Europe takes the lead in continuous replenishment

Although U.S. companies such as Wal-Mart Stores and Dell have been in the supply chain vanguard for the past decade, the mantle of leadership may have shifted to Europe in a number of areas. European companies have forged ahead with many new initiatives, including sustainability and shared distribution practices, both topics we've previously discussed in this newsletter and in CSCMP's Supply Chain Quarterly.

Continuous replenishment is another supply chain practice that's being pioneered by European companies such as Tesco in the United Kingdom. Instead of delivering weekly or even daily to restock store shelves, a retailer or manufacturer performs multiple daily runs. By doing so, the company makes sure that the consumer will always find what he or she wants at a store.

Driving this practice, not surprisingly, are advances in software. The development of real-time forecasting software allows companies to gather point-of-sale data at frequent intervals—say, every 15 minutes—and aggregate that information at a central data warehouse. A sophisticated forecasting engine then uses that real-time data to recalculate inventory levels at the warehouse and store, thereby determining the number and types of products that require replenishment. A company with a hot-selling promotional item could, for example, find out that it needs to make an additional, late-afternoon delivery to ensure that shoppers will find the item on the store shelf that evening.

Continuous replenishment may be especially attractive to retailers and manufacturers right now. As they try to maintain profit margins against the headwind of the economic recession, it becomes critical for them to always have the right amount of stock on hand.

Because of the short distances involved—which mitigate the additional cost of multiple daily runs—and their adoption of state-of-the-art forecasting and replenishment systems, European companies have put continuous replenishment strategies into practice ahead of their North American counterparts. It remains to be seen whether North American companies, which have to deal with much longer distances, will find it profitable to adopt the same approach.