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Retail CEOs underestimate omni-channel supply chain challenges

June 24, 2014

Over 50 percent of retail CEOs see the supply chain as a strategic differentiator, but many are not making the required transformation to take advantage of the pace of change, according to report from JDA.

In a global survey of over 400 retail industry CEOs, conducted by PwC for JDA Software, 83 percent said they believe their retail supply chains are currently "not optimal" for today's changing retail environment.

Despite this, only 23 percent (30 percent of the top 250) graded supply chain management as a "top priority." Top priorities were instead centered around expanding by opening new stores and acquisitions, investing in new product technology, upgrading the employee base, and spending capital on creating new customer experiences.

The majority (51 percent) graded supply chain management as a "high priority but not a top priority." Among those, reasons were given for not upgrading it to a top priority:

  • Thirty percent believed their supply chain system is in better shape than other areas of their business;
  • Nineteen percent said it would require too much change across their business, i.e., retraining staff, upgrading technology;
  • Thirteen percent cited behavior/attitude or lack of board sponsorship;
  • Fourteen percent said it was too tactical;
  • Six percent said it dilutes attention from shareholder metrics and shareholder concerns.

The study also reported that only 15 percent of CEOs believe their supply chain today is resilient enough to address the threat of external disruptions; only 25 percent consider their supply chain operation a competitive differentiator in its market; and only 24 percent see investing heavily in supply chain management solutions as a critical area for investments for the next five years.

According to Baljit Dail, interim CEO, JDA Software, the findings particularly underscored that many stores don't "understand the strategic alignment of their supply chain with consumer expectations" amid the rise of omni-channel retailing. In fact, only 34 percent of CEOs consider the rise of omni-channel shopping to be an external threat, while only 22 percent believe it will have a direct impact on their organization, according to the study.

"There seems to be a clear disconnect between the actions required to make the transformation to today's retail environment with what is being currently done by many of these companies," said Mr. Dail in a press release. "With speed as the new currency, accelerating time to market and responsiveness through an agile, connected supply chain must be closely aligned with growth priorities to successfully compete and defend profit margins."

Discussion Questions:

Should supply chain management be upgraded to a top priority considering consumer expectations around omni-channel shopping? What is preventing CEOs from intensifying their focus on supply chain execution?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Generally speaking, how much of a priority should retailers be placing on supply chain management?

Comments:

I swear most of these CEOs wouldn't pay attention to the handwriting on the wall if Charlton Heston read it to them.

When will we realize that it's all ONE system, it is not a series of independent factors. What is the point of having multiple channels if you can't supply them? What's the point of doing market research if you can't customize your inventory? What's the point of floor staff running around with new tablets if they see retail as a dead-end job?

The secret is in the alignment and flow of the entire system. Otherwise it's like looking at a bodybuilder with a huge right arm and a skinny left leg.

The most disgusting of the disgusting list of why supply chain doesn't get more attention is: "Six percent said it dilutes attention from shareholder metrics and shareholder concerns." I don't even know what to say about that.

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Ian Percy, President, The Ian Percy Corporation

In a word, yes. Consumers are increasingly demanding and have an ever-expanding consideration set to choose from. Those retailers that lag behind do so at their own risk. That being said, revamping the supply chain isn't an inexpensive initiative. Often retailers have cobbled together different systems over decades, which requires an expensive and time-consuming overhaul. One of the first things Ullman did upon his returning to JCPenney was pull back its planned 3-year systems overhaul.

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Kelly Tackett, Research Director, Planet Retail

Amen, brother!

I have dinner with retail leaders several times a week, and all the supply chain chiefs who come are talking about this. The 30 days of "ocean time" that has been a given for many retailers is being reconsidered, and last-mile fulfillment is the biggest topic of all.

If CEOs can't get their arms around this, though, they won't survive. Millennials won't put up with the out-of-stocks that we put up with.

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Cathy Hotka, Principal, Cathy Hotka & Associates

If retailers don't view demand/supply chain as a top priority, they haven't been paying attention to Amazon. Amazon has rewritten the rules of the game so for those retailers not focusing on demand/supply chain will soon feel the impact, in my opinion. Here's a widely used definition of omni-channel retailing, and it is worth highlighting this: "Retailers are meeting the new customer demands by deploying specialized supply chain strategy software."

As someone who has lived in this world for much of the last 20 years, there is a clear gap between the executive level and IT in 80 percent-plus of all retailers. Closing this gap is going to take education and more enlightened boards when hiring C-level executives. For the retailers who don't focus here over the next 5-plus years, my view is their business will suffer as a result.

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Bill Davis, Director, MB&G Consulting

Supply chain is absolutely a top priority for retailers. The effect on Walmart of out-of-stocks is a clear example of them prioritizing their battle with Amazon and ignoring the clear signals coming from their stores. Supply chain includes the execution at retail, and when you reduce emphasis there it hits the top and bottom line every day.

The 14 percent who say it is too tactical could be strategizing in the unemployment line soon!

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J. Peter Deeb, Managing Partner, Deeb MacDonald & Associates, L.L.C.

