Retailers need supply chain urgency – now

Discussion
Photo: Home Depot
Nov 13, 2017

Steve Rowen

Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.

Our recent supply chain benchmark report underscores the many challenges retailers are facing getting products to consumers. What can retailers do, right now, to get ahead?

Our recommendations are as follows:

  • Think ‘different’: Today’s supply chain is just not working. When the dust settles, survivors will share one thing: they will have thought differently about what’s required to get their execution up to snuff to meet growing consumer expectations. Turning around something so large and complex can seem daunting, but wide-scale progress comes with many small steps. These are not easy conversations and will vary wildly from one brand to another, but they must start to happen 
  • Trust your KPIs – or invest until you can: The ability to trust inventory-related information (accuracy, visibility, etc.) is rapidly approaching table stakes at this point, and retailers who cannot fulfill their end of the deal (having what the customer wants when she wants it) will rapidly fall off the scene. 
  • Don’t fear amazon: respect the consumer: Recognize that this isn’t about Amazon or any other mass merchant, for that matter. It’s what they have been able to offer the consumer that has enabled them to steal some of your sales. What did those shoppers prefer? If the answer is “free two-day shipping and we can’t do that,” find something else you can offer that Amazon can’t yet. Chances are you’ll come up with a list of things, and chances are even greater those things will involve your employees interacting with consumers.
  • Take a risk: If the report proves anything, it’s that our industry simply cannot wait any longer to solve supply chain issues. As much as if not more than price, consumers have consistently told us that getting what they want exactly when they want it is chief among the things that matter to them. Moreover, a handful of powerful retailers that have recognized supply chain execution as “the next big thing” for several years now, and the work they’ve put in is about to pay dividends.

 

DISCUSSION QUESTIONS: Do you think a lot of retailers are in denial about the urgent need to elevate their supply chains? What can retailers do to compete with the logistics might of Amazon, Walmart and other powerhouses? What should be retailers’ key priorities in upgrading the effectiveness of their supply chains?

Braintrust
"I have been spending a lot of time going deep on supply chain management via MIT’s SCM micromasters program. I get it, it’s hard."
"Retailers view investing in anything but stores is a waste of time and money."
"You can’t push a chain. But you can drag one forward with a firm grasp on the final link."

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18 Comments on "Retailers need supply chain urgency – now"

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Charles Dimov
BrainTrust

Steve is right about “find something else you can offer that Amazon can’t yet.” Too many retailers get caught up in the massive PR wave that Amazon creates. Don’t give in to the desire to mimic. Instead, do what you can do best that is different from Amazon. Today many retailers would say that is personalized services. Make sure your deliveries happen when you tell your customers they will. Make sure your pickup orders are there when promised. These little things will win incrementally. But don’t lose sight of the need to have and continually improve your operational capabilities.

Kate Munro
Guest

I completely agree.

Further, retailers need to start thinking outside of the traditional linear product development model and look to approaches that involve faster collaboration and design sharing in order to compete with Amazon, Walmart and other retail giants. If these powerhouses are undercutting prices and offering endless options, brands need to find a completely new way to source creative ideas and bring better products to market, faster — and this starts with upgrading their supply chains. Surprisingly, 63 percent of retailers are still using outdated applications like Outlook to manage complex sourcing relationships, despite the availability of other helpful tools and technologies. To upgrade their supply chains and stay competitive in an Amazon era, retailers need to use digital sourcing technology for a single communication channel that promotes ongoing collaboration and inspiration, making it easier to leverage the knowledge and expertise of other industry players. When retailers collaborate, they can bring products to market at consumer speed, stay on top of the biggest trends and make more informed and profitable operational decisions.

Herb Sorensen
BrainTrust

Amazon’s highly automated supply chain is designed to deliver single items to single shoppers. Brick-and-mortar retailers’ supply chains are designed to deliver PALLETS to stores where unpaid stock-pickers, aka shoppers, pick and pay for the merchandise.

Although I have repeatedly brought up this hard and driving fact of the battle between brick-and-mortar and online, I have yet to see even a single comment on this definitive fact.

Marty Ramos
Guest

Yes…but pallet-based delivery is sustainable…is “free-shipping“?

Jon Polin
BrainTrust

Once a retailer has spent the marketing dollars to bring in a customer, there is nothing worse than not then having the product a customer wants. Without the supply chain humming along almost flawlessly, there’s no point in attracting customers.

