The ongoing supply chain crisis threatens the success of retailers and their suppliers because its volatility

makes both overstocks $($having something customers don$$t want$)$ and stockouts $($running out of the items

they desire$)$ more likely. And the stakes are high: Stockouts can cost retailers their total gross margin.

Overstocks, if they are lucky, cost retailers $50\%$ of their gross margins but more likely, all the margins. A

methodology we call flow$-$casting of ers a way to escape the drag on profits of overstocks and stockouts.

Flow$-$casting is dif erent from forecasting. It develops only a forecast of sales to end users at the retail

store level $($i$.$e$.,$ consumers$),$ and this forecast is then used to calculate all demand and inventory flows for

each element upstream in the supply chain. It is designed to plan inventory, replenishment, space, and

resource requirements throughout the retail supply chain over a long$-$term planning horizon $($typically $52$

weeks or more$).$ The key is these projections are updated daily or weekly and provided to all elements of

the supply chain simultaneously. Having all players in the supply chain use demand projections based on

a forecast of end$-$customer demand dif ers from the way most supply chains in the retail sector operate

today. Currently, the elements of most supply chains see demand as orders from its direct customer, not

the end consumer. As a result, each element finds itself chasing demand that does not reflect true

consumer demand. This pursuit results in wild swings in perceived supply and demand along the supply

chain known as the bullwhip ef ect, which drives overstocks and stockouts. If there is some aspect of the

future that might impact sales or inventory, it$$s in the flow$-$casting plans. For example, suppose a retailer

plans to open several new stores. These stores would have a sales forecast by product, which would be

included in the flow$-$casting plans.

Flow$-$casting is best initiated by the retailer. However, if you are a key supplier to a retailer, you can take

the initiative to jump$-$start the flow$-$casting methodology. For example, a key supplier to one of the largest

discount retailers used information from the retailer$$s point$-$of$-$ sales data $($with the retailer$$s cooperation$)$

to develop a flow$-$cast for the retailer by store to the retailer$$s distribution center to the supplier$$s

distribution center to the supplier$$s factory. This retailer experienced improvements in in$-$stocks $($to $99\%$

from $97\%)$ and a $20\%$ reduction in overstocks. The risk in transitioning to flow$-$casting is that companies

fail to understand that this is a process and mindset change, and therefore the transition needs to be

managed as a change$-$management initiative, not just a technology upgrade. That requires people within

the retailer and supplier network be educated, trained, coached, and supported as they learn and

gradually grow accustomed to the new ways of working. This transition usually takes two to three years

$$ largely because large retailers have hundreds of key suppliers and thousands overall. Flow$-$casting

should be run in a simulation mode prior to becoming operational so that all key stakeholders in the

retailer and at key suppliers can see what the system$$s projections based only on forecasts of consumer

sales look like, giving everyone time to minimize surprises when the system goes live. The investments to

implement flow$-$casting include the costs of new technology, system integration, data integrity ef orts $($like

cleansing sales history for abnormal selling periods and events such as weather$-$ related interruptions$),$

teaching people the concepts of the approach, training them how to use technology to execute the process,

and supporting them. In our experience this has amounted to less than a quarter of one percent of annual

sales. Retailers interested in obtaining the benefits of flow$-$casting should start by assessing the impact,

benefits, and challenges of using this approach. Since flow$-$casting improves in$-$stocks and reduces

overstocks, the added profits it generates significantly outstrip its costs, and it leads to more satisfied

consumers.

Answer the following questions.

i$.$ Explain the significance of the ongoing supply chain crisis highlighted in the article and how

it affects retailers and their suppliers. How do overstocks and stockouts impact the

profitability of retailers?

ii$.$ What is flow$-$casting, and how does it differ from traditional forecasting methods in supply

chain management? Describe its key features and objectives.

iii. What steps should retailers take to assess the feasibility and potential advantages of adopting

flow$-$casting in their supply chain management strategy? Discuss the importance of

evaluating the impact, benefits, and challenges before implementing flow$-$casting.

iv$.$ Discuss the concept of the bullwhip effect in supply chain management. Does this new

approach of flow$-$casting mitigate this effect? Explai