When the Dutch online retailer worked with a key supplier to switch from weekly to daily replenishment, inventory levels improved—as did sales, service, and working capital.
Companies that sell over the Internet face a whole new set of demands when it comes to inventory replenishment. To ensure that products are available as promised yet still keep stock levels down, an "e-tailer" must fashion a more collaborative supply chain with key suppliers than traditional bricks-andmortar retailers typically do.
Five years ago, the Dutch online retailer wehkamp.nl did just that, forming an unusually close arrangement with its chief supplier of computers and related items to support a shift from weekly to daily restocking of its distribution centers. The two companies worked together to develop a process that closely connects replenishment and inventory levels to actual demand. As a result of that partnership, both retailer and supplier improved their inventory turns, reduced working capital in the supply pipeline, and boosted sales, especially for fast-selling items. Here's a look at how wehkamp.nl achieved those improvements with help from its supplier.
From mail order to Internet-only
Based in Zwolle, the Netherlands, privately owned wehkamp.nl has become the largest online retailer in that country. It sells a wide assortment of home goods, from televisions and computers to apparel. It handles more than 100,000 different stock-keeping units (SKUs) and makes some 4 million shipments each year. Although wehkamp.nl does not release revenue figures, its parent company, RFS Holland Holding B.V. (which also owns other retailers as well as credit management services in the Netherlands) reported annual revenues of about 488 million euros (about US $780 million) in fiscal year 2010/2011.
After starting out as a mail-order merchant some 60 years ago, today wehkamp.nl is online only. "We came from being a catalog company, meaning we sent a catalog once or twice a year to our customers," says Gerco van Norel, the supply chain planner for wehkamp.nl's electronics group. "We have since made the change to a full Internet company, so our only [platform] is the Internet."
Wehkamp.nl promises to deliver products the day after customers place their orders; hence, a product ordered before 10 p.m. on a Monday will be shipped to the buyer on Tuesday. Orders ship out from one of two warehouses. One facility, located in Maurik, stores large items like appliances, while another in the town of Dedemsvaart handles smaller items like DVDs and clothing.
Unlike some online retailers, wehkamp.nl generally does not ship orders direct from its suppliers to customers. "We prefer to have goods in our warehouse first so we can then combine shipments," explains van Norel. "So if a customer orders a mouse, a laptop, and a printer, we can ship all of the items out at once instead of making three different shipments."
The international third-party logistics company (3PL) DHL helps wehkamp.nl combine the various elements of orders so customers receive only one shipment. To do that, DHL picks up orders from the two warehouses and consolidates them at its own Utrecht hub. The 3PL then delivers those orders to buyers' homes or businesses throughout the Netherlands.
Five years ago, wehkamp.nl's management realized that its traditional supply chain model was causing problems in the online side of the business. As a catalog retailer, the company had placed orders weekly and restocked its warehouses based on in-house forecasts. When it switched to online selling, wehkamp.nl discovered that its methods for ordering and replenishment were leading to lost sales. It wasn't hard to understand why. Online customers were not willing to wait for their orders; they expected to place an order and receive deliveries very quickly. But the weekly ordering and replenishment system, which was designed for mail orders, meant that the items customers desired often were not in stock.
Moreover, wehkamp.nl wanted to expand its product range, but that meant tying up working capital in more inventory. If inventory levels weren't right, moreover, the company would have to mark down prices on overstocks. That problem was particularly acute for electronic goods, which tend to have a shorter shelf life because of the rapid pace of technological advancement.
What wehkamp.nl needed was a "pull" selling model rather than the traditional "push" approach. In the latter system, a catalog or bricks-and-mortar retailer predicts customer demand using forecasts based on historical data, and then "pushes" the goods out to buyers, enticing them to buy through marketing promotions and advertising. Successful online retailing, however, is predicated on a pull approach, in which customer orders drive the supply chain. To make the switch to a pull system, van Norel says, wehkamp.nl determined that it needed "more intense" relationships with its suppliers that would allow it to keep inventory levels down while having enough of the right mix of SKUs on hand to immediately fulfill customers' orders.
Automating complex decisions
In 2007, wehkamp.nl began discussions with a top supplier, the wholesaler ETC, about developing a new supply chain model involving daily replenishment and next-day shipping. ETC, the Dutch subsidiary of U.K.-based Specialist Computer Holding, distributes computer hardware and software from a variety of manufacturers.
