This article is from WeChat public account:Qingshan Capital (ID:cyanhillvc) author: Zhou Jianhong, title figure from: vision China

In the cost structure of the supply chain, inventory cost is the most important cost, and it is also the “most painful” cost for brand parties, distributors and retailers. Online with supply chain informationInformation, data and intelligence, information flow, sharing and decision support will be expected to significantly optimize inventory, so that the right amount of inventory appears at the right time, in the right place.

01. Why do I need to hold inventory in the supply chain?

From the perspective of customer experience, customer needs are always changing and difficult to predict accurately. In the current market environment, the product life cycle is also shorter and shorter, and customer demand and historical data purchased will be unavailable or very limited. The fierce homogenization product competition also brings the difficulty of demand forecasting. Maybe we can estimate the demand of a certain category of goods in the overall market, but a single brand single sku is difficult to predict. In addition, the uncertainty of the customer order (the quantity, quality, price and time of the delivered product) also requires us to hold the inventory.

From the perspective of upstream production, procurement and transportation, we need to have lead time for order processing, product production and transportation, and we need to hold inventory before the product replenishment is in place. At the same time, in order to meet large-scale production, large-scale procurement to reduce procurement costs, vehicle transportation to reduce logistics costs, we will tend to make large orders, which also brings inventory pressure.

More challengingly, due to the opacity of terminal demand information, lead time, etc., the demand changes in the process of conveying to the upstream of the supply chain will be gradually increased. For example, if the distributor does not understand the needs of the end customer, the demand forecasting and stocking can only be carried out according to the downstream retailer’s purchase order. At the same time, the distributor needs a lead time for the upstream purchase, and thus the distributor’s fluctuation of the upstream purchase demand. Compared with the volatility of the terminal demand, the volatility of the terminal will be enlarged, which will bring more inventory redundancy and waste of resources to the whole supply chain. This is the “bullwhip effect” in the supply chain.

02. InformationHow to optimize inventory and weaken the bullwhip effect?

Learn more about your customers: In addition to relying on historical demand sales data and traditional market research methods, we can now take on customer online and offline user behavior and data images. Improve the ability to predict customers’ needs with the help of algorithms. All major e-commerce platforms and related big data companies will have corresponding data services, and establish their own private domain customers, increase interaction with customers, and help us to understand the needs.

Share demand information: After having insights from customer needs, sharing demand information to various nodes in the supply chain, reducing information asymmetry, will effectively reduce the bullwhip effect. However, it should be noted that even if the customer demand information can be fully shared, there will still be a certain bullwhip effect due to differences in the prediction methods and stocking strategies of each node.

Proactively affect customer needs: Although customer needs are volatile and elusive, we still have the part to actively control. Taking price as an example, irregular discount sales will directly bring about large fluctuations in demand. Stable price expectations and regular promotional strategies will result in more stable demand expectations. In addition, relative pre-determined customer needs can be locked in advance through pre-sale, grouping, and subscription.

Short lead time: The lead time can be split into two parts, the information lead time (order processing and purchasing decisions) and order lead time (production and transportation of products). Through the interoperability of each node in the supply chain (EDI electronic data exchange, SRM supplier management system, etc.) and intelligent procurement decisions based on data support, Earth shortens the information lead time. The development of intelligent manufacturing and smart logistics and the convergence of each other will effectively reduce the order lead time.

Reduce the size of orders: Online production and intelligence of production capacity, and advances in production technology have brought the possibility of low-cost small-scale production. Segmentation of production and transportation, delaying product differentiation, and making low-cost small orders possible, the typical application is in the field of clothing, mass production of the basic version to reduce manufacturing costs, while differential printing at the end to meet customer small The demand for orders and the timeliness of delivery. In additionThe continuous development of logistics infrastructure and market competition have reduced the cost of the whole industry. The online trading platforms of various warehouses have also made it easy to make orders and synergies.

Shared inventory:Inline and offline integrated inventory system, retail system of front and back warehouses, same node (retail stores) Between the inter-sellers, distributors, etc.) inventory allocation system, the virtual inventory arrangement of suppliers holding inventory can effectively reduce inventory costs and weaken the bullwhip effect.

03. Sharing and Inspiring Information

Information should play the above role, based on the onlineization and dataization of information, and the core is the flow and sharing of information. For companies with a high degree of vertical integration, such as the fast fashion clothing brand ZARA, there is endogenous power and capacity application information to optimize inventory, more need to consider the coordination and KPI settings of internal departments. However, for more non-vertical integration companies, because they are only one part of the supply chain, the optimal internal inventory is often inconsistent with the overall supply chain inventory, so the company must consider information flow and The benefits and costs of sharing.

In general, the chain of the supply chain (different industry and development stages, the chain owner may be the brand side, may also be a big retailer) < /span> often gets the best benefit of information sharing, there will be motivation to promote the online, data and sharing of information, but it is necessary to consider that the cost of inventory optimization also needs to distribute the benefits to ensure the supply chain The continued participation of the party.

Finally, entrepreneurs and practitioners in the supply chain are welcome to communicate and explore more opportunities and possibilities.

This article is from WeChat public account: Aoyama capital (ID: cyanhillvc) , author: Zhou Jianhong