Phil Masiello
BrainTrust

In 2017, there is no excuse for even the smallest company not to have total supply chain visibility from the point of manufacture to the point of sale and beyond. This technology has been developed, proven and implemented since the 1980s. The cost of this technology has been reduced to the point that even a mom-and-pop store can afford it.

The issue with most retailers today is believing what the data tells them, trusting the data and not bypassing the system. This is what leads to corruption of the data and making bad decisions from bad data.

With or without supply chain visibility or upgrades, focusing on a great customer engagement is key to competing today. It is no longer a retailer-centric world. E-commerce has created a customer-centric retail environment. Amazon has created a bond through the Prime ecosystem that is very difficult for others to compete with. Innovation and personalization are necessary today to compete.

Neil Saunders
BrainTrust

I don’t think retailers are in denial, but I do believe some are behind the curve when it comes to supply chains. Apathy is not the most significant barrier to change, but cost and complexity are factors that hold back progress.

What retailers need to do is create more flexibility across the whole supply chain. Among other things, this means: having a single view of stock so stores can be used as places of shipment or collection; managing the returns process more effectively; reducing lead times, especially in sectors like fashion; allowing for small-batch, more personalized production in some categories; and looking at how to ship direct from manufacturers.

Putting all of this in place is an enormous task. Even advanced retailers like Home Depot — who have done so much work on supply chains — admit there is a lot more to do.

Shawn Harris
BrainTrust

I have been spending a lot of time going deep on supply chain management via MIT’s SCM micromasters program. I get it, it’s hard. However, I think retailers need to rethink level of service to meet today’s supply chain management challenges, and then address the upstream constraints.

Level of service (LOS) is typically determined by a supply node’s proximity to demand; that being customers, stores or other third-parties. Given the numerous fulfillment choices customers have/want today, retailers should not look to build a network which seeks to satisfy all of the possibilities on their own. Retailers should look to co-op networks and forge deeper relationships with transportation and logistics firms, up to and including Amazon.

Think about how you can extract out complexity in your network and bring in outside perspective to help. Not only could you find new ways of delivering unexpected LOS, but you also could realize new competitive advantage and/or new market opportunities. Focusing on LOS focuses you on the customer.

Kiri Masters
BrainTrust

Supply chain urgency is a great response to retailers’ hand-wringing over Amazon. Many analysts and retail industry commentators (fellow BrainTrust panelists included) would conclude that Amazon is less a retail company, and more a fulfillment company.
Supply chain urgency couldn’t be more urgent right now. As others have noted, marketing is just half the problem that retailers are facing today. Having the right products available at the right time seems to be the most fundamental thing for retailers to focus on.

Ralph Jacobson
BrainTrust

It’s a bit unnerving about how many retailers are still operating their (in most cases, global) supply chains very much the same way they did more than twenty years ago, in the infancy of EDI, etc. There are still far too many organizations manually entering purchase orders, for example. There are also still far too many overstocks and out-of-stocks at store level and online today. There is literally no need for this. This is all about visibility. Retailers must get maniacal in getting “hyper-local” insights to all aspects of their inventory: Suppliers’ contract management, demand forecasting, impending local weather, news, sports and even social media chatter in order to eliminate anything less than complete inventory optimization. Today, this takes true machine learning and artificial intelligence to get more and more accurate demand forecasts that help ensure supply chain effectiveness.

James Tenser
BrainTrust

You can’t push a chain. But you can drag one forward with a firm grasp on the final link.

This is why I’m often mystified by supply chain conversations that focus on how to push products through the distribution chain with greater efficiency. Where’s the discussion about the pull? About the demand generated in stores and optimization of the final node?

Herb is so right about this in his comment today. It’s time to reverse the orientation away from pushing pallets toward pulling items. Store-level perpetual inventory and optimized replenishment should be fundamental disciplines in FMCG channels. Breakdowns in on-shelf availability not only cause lost sales, excess inventory investment and excess labor — they also propagate inaccurate signals to distribution centers and up the line.

Darn right retailers need greater supply chain urgency — and soon. In your supply chain network, what do you have the most of? Stores! That’s where this discipline must begin.

Herb Sorensen
BrainTrust

Hear, here! 😉 Thanks, Jamie, for actually getting to the nut kernel of the problem. Finally, there are TWO of us. Hopefully we can do more than simply watch reality trump practice. I love it!

