchandise at Walmart’s warehouses lie with the manufacturers. The suppliers send the merchandise straightaway to the respective store or DC.
At the basic level, demand forecasting works with the analysis of historical information, creation of statistical forecast for existing and upcoming items, and the data from suppliers and internal managers. It omits the issues concerning instability within the system, unforeseen markets, or social situations giving rise to a demand change.
In the pandemic scenario
With the pandemic disrupting forecasts, Walmart’s supply chain managers need to ensure that stores and warehouses are replete with the products that cater to customer needs and demand. COVID-19, nevertheless, has wholly destabilized the digital program that provides Walmart with a forecast on how many items need to be on its shelves.
Usually, the system is dependable enough to review factors such as inventory, historical shopping patterns, and discounts to suggest the quantity of an item to order. However, when the COVID-19 pandemic unleashed chaos worldwide, the program’s guidelines began fluctuating. The guidelines are ever-changing, and the frequency of changes has risen.
Walmart is a perfect example of a flourishing retail business that has adapted to and absorbed flexible supply chains and has dominated all the shades of responsive selling.