Coles supply-chain revamp means stockouts are down (down, down)
Tight online partner collaboration and a data-driven internal culture have helped Australia's second-largest supermarket chain partner with suppliers to eliminate stock-outs through better forecasting.
As part of a procurement-culture renovation at the second-largest supermarket chain in Australia, Coles has improved data sharing with 60 key suppliers in a supply-chain optimisation effort that is reducing stock-outs and paving the way for better inventory management and supplier relationships.
Impetus from the project came from feedback supplied by the 17 million customers who visit the company's 742 supermarkets and hundreds more Coles Express fuel outlets every week. A common customer complaint concerned stockouts — people who came to the store for something, only to find that it was unavailable — and Coles began reconsidering its supply-chain structure to figure out how to improve the situation.
"When you get 12,000 customer feedback forms on a weekly basis, it makes you acutely focused on their needs," Grant Enders, general manager replenishment with Coles, told the Gartner Supply Chain Executive Conference in Melbourne.
"We move 18 million items per week, so if even 5 percent of those aren't available, that means 900,000 items we could have sold — and we're disappointing our customers. The level of intensity it puts on our organisation is amazing. We all understand that you get maybe two or three opportunities to get it right, and then the customer leaves."
A broad focus on business optimisation has already saved Coles — whose 'prices are down' campaign has become a love-it-or-hate-it pop-culture phenomenon on the back of a heavily promoted earworm — over AU$300 million in inventory costs over the past three years, but "there are always opportunities to take cost out", Enders said. "We've made a significant investment in the systems and technology to reduce this gap."
Those systems range from improved analytics and forecasting systems to improved customer-loyalty analysis tools that are improving knowledge of customer buying patterns and driving proactive marketing campaigns.
Such tools go a long way toward improving DIFOT (Delivered In Full, On Time) — a metric of supply-chain performance that Enders said had been lagging below optimal levels. Improving DIFOT towards 100 percent, Enders said, has only become possible after Coles proactively restructured its procurement teams and engaged its partners in a more intimate form of information sharing than most were used to in the past.
"The level of intensity it puts on our organisation is amazing. We all understand that you get maybe two or three opportunities to get it right, and then the customer leaves."
Internal restructuring saw the creation of category-management teams — each with their own supply chain experts, finance executives, and marketing and buying staff — to focus on better analysing and forecasting demand for particular types of items.
Coles also created a separate Category Management Academy training program that intensively worked to build supply-chain competency amongst those teams, and equip them with the information and systems necessary to pare down inefficiencies that had pushed DIFOT down toward 92 percent.
"It may sound basic, but we had not put any time and effort into the category management teams," Enders said. "It's quite easy to sit in a building [at Coles headquarters] in Tooronga and get very disconnected from the customer. We want them to own and run their business like it's their own."
Partners in the loop
Internal staff were only one part of the company's supply-chain reinvention: Just as important, Enders said, have been the company's efforts to improve data exchange and collaboration with its more than 3,000 suppliers on a regular basis.
Data quality and consistency were significant contributors to those gaps, with differing methods of tracking stock and inaccuracies in demand forecasts compromising the effectiveness of stock management.
"The focus of the commercials has always been around sales and profit," Enders explained, noting that commercial outcomes often dominated conversations that glossed over supply-chain realities. "We were saying that we wanted a seat at that table to make sure we're talking about the supply chain metrics that make it successful."
To support this push, Coles has implemented an online partner portal that has focused on providing a single, verifiable source of the truth. The company has also introduced a supplier dashboard for its top 60 suppliers, with which it has sat down to revisit supply-chain metrics and methods for checking them.
"What we were trying to do with the portal is to make sure that we can all talk to one number," Enders said.
"The number of times we would go to meetings and be talking about two different numbers with our suppliers — and the amount of time wasted resolving that. If we can all talk to one number, we can make sure we have the right outcomes."
"We quickly saw that it wasn't about what we or they did; it was about understanding the only way to actually get there is to work end to end, and to get both parties agreeing what are the important metrics that needed to be driven forward."
The portal and dashboard have enabled two-way relationships with partners, who now work with Coles on metrics like forecast accuracy, and tracking projected versus actual volumes of product shipped — all supporting the optimisation of delivery of product to Coles stores based on expected demand for current and newly launched products.
A worst-case scenario would be if Coles stores didn't have enough stock to satisfy demand for newly launched products. To minimise this risk, partners are encouraged to improve their own internal systems, inventory management, and information sharing through Coles incentives. Coles also created a Service Excellence Framework that helped resolve inconsistencies between Coles' ideas about customer service and those of its partners.
"We use commercial figures to benchmark, and can tell suppliers where they sit on that benchmark," Enders said. "It has been great: We rank the service metrics and profit metrics, and they can see where they need to improve. That has been quite a revelation."
Closer collaboration and data sharing has improved DIFOT figures dramatically, with companies like Lion Nathan, P&G and Kraft working closely with Coles to keep tweaking processes and supply-chain forecasting.
Meetings might highlight a common need to focus on promotional forecasts, which suppliers could use to go up their own supply chains to ensure a steady flow of product to Coles' shelves.
That close level of collaboration, Enders said, has been critical in ferreting out inefficiencies and making the most of the companies' masses of sales, commercial, and customer data.
"We absolutely recognised that we needed to improve what we were doing," he explained. "We all absolutely wanted to deliver for our customer base, but we quickly saw that it wasn't about what we or they did; it was about understanding the only way to actually get there is to work end to end, and to get both parties agreeing what are the important metrics that needed to be driven forward."