Herb Sorensen
BrainTrust

And I should point out that replacing unpaid stockpickers (shoppers) with paid store staff is less than an intelligent addressing of the problem. Plus, what to do with all those largely unused “click and collect” stations? (Which CANNOT be operated profitably, anyway!)

Adrian Weidmann
BrainTrust

The fundamental truth about retail is that it is a consignment business and as such, supply chain challenges are amplified. Retailers, via category merchants, agree to purchase products, manufacturers are then expected to deliver palettes of inventory to a distribution center loading dock — expecting the retailer to distribute, proactively market, merchandise and sell these products — all for fees on top of the agreed margin. And yet the manufacturers are expected to manage their own stocking and inventory counts, all the while carrying the inventory on their books! If the products don’t sell, the manufacturer is expected to take it back or it ends up in a clearance bin — further undermining the brand.

Manufacturers and retailers alike should simply acknowledge the true retail business model — those products are consigned inventory and unless it sells, it’ll come back (maybe not physically but certainly financially!).

Being digital allows the manufacturer to think differently, take risks and take control of their own brand. This means thinking differently — utilizing available technology (RFID!) to implement business workflows to conduct a fully transparent supply chain and consigned inventory business.

W. Frank Dell II
BrainTrust

Retailers view investing in anything but stores is a waste of time and money. This is the same group that watched Walmart with its mechanized logistic system lower cost and take sales away. Today, retailers must view logistics as a new larger store. Those that do not are unlikely to be around long term — just ask Sears about their future.

Retailers must strategically think and plan for the future, not yesterday. What we learned with Direct Product Profit was that inventory cost money on the investment and cost of space to hold it. Retailers must stop forecasting and buy weekly for demand driven replenishment, real time. The future logistic system must minimize product touches, as shipping to the store, pick, pack and ship to consumer ensures no profit. Pick in store with customer pickup is profitable.

Every retailer should start with a blank page and define the future logistic system. Then start working towards achievement.

Harley Feldman
BrainTrust
I think most retailers understand the urgent need to elevate their supply chains, but they are in different states about fixing the problem. Many retailers are offering Buy Online, Pick Up in Store (BOPIS), and they will do their best to fulfill the consumer’s order even if it takes manual efforts. The “Last Mile” is the most difficult part of the supply chain journey. BOPIS is being offered because the bar has been raised as to consumer expectations, and by bringing consumers to the store, they can provide a service Amazon cannot, and there is an opportunity to entice the consumer with an additional sale. Once a retailer promises this level of service, the balance of the supply chain must support the BOPIS commitment. Fixing supply chain speed and commitment starts with knowing the in-store and in-supply chain inventory all along the supply chain including all in-store inventories. The technology that provides this level of accuracy is RFID. As more and more items are being RFID tagged, the retail supply chain will need to implement RFID reading technology to take advantage of the visibility that RFID provides. More RFID solutions will be developed around Internet of Things (IoT) technology to… Read more »
Jett McCandless
BrainTrust

Some retailers may still be in denial about the urgency here, but it might already be too late for them. Even smaller retailers are already taking the steps they need in order to compete with companies like Amazon over the next few years.

Look, full disclosure: I’m the Founder and CEO of a company that digitizes the supply chain. I don’t know if there’s a way to say this without it coming across like a sales pitch, but it’s something I honestly believe to be true.

Companies can deliver stronger value to their customers through the supply chain, and they can create smarter end-to-end shipping experiences just like Amazon, but they have to leverage the power of information. Automation and visibility are the keys here, and they’re possible, but only if we start digitizing the supply chain. That means replacing legacy technology like EDI and rate bureaus with modern solutions like APIs.

Ricardo Belmar
BrainTrust

Retailers are often distracted by anything they perceive to have a customer facing “shine” or “polish” to it. Optimizing and elevating their supply chains nets about the same consideration as upgrading the store data network — it’s just too”unsexy”!

Steve does a great job highlighting the need for retailers to think differently about their supply chain — not just as an internal benefit but as part of a customer-centric strategy. Two of the top brands in the minds of customers are Amazon and Apple – and both could be defined by their supply chains! That says a lot about why retailers should focus on this now.

wpDiscuz
Braintrust
"I have been spending a lot of time going deep on supply chain management via MIT’s SCM micromasters program. I get it, it’s hard."
"Retailers view investing in anything but stores is a waste of time and money."
"You can’t push a chain. But you can drag one forward with a firm grasp on the final link."

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