Jun 02 2014
The retail environment has become a digital hothouse: as vast data streams pour into the system from proliferating inputs, the sudden growth of new marketing opportunities and consumer expectations is straining the supply chain and putting pressure on retailers and vendors to keep up. It’s becoming more and more clear: the only way to join the momentum is to facilitate better feedback between vendors and retailers.
When More Is Just More
The term “feedback” doesn’t necessarily elicit warm feelings. We might think of the high-pitched wail that comes from a loudspeaker when someone inadvertently walks too close with the microphone. Ouch.
Ironically, this is called “positive feedback,” not because of its positive associations, but because it creates additional sound. The sensor in the microphone or the guitar picks up its own frequency and amplifies it again, multiplying the signal into an awful shriek.
When it comes to amplifier feedback, more sound is not the same as better sound. Likewise with big data, acquiring mountains of information isn’t necessarily better if it is delivered in an unmanageable and difficult-to-interpret format.
The Good Thing for Vendors and Retailers About Negative Feedback
There’s another kind of feedback that won’t make your eardrums melt. “Negative feedback” doesn’t reduce the frequency, it just takes the edge off the excess. Sometimes called a dampener, the negative feedback system works as an automatic stabilizer.
In any supply chain system, vendors and retailers enter a feedback cycle with each other. Ideally, the vendor sends goods to the retailer, and when the retailer sells the products, it sends that information back to the vendor to replenish the stock.
As any CPG manufacturer knows, the feedback loop is rarely so clean. Whether through weak signal (poor reporting system) or broken transmission (no data-sharing at all), the vendor has no sense of what is happening on the shelf. As a result, small problems in the store or supply chain can amplify to major issues, like recurring out-of-stocks, or pervasive zero sales, which distort sales forecast and product turnover.
Clearly, the supply chain needs better regulation, but in an era of big data-enabled analytics, the last thing businesses need is a dampener. Rather, the solution to inventory fluctuations is for vendors and retailers to create a feedback loop with each other that matches the pace and flow of digital information.
Achieving Optical Feedback
Think about what happens when two mirrors face each other: they can make a small space into a vast terrain, or turn a flat wall into a long corridor. This is an example of optical feedback: the light travels back and forth between the two reflective surfaces so quickly that we see it all at once and experience a vision of expansion.
Using analytics powered by big data, the feedback loop between vendor and retailer increases speed and efficiency, giving them the most valuable supply chain commodity this new era of Business Intelligence can offer: visibility.
Whereas previously, vendors and retailers connected through labor-intensive and inefficient file-sharing platforms, the communication now happens in real-time. It might not be the speed of light, but it’s a lot faster than the plodding pace of spreadsheets and pivot tables.
By automating the feedback cycle, the retailer emits store-level inventory data immediately to the application dashboard, and the vendor mirrors the transmission with the appropriate shipment of goods.
Innovation is the New Equilibrium
When both vendor and retailer align their data to achieve shared, real-time inventory awareness, it becomes possible to experiment with other types of collaboration. Some of these opportunities include:
1) Cooperative promotional planning and measurement
2) Shared investments in merchandising or product development
3) Markdown and ‘exit’ programs when these experiments don’t work
The major benefit of better feedback for vendors and retailers is that it dramatically lowers the risk of trying out all the new ideas that emerge from enhanced visibility. If things don’t work out, they’ll know right away and can quickly change direction. Better decisions are inevitable when both sides harmonize.
For more on how vendors and retailers can find stability through cooperation, download our white paper, “The Retail Collaboration Quadrant.”