IN TODAY’S COMPETITIVE RETAIL MARKET, RETAILERS need to employ sophisticated methods to flow merchandise from vendors to final destinations. Unfortunately, too many retailers today are hamstrung due to a lack of end-to-end supply chain visibility and an integrated view of on-hand quantities, in-transit (inbound and out bound) shipments as well as on-order and ready to ship quantities. Although the information does exist, it is often locked in different systems. In a typical retail environment, multiple systems are used to perform different functions in the extended supply chain. Orders are created and managed in procurement systems while transportation management systems are used to consolidate and plan shipments. The shipments are handed over to carrier or 3PL providers who track the shipments in their own systems. Finally, the shipments are received either at a Distribution Center (DC) or store and the information is managed in a warehouse management systems or store inventory system.

While most of these systems can generate information in industry standard formats, no framework exists to combine all the information into one, integrated view. Manual processes are currently filling this gap, which is costly and time-consuming.

As a result, buyers aren’t able to get a complete view of the pipeline, merchants have to guess whether goods will arrive in time for promotions, and finance only does part of the reconciliation process of matching contracts, purchase orders, invoices, advance ship notices, receipts and freight bills. Resolving these problems is only possible through a system that provides complete visibility and synchronizes the flow of data and goods—merchandise flow management.

Manage merchandise flow
Providing end-to-end visibility and control over the flow of merchandise requires a new analytical and execution framework. It requires a system that integrates the entire merchandise flow from creation of an order to reconciliation of invoices and shipment information, even through returns. It should be able to able to exchange, analyze and correlate information from procurement, carrier, logistics and warehouse and transportation management systems.

Such a system must fill the gaps between existing systems to provide end-to-end visibility, execution and control, and to enable automatic reconciliation of documents. Most importantly it must provide up-to-date visibility into shipments at a detailed level and the ability to correlate them with orders and order lines. Once such a system is in place, it benefits the retailer in three very significant ways.

Visibility: The retailers can now have end-to-end visibility into all inventories, whether on hand, on order, inbound or outbound. They can instantly view the status of any order, regardless of vendor. This eliminates time-consuming manual tracking and inconsistencies between the different systems that hold information.
Flexibility: If an effective merchandising flow management system is in place the retailers can choose the best flow process for the product and current situation. For example, they can choose to send costly and bulky items such as furniture directly to the customer from the vendor; for fast-moving commodity items they can instruct their vendors to send products directly to store instead of sending it to DCs first. They can work with third party logistics providers (3PLs) to move products and still have control over the process.

Ability to choose and manage merchandising flow can have a serious impact on the profitability of any product. For example, a product which is available from vendor X at a cost of $500 but can deliver it directly to the store can be more profitable than the same product available from vendor B at $490 if vendor B only bulk ships to the distribution center and it costs the retailer an additional $20 to move the product from DC to store. In addition, most retailers have faced the situation where they were told they would need to pay $4.00 to ship their $9.00 item via airfreight because it left the factory late. Making the wrong decisions on merchandise flow can have a huge impact on profitability.
Control: An MFM system ultimately provides greater control. Once the retailer has complete visibility and the flexibility to make changes, buyers and logistics managers can make better decisions in reaction to changing demands. For example, an unanticipated surge in online sales can be met by directing products that were originally planned for stores to a different distribution center for shipment to customers. Once the retailer has timely, accurate information, they can make better decisions about whether additional ordering is needed to prevent a stock out, or if the goods will be here in time.

Control over merchandise flow provides greater control over inventory and empowers merchants to plan and coordinate promotions, seasonal drops and one time buys more effectively. They can be more aggressive in maximizing sales opportunities by tightly controlling the flow of goods. The ability to effectively manage unanticipated changes in supply and demand is greatly enhanced when retailers have complete visibility and control over merchandise flow.

Filling the gaps: Setting up integrated merchandise flow management
Managing the flow of merchandise starts in the forecast stage and ends after all the goods are delivered (whether to customers, consolidators or back to vendors). Retailers use multiple systems to manage different functions within their extended supply chain. They use planning systems to do forecasting, procurement systems for purchase order management, warehouse management systems to manage DCs and transportation management systems for shipment consolidation and planning. On top of this, vendor or service providers in the supply chain have their own set of systems. Although all of these systems are very effective within the walls of the enterprise and in their own functional area they are not designed to enable closed loop visibility or collaboration across company lines. As a result, they unwittingly make it impossible for retailers to perform an extremely important function: manage merchandise flow in any structured or automated way.

While most of these systems can exchange standard business documents electronically, no single system receives and correlates information to provide complete visibility. For example while a procurement system can issue purchase orders and reconcile them with invoices, it does receive copies of advance ship notices.

To fill these gaps, an MFM must have:
• The ability to exchange and correlate information from systems inside and outside the retailer’s four walls at the line and sub-line item level
• A human interface to enter information that is not available in electronic form
• The ability to identify exceptions or events in merchandise flow, such as a late or lost shipment, and either handle it automatically or have the tools to allow a user to handle the exception within the same application
• A collaboration framework for structured negotiation between all constituents on issues that affect merchandise flow, such as order changes, requests to expedite orders or shipping method changes
• Automatic matching of at least three of the six major supply chain documents, including contracts, purchase orders, invoices, ASNs, receipts and freight bills

To provide visibility, flexibility and control, the need is not to create new information but to integrate existing information into a correct analytical and execution framework. Once the detailed information is available, the information can be presented in an actionable form along with the tools to take that action and inform other constituents of that action. It requires the ability to assimilate and analyze information available from various systems and present it in a consolidated, cross-referenced manner.