Retail Supply Chain Deemed Fully Optimized

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Jan 17, 2006
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By Bill Bittner, President, BWH Consulting

You heard it here first. Judging by the emphasis of the technology exhibits, there is no more optimization to be achieved from the retail supply chain. The focus seems to have shifted from data synchronization, warehouse management, and transportation optimization to demand side applications.

Last year was all about radio frequency identification (RFID) and renewed focus on efficient supply chain operations. It seems that this year the big emphasis is on in-store displays, price optimization and customer centric merchandising.

X06 is the multi vendor display where the latest technology is demonstrated. Last year (X05) it featured Metro’s implementation of RFID clear down to the item level and various vendors showed how RFID would improve the flow of products to the shelf. This year, RFID is still in the store but the emphasis is on improving the shopper’s in-store experience with targeted help and promotional messages.

Cascading “mist screens” reflect projected images in doorways that customers could walk through. Several kiosks were on display, including one by Experticity, which connects the customer to a “live” expert who helps them with difficult product decisions such as what wine to buy.

In the back office, price optimization is the rage with the Association for Retail Technology Standards (ARTS) request for proposal (RFP) being completed and both Radio Shack and H.E. Butt talking about their successful implementations. Details were kept private, but retailers confirmed the vendor claims of two to five percent in margins while sustaining or improving their price image. Price optimization solutions cover the whole item life cycle, including regular price, promotions, and markdowns. Pricing applications from DemandTec and Soft Solutions were mentioned.

Finally, customer centricity is the emphasis of many products designed to both inform and motivate the consumer. Customer data from cardholders is used to build a full life style
promotional campaign that recognizes an individual customer’s position in the life cycle as they move from baby food purchases to easily prepared frozen foods and home meal replacements.
Knowing the customer’s needs makes it possible to anticipate their purchases and guide the shopping experience.


Moderator’s Comment: So, what do you think? Have we wrung out all the efficiencies from the retail supply chain? Is it time to turn the emphasis on demand
management?


I am being a little facetious, but I really have gotten the feeling from this year’s show that someone “declared victory” on the supply chain and redirected
the technology vendors to the demand side. But maybe this just reflects a better understanding of what can be derived from POS data. Data warehouses have become more common and
the insights they can provide to consumers are more actionable. The Internet and targeted in-store messages to the consumer while they are shopping give retailers the ability
to more strongly influence the purchase decision. With slowing population growth and a projected small rise in consumer spending, retailers need to direct spending in their direction.


Bill Bittner – Moderator

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10 Comments on "Retail Supply Chain Deemed Fully Optimized"


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Peter Fader
Guest
15 years 1 month ago

One of the reasons why RFID hasn’t taken off is that there’s still lots of inefficiency in the typical supply chain. There’s plenty of low-hanging fruit to be plucked before most retailers will see the need to go after RFID in a serious manner.

Having said that, however, the supply chain inefficiencies are dwarfed by the demand side problems/questions/opportunities that most retailers are unable to deal with.

Dan Raftery
Guest
15 years 1 month ago

Bill, it’s long past time for attention to demand chain management. It sounds like the NRF show is more exciting with the shift in emphasis, but I don’t think it’s an either/or when attendees go back to work. Supply chain improvements are continuously available to those who maintain momentum. Same goes for the demand chain. Most retailers that I know have separate disciplines for operations and merchandising/marketing. Both groups can drive toward improvements simultaneously.

Camille P. Schuster, PhD.
Guest
15 years 1 month ago

Technology and supply chain improvements are not dead. They are just standard operating procedure now. You can’t be competitive without maximizing efficiency in this area. Technology innovation isn’t the emphasis now; application and use of technology is. The area with the biggest gains is customer demand – identifying it, figuring out how to create a competitive advantage in response to it. This is not easy and requires taking risks. Responding to someone else’s creative idea will not necessarily work for your customers. Applying technology to share information can be problematic from one company to another but determining customer demand will be more difficult.

Mark Lilien
Guest
15 years 1 month ago

Future supply chain improvements for the best software firms are likely to be incremental, not major breakthroughs. There is a life cycle to software development: the first packages addressing a problem are major breakthroughs; next come the major refinements; and then come minor refinements combined with mergers into ERP suites. The major area largely missing from the show: security. Perhaps security issues are now the province of ASIS (see http://www.asisonline.org) and its shows. It’s too bad, because security technology applications should apply across so many functions (HR, cash management, data security, sourcing, transportation, etc.) and retailers suffer huge losses from their security problems (customer theft, employee merchandise theft, embezzling, supplier payoff collusion, truck hijacking, etc.)

