The marriage of manufacturing and retail

You can't have one without the other, and supply and demand go both ways

As this week's issue went to press, Oracle and SAP were still battling to acquire retail management software vendor Retek. The real story, though, isn’t about who wins the prize but what’s inside the box.

Retek offers a suite of software that covers just about the entire operational side of retailing. Why is this important to Oracle and SAP? Because it’s the key to re-engineering the supply chain to accommodate a demand-driven supply network. The struggle to acquire Retek is just one example of the sea change taking place in manufacturing.

Manufacturers realize they must connect their supply chain systems to 21st-century retail buying patterns. As recently as two years ago, a company could predict product demand for the year with perhaps 80 percent certainty. Now, however -- given more product configurations, shorter product shelf cycles, increased promotions and price elasticity -- it’s become almost impossible to forecast long-range demand.

I spoke with Joe Bellini, executive vice president and general manager at Brooks Automation, about this. Bellini believes that instead of forecasting, manufacturers must be able to react to constant demand fluctuations in the retail market.

“It is all about what, where, and when,” Bellini told me. “What product do we make, where do we send it for processing, and when?” In other words, when an asset shows up at a particular place, someone must decide where it should go next and what should be done with it.

Using what Bellini calls a “temporal historian” technology, Brooks has designed a product called RTD (Real Time Dispatcher) to complement its Factory Works application. RTD makes scheduling decisions in real time based on changing demand.

RFID data flows from the MES (manufacturing execution system) to RTD, letting it know when an asset shows up at a particular place. Then, using the forecast from the temporal historian, RTD decides what to do with it; what piece of equipment it should be sent to and when.

Currently, case-level RFID data at a warehouse gives retailers and manufacturers an idea of replenishment cycles in the channel. Eventually, however, RFID data will be obtainable from the customer site all the way to the factory floor, giving manufacturers even better information on which to base their plant production schedules.

There is still another step in reshaping the supply chain, according to Bellini. Even these newer systems are still reacting to demand. Next comes changing demand to meet the availability in your supply chain.

Bellini says vendors can shape demand using pricing and promotion to make optimal use of their suppliers’ capacity profiles. Imagine you’re Dell and there’s a supply disruption in lower-capacity hard drives. You could spend a great deal of time and money to fix the problem. Or, you might look at your supply chain and realize that it will be easier and less costly to offer a bigger discount on a higher-capacity drive, thus increasing demand where products are available.

What’s more, the influence of product lifecycles, product configurations, and price elasticity will soon move beyond manufacturing to include banking, finance, and insurance. Rather than building physical products, these suppliers are building documents. As in manufacturing, however, to keep ahead in today’s market, they’ll need to build those documents based on real-time demand.