With so many options in the marketplace, poor service can quickly translate into disgruntled customers and lost sales. (Never mind those onerous two-year contracts.) Carriers and device providers are forever struggling to match their product mix with real-world demand.
United States Cellular Corp., known more familiarly as U.S. Cellular, operates the nation's fifth-largest wireless network. While far from being the market leader, it boasts a substantial customer base, with 5.2 million subscribers and $5bn in annual revenues.
The device side of the business can be tough to manage. To a certain extent, a carrier like U.S. Cellular is at the mercy of manufacturers, who decide which of their glitzy models to produce, when to release them, and which carriers get them first.
All the more reason why U.S. Cellular has to be at its best when it comes to demand planning and inventory optimization. Prior to a supply-chain transformation that kicked off in 2012, it was falling short of goals both for service and internal efficiency. The introduction of U.S. Cellular's first 4G LTE Network devices made it even more important that the company get its house in order.
There was plenty of cleanup to be done. U.S. Cellular was missing inventory targets by 40 to 100 percent, according to Chris Smith, senior director of device supply chain. "You want to be some below and above the target," he said, "but we were consistently high, and in some cases grossly high."
Speaking at eyefortransport's High-Tech & Electronics Supply Chain Summit in San Jose, Calif., Smith laid out the company's vital statistics. Operating in 22 states, it manages multiple channels, with 40 percent of demand generated by its own stores, 40 percent through its agent dealer network, and the rest from national retail, direct fulfillment, telesales and the Web.
The national retail presence is a relatively recent addition, placing the U.S. Cellular name in Walmart and Sam's Club. That potentially lucrative channel gave the company another 500 regional points of sale.
U.S. Cellular actually has two supply chains - one that moves millions of phones through its network each year, and another that purchases gear such as antennas, switchers and routers from telecommunications infrastructure providers.
Distribution on the device side isn't especially complex. U.S. Cellular deals with five original equipment manufacturers, who account for 90 percent of the cost of goods sold. It maintains just three distribution points, with 97 percent of its transportation consisting of parcel shipments. And there are only about 400 SKUs to plan.
Nevertheless, the company was doing a poor job of figuring out its inventory needs. The exercise was largely manual, based on spreadsheets, which couldn't be easily shared throughout the organization. "Occasionally we would e-mail a spreadsheet to get input," said Smith, "but it was very much an isolated process."
A large part of the company's costs was in product obsolescence and margin. Pricing was being driven largely by inventory position. The gap between the forecast and actual demand was due to a combination of poor execution and inadequate math, Smith said.
U.S. Cellular's transformation would be tied to a set of ambitious metrics. Goals included increasing inventory turns by 14 percent, sustaining a 98-percent in-stock rate at the retail level, reducing obsolescence and inventory revaluation expenses by $10m a year, and cutting transportation spend by $1m a year.
Step one was to map out the entire demand-planning process, an exercise that revealed the woeful inadequacy of the spreadsheet regime. The company needed to fine-tune that discipline in order to drive inventory planning, which would in turn align stocks with buying patterns, and cut down on product obsolescence. Given the alarmingly brief lifecycles of mobile phones and other personal devices, that step was considered crucial to the company's future success.
A good part of the answer lay in automation - specifically, the Advance Planning and Optimizer (APO) application of SAP AG. U.S. Cellular implemented the vendor's inventory-planning module in May of this year. It also purchased an inventory-optimization tool developed by SmartOps, which was acquired by SAP in early 2013.
Smith said the company needed a dependable available-to-promise capability to drive allocation to the point of sale. Previously, it might rely on a phone call from a panicked retail sales director, who could be responding to a stockout - which, in the eyes of many customers, is too late to be looking for a solution.
U.S. Cellular created 81 elements that needed to be tracked, ranging from the weekly cost and price of a product, to incremental demand attributes such as product and channel mix. The company opted for weekly planning buckets covering an item's three-year "history" and two-year "future." (Never mind that five years is an eternity for today's mobile devices - the important thing was that U.S. Cellular was planning according to strict hierarchies, rather than semi-educated guessing.)
The new software also allowed the company to select the optimal mode for shipment, including expedited moves when absolutely necessary. The tool had to be customized in order to handle multiple modes, Smith noted.
APO enabled the company to conduct detailed revenue, cost and profit planning, using "what-if" simulations to determine the best course of action. "As margin is one of our greatest challenges," said Smith, "it's critical to be able to rapidly react to changes in products, markets and pricing."
U.S. Cellular appears well on its way to meeting performance goals. Inventory levels are dropping according to plan, but Smith said he won't know the true impact of the initiative until Black Friday, when the holiday shopping season gets fully underway. Transportation performance, however, improved right away- the first day saw 84 orders going to an equal number of stores without a single expedited shipment.
As always, lessons were learned along the way. Smith believes the company could have done a better job of moving master data from spreadsheets to APO. And it should have spent a good deal more time training those on the business user side.
"Many people are intimidated by advanced planning technologies," he said. "They need time to absorb. APO is a complex tool, and while we built the process to be intuitive, it can intimidate even the brightest people on your team."
Keywords: supply chain, supply chain management, demand planning, inventory planning optimization, supply chain planning, supply chain systems, retail supply chain, supply chain risk management, inventory management, inventory control
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