Chapter 10. Reduce the Cost of Complexity

With Danny Lin and Jon Hunter

A global retailer had been aggressively expanding its market presence through larger stores and more product types, moving away from the staple products that was core to the legacy business.

There had finally come a point when the retailer realized it was hitting a limit on its functional capabilities. The increased product variety moving through the replenishment process had created inconsistent demand/forecasting utilization, leading to profit seepage and lower overall process efficiency. The company was also burdened by higher costs to serve customers. Combined, these issues created a burning platform around the need to reduce overall costs and assess total process performance.

The retailer's first attempts at trying to improve productivity and cost savings had been carried out at a functional level, and when those efforts led to unimpressive results, it realized it needed to take a completely different approach.

The second time around, it began by building an end-to-end crossfunctional view of the replenishment process, mapping out the links from forecasting and planning to bringing the products to the shelf's edge. The company performed an in-depth targeted analysis of base and hidden costs tied to executing the current processes, looking at how the greater complexity in product lines was affecting the supply chain. The cost of this complexity came from the intricate handoffs and interactions between the merchandising, ...

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