"ETC was the best partner to do this with," says van Norel. "ETC could meet the requirement for delivering on a daily basis and was willing to invest in a new system [to make this happen]."
The two companies agreed to start with a pilot that involved computer-related products such as laptops, desktops, printers, and accessories. ETC would assume responsibility for keeping the right items in stock at wehkamp.nl's warehouses, a practice known as vendor-managed inventory (VMI).
The aim was to keep a lower level of inventory in wehkamp.nl's warehouses by replacing each unit sold daily. Thus, every day at around 5:00 or 6:00 a.m., the e-tailer provided ETC with information about the previous day's sales. At 11:00 a.m., ETC shipped the replenishment orders to wehkamp.nl's warehouses, by truck for large items like furniture or via DHL's package division for smaller ones.
To make that daily replenishment possible, the partners required software that could determine the appropriate level and type of inventory needed. They chose software from Agentrics, which provides a Web-based application that uses mathematical models to analyze sales data and inventory. The software calculates stocking levels based on a "pull" approach—in other words, sales data drives replenishment.
Agentrics' application replaced software that wehkamp.nl had developed inhouse to determine maximum and minimum inventory levels. "When we changed from a catalog to an Internet company, there was no specific software for that, so we had to do something ourselves," recalls van Norel.
One problem with wehkamp.nl's own software was that once one of the company's planners set the inventory levels, he or she would have to manually reset those levels if a product became "hot" and the online retailer started selling more of a particular item. The new software performs that complicated task faster and more easily, automatically calculating the "trigger" levels for replenishment—that is, the suggested order quantity for each SKU. Van Norel still has to manually set the initial inventory level for a new product, but thereafter the software makes adjustments to the suggested reorder quantity based on actual sales.
"For example, let's say we want to sell a new laptop computer," van Norel explains. " I think I'm going to sell ten a week, so I set the norm to ten. Then we start selling, and Agentrics starts calculating. If we sell more, the norm gets set higher. If we sell less, the norm decreases. It sounds pretty simple but it's really complicated."
The application provides a dashboard that gives supply chain planners strategic, operational, and technical perspectives on wehkamp.nl's inventory. Some examples: On the operational level, the software creates a list of the best-selling products and the slowestmoving ones. On the strategic level, the dashboard provides total inventory value and a breakdown of that value into categories, including fastmoving, slow-moving, inactive, and new products. On the technical level, the system provides both historical and current views of inventory, which allows the planners to see, for example, that 60 percent of the items in the warehouses are fast movers but only 50 percent fit that profile during the same period a year earlier.
The reports and dashboards are available throughout all levels of the company, which means everyone is working from uniform information. "This information is available on a daily basis to the planner, the unit manager, and top management," van Norel says.
Because actual sales are driving inventory restocking decisions, van Norel can let the software handle 80 percent of the replenishment orders automatically. He can then focus on the 20 percent of items that need special attention, such as seasonal goods or new products. In addition, a planner must still approve the replenishment shipments each day. "ETC sends the order to us for the planner to give the okay, but it's only a formality," van Norel notes.
More sales, less inventory
The three-month pilot worked so well that wehkamp.nl and ETC have made it a permanent way of doing business. The collaborative supply relationship's ability to keep even the hottest-selling product in stock increased sales and helped to fuel wehkamp.nl's 15-percent revenue growth in 2010.
"By ordering on a daily basis instead of weekly or monthly, we don't buy too much but [instead buy] exactly what the customer requires," sums up van Norel. "The percentage of customers waiting for their delivery has decreased. Because the service level has increased, so have sales."
At the same time that the e-tailer has increased sales, it has also achieved about a 30-percent reduction in safety stock, resulting in fewer markdowns and lower overhead. That inventory reduction frees up working capital, which means the company can invest in a wider assortment of products, according to van Norel. He notes that in the past, if a manufacturer came out with a new line of products, wehkamp.nl would be forced to choose which ones to carry due to financial considerations as well as limits on warehousing space. Now the online retailer can carry a wider product array and let customer demand determine the level of stock it keeps in the warehouse to support sales. The benefit of that strategy is clear, he says: "If the availability of individual products is higher, you sell more products overall."
Because daily replenishment and vendor-managed inventory have been so successful for computers and associated products, ETC has expanded that program to include some other types of hard goods it supplies to wehkamp.nl, such as cameras, appliances, and home electronics. The e-tailer, moreover, would like to get more suppliers involved in daily replenishment and is now in talks with vendors that furnish goods for its hardware category.
