Traditionally, there has been a lengthy gap between the moment of sale and the time when the supplier learns about it. A manufacturer engaged in a big promotion or new-product introduction might not know for a week or two what's actually selling at individual stores. In the meantime, it could be turning out the wrong mix of sizes, colors or flavors.

 Things started to change in the early 1990s, with Walmart's introduction of Retail Link, the pioneering point-of-sale (POS) reporting system. For the first time, every Walmart supplier had near-immediate access to actual consumer purchasing patterns. And the information was provided free of charge.

A handful of major retailers followed suit, including Target and CVS Pharmacy. But others were slow to adapt. Only in the last five years have we seen a significant portion of the retail industry begin regularly sharing POS data with CPG suppliers.

What took them so long? One reason is that suppliers didn't go to retailers and ask them to share the data. More recently, they've begun doing just that. Major CPG producers such as PepsiCo, Procter & Gamble and Nestle have spearheaded successful programs. For reluctant retailers, they'll offer to conduct a pilot that proves the initiative's value.

So the first wave of POS data-sharing was initiated by retailers, while the second saw a proactive effort by suppliers. They're now winning acceptance from retailers that didn't participate in the initial effort, especially partners with revenues of $10bn to $80bn. On the retail side, Kroger, Safeway, Ahold and Walgreens are just a few of the names that have become aggressive supporters of collaboration.

Another key development in retailing over the last five years has been the emergence of Amazon.com as a dominant force in online commerce. Smart retailers are addressing this competitive threat through better ties with suppliers. In the process, they're finding ways to cut both inventory and stockouts, while protecting tight margins.

The traditional retail sector has no choice but to collaborate more closely. The industry is changing at a rapid pace. Players that used to occupy discrete areas of retail are now overlapping and challenging one another for the same set of customers. Big-box stores like Walmart have entered the grocery business in a major way; so have some of the leading drugstore chains. Traditional grocers are starting to feature large-quantity discount items. Everyone is competing.

Data-sharing is essential to their efforts. There have, of course, been numerous attempts at retail collaboration in the past, including the Collaborative Planning, Forecasting and Replenishment (CPFR) model. (Yet another initiative pioneered in part by Walmart.) That was a valuable effort, but CPG companies turned out to have even more compelling tools at hand - most notably the opportunity to receive POS data on a daily basis.

The key word here is "daily." By sharing data that frequently, producers can learn what the consumer really wants, on a near-real-time basis. They can also respond more effectively, ramping up production and distribution of popular items, while cutting back on those that aren't selling so well. They can rapidly identify out-of-stocks - or predict what will go out of stock and minimize their impact. 

Everyone wins in the end. Suppliers optimize their product mixes and avoid excess inventories. Retailers slash out-of-stocks and avoid empty shelves. And, most importantly, shoppers get better service.

POS data-sharing really proves its worth during times of peak demand, particularly the fourth quarter. Each year, manufacturers and retailers worry about how the holiday shopping season will shape up. So many factors drive consumer behavior that it's impossible to paint a totally accurate picture in advance.

New methods and technology have resulted in a more reliable forecast, but we'll never perfect the discipline. Instead, companies need the ability to respond to real-world scenarios as they happen. And the faster they get the information, the sooner they can respond.

One could argue that a lot of merchandisers are locked into their forecasts, because of the long lead times involved in manufacturing consumer goods overseas and shipping them into North America. That might be true for categories such as fashion, apparel and toys, but other areas such as food, health and beauty aids are ripe for the opportunities offered by daily data-sharing. Many of those items are domestically sourced, giving suppliers time to replenish stocks - provided they can get their hands on the right information fast enough.

POS collaboration becomes even more essential in a time of widespread SKU proliferation. Determined to offer consumers more choices, while filling up the aisles of big-box merchandisers, suppliers are turning out more and more variations on popular brands. Meanwhile, the popularity of social media is shrinking the time it takes for consumers to make their voices heard. The result is a potential nightmare for forecasters and supply-chain managers. How to determine the most popular SKUs among those countless possibilities? Daily data-sharing is the answer.

Retail Solutions recommends that companies engaging in POS collaboration for the first time start with a small number of retailer teams and "use cases." Make the exercise an integral part of your business process - otherwise, you won't be able to act on the data. Be sure to measure the value that you're receiving from the initiative, in terms of higher sales or improved customer service. Performance reviews should take place at least once a month.

We think you'll be gratified by the results. Feedback from our customers suggests that, for every dollar they spend on better collaboration with retailers, they get nine dollars of added revenues in return.

Early efforts might focus on a few retailers, then expand to include entire channels, regions or countries. In the end, you'll get a comprehensive picture of demand - along with the ability to react with lightning speed to potential stockouts, changes in demand and actual promotion and new product introduction performance.

Suppliers and retailers have a new competitive weapon - collaboration on a near-real-time basis using daily POS data.

Source: Retail Solutions

Keywords:  retail supply chain, sourcing solutions, supply chain solutions, supply chain management, supply chain IT, business intelligence, Big Data