It's a bit interesting to extend the logic of these people into how they hope to execute their "top priorities" without an optimized supply chain. Top priorities were centered around expanding by opening new stores and acquisitions, and spending capital on creating new customer experiences. A best-in-class supply chain operation could certainly help here with getting product to new stores and ensuring a seamless consumer experience.

Also, the excuses were relatively weak at best. "It's good enough," "It's too tactical," etc. Come on. While sourcing, fuel and other distribution costs increase, the profit margins erode.

I'm not saying CEOs should personally execute these programs, however I am saying that they should take a look at their GLOBAL supply chains, even if they are a local company. Their products are coming from around the world. Huge opportunity for increased margins.

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Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

Absolutely. The reluctance to move more quickly emanates from a lack of understanding of the customers' needs re: omni-channel. In addition, CEOs do not fully comprehend what needs to done to be an omni-channel organization.

Omni-channel is about customers, not channels. It is about your customers and how they interact and access your products and services!

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

These are loaded questions. I think retailers would say they HAVE been focused on the supply chain. Retailers have focused on two things for the past couple of decades: 1.) becoming more efficient in shipping tonnage, and 2.) finding the lowest-cost sourcing countries.

Unfortunately, both those foci don't account for the value of speed.

So it's a similar situation to data security in a way. A CEO will scratch his head and say, "But I just spent a fortune on this. You're telling me I have to start over?"

I've said for a long time that when demand cycles are shorter than supply cycles you have a problem—and that is exactly where we are.

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Paula Rosenblum, Managing Partner, RSR Research

They are in DENIAL.

Sid Raisch, President, Advantage Development System

Perhaps what is preventing CEOs from engaging fully in omni-channel shopping is concern about the pace of change. Make no mistake, standing still is not an option in today's fast and furious environment.

When I think of omni-channel shopping, I can't help but think of omnipresent access. Shoppers desire information, product assortment, and access when and where they want it. My belief is that yesterday's supply chain will not be adaptable in the long-term—consumer demand will simply not tolerate it.

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Dave Wendland, Vice President, Hamacher Resource Group

If they don't think Amazon is a competitor, then maybe they can bump along until their real competitors beat them to the punch.

Many execs in Retail have been known to take a wait and see attitude. Well, my friends, not this time or you will be shuttering stores. And that's my 2 cents!

Lee Kent, Let's meet share and succeed in Retail, YourRetailAuthority

Understanding omni-channel supply challenges is very difficult for those having little or no information technology awareness and or training—like many of today's C something or other O's. This lack of abilities among the retail executives will be the primary cause of death for start up and established companies in the 21st century. In fact, as new technologies are born or enhanced, companies that are doing very well will go out of business watching their customers vanish in a few months to a competitor that is fully in sync with the latest "proven" technological advancements. This is in fact happening as we speak.

Another great discussion topic with much more to learn and share.

'gjarnoldjr'

The very broad and expansive term supply chain optimization misleads the focus of CEOs. While most of the CEOs understand the significance of this initiative, as highlighted in the survey, it is the lack of convincing business cases that lead to the delays. In my own experience, unless the retailers experience a challenge in a critical period such as the holiday season, they don't realize the speed with which such action can be implemented, for example, using 3PL partner for Omni channel fulfillment. Of course taking action post challenges or failures is already too late.

Retailers are always going in multiple loops when it comes to deciding on fulfillment centers for online, as they struggle with the lack of information and insights on customer demand. I suggest the teams at these retailers take advantage of strategic scenario planning to expedite the specific supply chain initiative to address the omni-channel fulfillment, in its entirety.

Saravanan Logu, Digital Transformation Consulting Manager, Cognizant

Yes, yes, and yes! CEOs are preventing themselves by their lack of understanding of the impact of the logistics cycle and the supply chain on their ability to better manage deliveries, time to market, customer expectations, minimize out of stocks, reduce transportation costs, manage product damage and control inventories. All of these impact their business and most importantly, directly impact the bottom line...net profits!

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Kai Clarke, CEO, American Retail Consultants

Retail is about hundreds of different parts working in unison to create one big, cohesive unit. Unfortunately, margins are so thin at so many retailers that they keep costs down, thereby reducing investments in necessary improvements that will pay off in the long term. What is preventing CEOs from intensifying their focus on supply chain execution? Limited resources and uncertainty around what will product the best return for the investment of those limited resources.

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Alexander Rink, CEO, 360pi

Supply chain management should definitely be considered a top priority, because implementing a successful system means creating a more efficient and effective omni-channel experience. Creating an omni-channel experience is the only way to satisfy today's consumer expectations. And they have never been higher. No matter where or how they buy, consumers demand a convenient, personalized and above all consistent experience.

Yet retail brands are still struggling to meet these expectations. CEOs are overlooking the necessity of omni-channel shopping because underlying technology to support a successful supply chain management is incredibly complex. Retailers need to be prepared to have the software and solid supply chain in place to meet the increased demands that result from omni-channel retailing. The key is to combine feature-rich, flexible POS software with omni-channel order management software, which will help deliver a customer-centric brand experience to build deeper, more profitable relationships with consumers.

Leo Suarez, Senior Vice President for Worldwide Marketing and Strategy, Toshiba Global Commerce Solutions, Toshiba Global Commerce Solutions

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