Wehkamp.nl's experience in collaboration with ETC clearly demonstrates the value this approach offers for online selling. "Instead of having to sell goods that are not popular, there can be a focus on the best-selling items. It's pull instead of push," van Norel says. "It's a totally different way of doing business."
The port worker strike that began yesterday on Canada’s west coast could cost that country $765 million a day in lost trade, according to the ALPS Marine analysis by Russell Group, a British data and analytics company.
Specifically, the labor strike at the ports of Vancouver, Prince Rupert, and Fraser-Surrey will hurt the commodities of furniture, metal products, meat products, aluminum, and clothing. But since the strike action is focused on stopping containers and general cargo, it will not slow operations in grain vessels or cruise ships, the firm said.
“The Canadian port strike is a microcosm of many of the issues that are impacting Western economies today; protection against automation, better work-life balance, and a cost-of-living crisis,” Russell Group Managing Director Suki Basi said in a release. “Taken together, these pressures are creating a cocktail of connected risk for countries, business, individuals and entire sectors such as marine insurance, which help to mitigate cargo exposures.”
The strike is also sending ripples through neighboring U.S. ports, which are hustling to absorb the diverted cargo, according to David Kamran, assistant vice president for Moody’s Ratings.
“The recurrence of strikes at Canadian seaports is positive for U.S. ports that may gain cargo throughput, depending on the strike duration,” Kamran said in a statement. “The current dispute at Vancouver is another example of the resistance of port unions to automation and the social risk involved with implementing these technologies. Persistent disruption in Canadian port access would strengthen the competitive position of US West Coast ports over the medium-term, as shippers seek to diversify cargo away from unreliable gateways.”
The strike is also affected rail movements, according to ocean cargo carrier Maersk. CN has stopped all international intermodal shipments bound for the west coast ports of Prince Rupert, Robbank, Centerm, Vanterm, and Fraser Surrey Docks. And CPKC has stopped acceptance of all export loads and pre-billed empties destined for Vancouver ports.
Connected with the turmoil, Maersk has suspended its import and export carrier demurrage and detention clock for most affected operations. The ultimate duration of the strike is unknown, but the situation is “rapidly evolving” as talks continue between the Longshore Workers Union (ILWU 514) and the British Columbia Maritime Employers Association (BCMEA), Maersk said.
In addition to its flagship Clorox bleach product, Oakland, California-based Clorox manages a diverse catalog of brands including Hidden Valley Ranch, Glad, Pine-Sol, Burt’s Bees, Kingsford, Scoop Away, Fresh Step, 409, Brita, Liquid Plumr, and Tilex.
British carbon emissions reduction platform provider M2030 is designed to help suppliers measure, manage and reduce carbon emissions. The new partnership aims to advance decarbonization throughout Clorox's value chain through the collection of emissions data, jointly identified and defined actions for reduction and continuous upskilling.
The program, which will record key figures on energy, will be gradually rolled out to several suppliers of the company's strategic raw materials and packaging, which collectively represents more than half of Clorox's scope 3 emissions.
M2030 enables suppliers to regularly track and share their progress with other customers using the M2030 platform. Suppliers will also be able to export relevant compatible data for submission to the Carbon Disclosure Project (CDP), a global disclosure system to manage environmental data.
"As part of Clorox's efforts to foster a cleaner world, we have a responsibility to ensure our suppliers are equipped with the capabilities necessary for forging their own sustainability journeys," said Niki King, Chief Sustainability Officer at The Clorox Company. "Climate action is a complex endeavor that requires companies to engage all parts of their supply chain in order to meaningfully reduce their environmental impact."
Supply chain risk analytics company Everstream Analytics has launched a product that can quantify the impact of leading climate indicators and project how identified risk will impact customer supply chains.
Expanding upon the weather and climate intelligence Everstream already provides, the new “Climate Risk Scores” tool enables clients to apply eight climate indicator risk projection scores to their facilities and supplier locations to forecast future climate risk and support business continuity.
The tool leverages data from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) to project scores to varying locations using those eight category indicators: tropical cyclone, river flood, sea level rise, heat, fire weather, cold, drought and precipitation.
The Climate Risk Scores capability provides indicator risk projections for key natural disaster and weather risks into 2040, 2050 and 2100, offering several forecast scenarios at each juncture. The proactive planning tool can apply these insights to an organization’s systems via APIs, to directly incorporate climate projections and risk severity levels into your action systems for smarter decisions. Climate Risk scores offer insights into how these new operations may be affected, allowing organizations to make informed decisions and mitigate risks proactively.