Ryan Mathews
Guest
15 years 1 month ago

If the future rests with a decision between supply chain management and demand chain management I’d humbly suggest we’re doomed. I can’t believe we’re even still thinking in these terms. As Dan said it’s not an either/or proposition. In point of fact these aren’t two distinct linear chains (well, O.K. maybe they are today, but they shouldn’t be). What we ought to be talking about is a single continuous chain that gives equal weight to the needs and demands of consumers, distributors and manufacturers, learning as it evolves. This fixation with point solutions is pointless.

Ed Dennis
Guest
Ed Dennis
15 years 1 month ago

Supply chains will not be optimized until such a time as ALL retail products (not just branded products) are included in the supply chain. Anyone who would consider the job done doesn’t have any concept of what is possible. Supposed you wanted to buy a TV made in Japan but wanted to insure that no “sweat shop” Chinese circuit boards were included in the product. It is possible for a buyer to work with an assembler to show the flow of components to the assembler’s facility. Also, who is using supply chain to look at logistics costs in SE Asia? The big three automakers might, but I don’t think Wal-Mart is! It might be factual to say that the potential to fully optimize the retail supply chain exists but the potential is no where near fully utilized.

Kai Clarke
Guest
15 years 1 month ago

Supply chain is still very important, but we have been forgetting about the demand side of things. Each of these is complementary to the marketing side of the sale, since they are both important components of a profitable operation. We have been focusing so much on RFID, supply-side logistics and managing product shipments (and the tracking of these throughout the entire process), that it is good to see some balance brought back to the equation. We cannot forget one at the expense of the other and still maintain an efficient and profitable business model.

Ben Ball
Guest
15 years 1 month ago

Sorry Bill, but cost containment just isn’t very sexy. The potential to grow demand will always “win the ink” in our industry. Remember, this is the industry that spawned the management mantra of “volume cures all ills!”

Having said that (OK, a little facetiously as well — but not much) I agree with Ryan, Dan and others who have opined that this is not an either/or situation and should in fact be an integrated view. There is an old exercise called “The Beer Game” that works wonderfully to demonstrate that the single biggest factor in managing a supply chain efficiently is to accurately predict demand. Unfortunately, “accurate prediction” is an oxymoron. But with current technology we are on the verge of being able to eschew “predicting demand” in favor of “reporting measured demand in real time” or even “influencing demand in real time.”

Don Delzell
Guest
Don Delzell
15 years 1 month ago
I tend to agree with the direction of Camille’s comments. Sufficient technology exists currently to capture a great deal of value through supply chain efficiency. Allow me my favorite soap box, please…. It isn’t really the technology, folks, it’s what you do with it! When will corporate America wake up and realize that technology should enable processes, not the other way around? Businesses which have understood the value of process improvement and intentional design are also able to make better investment decisions in technology. So much exists in the market that businesses simply are not able to take advantage of, or understand how to incorporate into their mission critical tasks, events and decision points. The ERP wave of the 80’s and early 90’s in manufacturing should stand as a testimonial. Fortune and Forbes magazines both did extensive studies in conjunction with Tier 1 business schools and both concluded the same thing: no process reengineering, no benefit delivery. In fact, the evidence showed that implementing new technology without any process change resulted in degraded business performance.… Read more »
Stephan Kouzomis
Guest
Stephan Kouzomis
15 years 1 month ago

The retail supply chain is only one piece of the needed formula for profitable success that implies consumer loyalty.

The critical subject –the other piece to the formula — is positioning the retailer in the shopper’s mind, like Target. Hence, the retailer can develop its advertising and promotion campaign (generating the needed awareness and interest to buy, outside the four walls of the outlet). Concurrently, the merchandising and other in-store activity complements the overall positioning and marketing thrust. Then, price is offered. Or, is the retail Industry still EDLP, and tactically, price oriented?

Consumers have too many choices for us to assume they will walk into the retailer’s outlets without any marketing effort, outside the four walls!

We are still confused with how the shopper needs to be motivated today. Said another way, retailers have a very difficult time finding the competitive advantage, USP, and advertising it. Hmmmmmmmmm

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