S&OP for Retail – Thoughts on Gartner MIOE Maturity Model
Let me guess what came to your mind first ...
"What is MIOE?"
I can tell you that was my first thought when I read the recent research article from Gartner Research VP, Mike Griswold. The article, "Retailers Embrace an MIOE Framework for Reduced Inventory and Greater Revenue," is the culmination of Mike's long-held vision that while retail and manufacturing organizations face fundamentally different challenges; demand and supply analysis, coordination and planning on the order of what manufacturers conduct is necessary for retailers. I whole-heartedly agree, and I'm glad someone has taken up the mantle to offer some guidance and rules to live by for retailers.
All right, you've waited patiently, so I'll give it up...MIOE stands for merchandising, inventory and operations execution. Doesn't exactly roll off the tongue like S&OP, but it's very applicable to retail. I'm an old retailer, so color me biased, but to me the key difference is the operative word of each handle that makes them applicable to their constituencies. The manufacturing operator is "planning" vs. the retail, "execution." This strikes me as an appropriate differentiator considering the inherent differences between retailing (or distribution...truly, anyone who sells to the end consumer) and manufacturing. The biggest differences being:
- Retailers connect directly with the consumer, often via personal contact of some sort, and influence & react to consumer-centric demand on a micro level
- Manufacturers connect to consumers through the retailer & broad market outreach, while attempting to influence aggregate demand on a macro level
- Retailers sell thousands, or even hundreds of thousands of products from hundreds or thousands of suppliers, out of dozens to thousands of sales outlets
- Manufacturers sell as few as a dozen products from as few as a single production/distribution outlet, to thousands of products from dozens of outlets
- Retailer's supply chain demand is driven by the consumer and how consumer's respond to demand drivers
- Manufacturer's supply chain demand is driven by the retailer and how they replenish their sales outlets...despite the widely-espoused view that retail POS demand is the answer
Since they are removed from the primary demand, manufacturers face significant limitations today in getting accurate demand signals. So often, "planning" is as good as it can get. Mostly due to the data available from retailers and other consumer outlets, manufacturers face a gap in their ability to tie their production to consumer and store/DC demand. Varying capabilities of retailers, along with varying levels of coordination with these consumer connections, creat vast differences in the quality of demand data that manufacturers receive. The lack of consistency leads to muddled demand signals. Muddled demand signals lead to innaccurate production data, and ultimately to sub-par demand fulfillment for the retailer.
What we as retailers have seen and Griswold has made a career of studying, is that even with primary and precise understanding of demand, a lack of coordination leads to difficulties in executing assortment optimization, demand planning, inventory replenishment and therefore, on-shelf availability. Fortunately, as supply chain solutions have evolved, the precision of demand signal available at the consumer level has improved dramatically. However, this precision at the retail tier is difficult to project even internally to the merchandising, operations, finance or other critical areas within the enterprise. Nearly all retailers struggle to translate retail demand effectively enough just to communicate to their own distribution tier for fulfillment of store needs, and do it without carrying excessive or ill-timed inventory in their supply chain. As difficult as it is for a retailer to meet their own needs, this lack of coordination makes it nearly impossible to predict their demand to facilitate effectiveness at the manufacturing production tier or above.
Griswold's call for a more defined process with clear-cut stages of maturity provides a sound and necessary foundation and growth path for a retailer's internal planning and coordination. The MIOE blueprint will ultimately drive improved execution with retailer benefits such as increased inventory productivity, on-shelf availability, customer satisfaction, cash flow and gross-margin. With better demand signals, item selection, store operations and supply chain effectiveness, retaliers can engage their trading partners in a new narrative that will improve the lot of both and ultimately increase sales and net income for both parties in an increasingly complex consumer relationship framework.
The entirety of the article is enlightening and good reading for anyone looking to get a better grasp on product availablity...and isn't that everyone? I will share that Mike suggests, and rightly so, that retailers must first gain control over their demand forecasting, planning and replenishment activities as a foundation. This ability to effectively and predictably manage inventory productivity is crucial to the effectiveness of the more advanced levels of maturity.
Some retailers seem to have the tail wagging the dog with their price and markdown optimization for products poorly placed in the firs place, or their assortment optimization based on an ancient tops-down method of determining SKU mix. With the plethora of demand data available, and the transactional and daily granularity of that data from advanced solutions (like you know who), a new vision of inventory and assortment optimization, along with merchandise, financial, logistics and store operations planning is emerging. It's the foundation for a more customer-centric and profitable retail enterprise, and the retailers that recognize that first will have a distinct advantage in this changing retail marketplace.
Griswold's article, "Retailers Embrace an MIOE Framework for Reduced Inventory and Greater Revenue," can be accessed through your Gartner subscription at www.gartner.com. Look out for future information on the MIOE process, and more detail on the maturity path in this and future publications.