“As temperatures and extreme weather events around the world continue to rise, businesses can no longer ignore the impact of climate change on their operations and suppliers,” Jon Davis, Chief Meteorologist at Everstream Analytics, said in a release. “We’ve consulted with the world’s largest brands on the top risk indicators impacting their operations, and we’re thrilled to bring this industry-first capability into Explore to automate access for all our clients. With pathways ranging from low to high impact, this capability further enables organizations to grasp the full spectrum of potential outcomes in real-time, make informed decisions and proactively mitigate risks.”
Third party logistics provider (3PL) C.H. Robinson has applied generative AI tools to automate various steps across the entire lifecycle of a freight shipment, the Minnesota company said last week.
C.H. Robinson said it created AI-based technology that reads incoming email then replicates tasks a person would do, including giving customers a price quote, accepting a load, setting appointments for pickup and delivery, and checking on the load in transit. The company has used the approach to automate more than 10,000 of those routine transactions per day, allowing shippers who use email to get the same speed-to-market and cost savings as customers who use C.H. Robinson’s online platform.
After starting with price quotes, the company said it has applied generative AI to increasingly complex tasks. “We announced in May that we’d been using our new tech for emailed price requests. Within a few short months, we created new models to automate more shipping steps and have already implemented them at scale,” Arun Rajan, the company’s Chief Strategy and Innovation Officer, said in a release. “This a major efficiency breakthrough for the industry and for supply chains around the world. When you think about retailers that need hundreds of different products on their shelves or automakers that rely on just-in-time delivery for the 30,000 different parts in a car, saving hours and minutes on every shipment matters.”
The technology also saves time, cutting the task for a person to take care of an emailed load tender from as much as four hours to 90 seconds, according to Mark Albrecht, the company’s Vice President for Artificial Intelligence.
“Once a person got to the email in their inbox, it still took an average of seven minutes to manually enter all the shipment details into our system – and that’s for a single load,” Albrecht said. “If the email tendered us 20 loads, a person would be stuck manually entering the information one load at a time. With generative AI, we can process all 20 loads simultaneously in the same 90 seconds. That’s an enormous time savings, especially when you consider we’ve scaled this to thousands of shipment orders per day just since June.”
An overwhelming majority (81%) of shoppers do not plan to increase their holiday spend this year over last year, revealing a significant disconnect between retail marketers and shoppers in the weeks before peak season, according to online shopping platform provider Rakuten.
That result flies in the face of high confidence levels from retailers who have been delaying their marketing spend, as 79% of marketers are optimistic they will reach holiday sales objectives, and 65% are timing their spend as late as November.
However, consumers are nervous about supply chain disruptions. Almost half (42%) of shoppers have started their shopping early to avoid shipping delays, while 32% plan to do more shopping in-store to avoid potential delays. The results come from a survey conducted online within the U.S. by The Harris Poll on behalf of Rakuten from Sept. 5 – Sept. 9 , among 2,100 consumers aged 18 and older and 101 retail marketers.
"There's a clear disconnect between marketer perception and consumer realities, but this presents a unique opportunity for retailers to capitalize on the shortcomings of their competition," said Julie Van Ullen, Chief Revenue Officer at Rakuten Rewards. "As shoppers plan to spend less overall, there become fewer opportunities for retailers. This makes it evermore important for retailers to invest in strategies that set them apart throughout the entire holiday season.”
Three reasons behind the diverging views are:
Inflated prices. Even with softening inflation rates, nearly half (46%) of shoppers report that it will have the greatest impact on their holiday shopping strategy. Conversely, only 20% of marketers believe that to be true.
Election nerves. Shoppers anticipate that the upcoming election will have an impact on inflation, with 57% believing it will increase.
Weak brand loyalty. A majority of marketers (98%) believe shoppers will remain loyal to brands, but fully 42% of shoppers indicate they will prioritize finding the lowest prices by trading down to lower-quality brands and products for more affordable alternatives.
"Loyalty is up for grabs this holiday season, and success for retailers will hinge on offering value beyond just reduced prices," Julie Van Ullen, Chief Revenue Officer at Rakuten Rewards, said in a release. "Our research revealed that shopper concern extends beyond just price, and retailers will need to address those concerns with comprehensive deals that include several table-stake incentives. Incentives like free shipping, buy now pay later services, and elevated Cash Back will be important for maintaining a loyal shopper base."