A Better Way to Match Supply and Demand in the Retail Supply Chain – HBR.org Daily

The wild gyrations in the supply chain are wreaking havoc on retailers and their suppliers. One contributing factor is suppliers’ conventional practice of relying on orders from its immediate customer in the supply chain and not forecasts of end-customer demand to plan production. The methodology described in this article is a system that calls for a retailer to daily or weekly share its forecasts for unit sales and suppliers to use it to calculate all required labor, space, equipment, and capital resources necessary to acquire, make, transport, store, and deliver products from the final point of manufacture to the final point of sale.
The ongoing supply chain crisis threatens the success of retailers and their suppliers because its volatility makes both overstocks (having something customers don’t want) and stockouts (running out of the items they desire) more likely. And the stakes are high: Stockouts can cost retailers their total gross margin. Overstocks, if they are lucky, cost retailers 50% of their gross margins but more likely, all the margins.

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