SC Digest: Twas the Night Before a Supply Chain Christmas 2009
By Dan
Gilmore, Editor-in-Chief, Supply Chain Digest
Through
a special arrangement, presented here for discussion is a summary of a
current article from Supply Chain Digest.
Twas the night
before Christmas, and I was alone in the DC.
This was the
strangest year in Supply Chain I ever hope to see.
Our performance
reports were hung by the office with care,
But in this
kind of year, it was more hope and a prayer.
As VP of Supply
Chain, I must lead the ship,
But 2009 was
sure a year I could skip.
Recession, depression,
a “new normal,” they say,
I’d love to
find someone confident they now know the way.
My focus this
year was largely to cut, cut, cut, cut;
Did we take
it too far? I say “Yes” in my gut.
Demand volatility
is a new fact of life;
While we chopped
inventories with a rather blunt knife.
As we took a
look at our network, we now all realize,
There is much
opportunity to re-optimize.
“Less fixed
cost, more variable,” our CEO insists.
But is an “accordion
supply chain” not without risks?
As I sat and
pondered this year and next, there quick arose such a clatter,
I thought a
bay of reserve racks falling down was the matter.
I jumped into
my personal Cushman, raced past each and every dock door,
Towards the
back of the DC – what would I find on the floor?
But as I swung
round bulk storage, I saw I had nothing to dread,
For there sat
St. Nick, on a new Crown truck, green and red.
The red matched
his bright suit, which could not have been finer,
Though a small
tag in the back did say “Made in China.”
He was hanging
some stockings from the racking’s first beam,
And I could
see on each one the names of my supply chain’s first team.
On a pallet
sat a big bundle, which he grabbed with a laugh,
And I wondered
what Santa could have in store for my staff.
He said, “I
brought you the gifts that will help you to achieve,
Supply chain
excellence and agility in 2010, I believe.
“For your head
of global logistics, finally some real software has landed;
Today they fight
global trade management challenges simply one handed!
“Your forecasting
head will like ‘demand sensing’ tools quite a lot;
No ones quite
sure what they are…but they really seem hot!
“For your director
of transportation, a real-time load optimizer,
And carrier
bid tools, so your freight contracts are wiser.
“For your inventory
team, I can remove much of their pain,
With inventory
optimization across every echelon in the chain.
“Your DC manager
will like the voice pick system she’ll be receiving,
And an advanced
WMS that supports task interleaving.
“For you, a
new Supply Chain dashboard, with all the metrics you want,
So you can see
by the second who’s performing, and who’s not!”
Then he paused
for a second, and put a finger to his lips,
Reached in his
bag, and pulled out a fistful of chips.
“And the greatest
gift of all, as I’m sure you’ll agree,
Is for everyone,
everywhere – lots of RFID!”
He dropped the
tags in the stockings, turned round with some flair,
Pushed a button
on the Crown, and it took off in the air!
“Thank you Santa,”
I shouted, “These are really great tools!
But we’ll need
help to deploy them, configure business rules!”
Santa yelled,
“Yes, the value from tech is sometimes not resultant.
But my elves
are just coders – better hire lots of consultants!”
And I heard
him exclaim, as he floated high above,
“Yes, supply
chain’s sure hard, but it’s the business we love!”
Discussion
Questions: In hindsight, how has the downturn reshaped supply chain strategies?
Will retailers and manufacturers get more strategic with their supply
chains in 2010, or continue to “hunker down”? What supply chain technology
solutions will be most in demand coming out of the recession?
A poem? Someone has too much time on his hands!
Seriously…the one enduring retail legacy I see from this recession (apart from the need to communicate a value message) is the notion of inventory as a shared resource across selling channels and stores. This isn’t exactly a Supply Chain application–it’s more of a hybrid between merchandising and Supply Chain. And execution of the concept crosses Supply Chain and Store Operations.
Merchants will face continued pressure to localize and trim assortments, even as most retailers continue sourcing far from the point of demand. The only way to execute with precision is by making inventory visible and accessible from all parts of the enterprise; buy online–fulfill in stores; order from one store–fill from either another store or a distribution center; and buy from the retailer–fulfill from the manufacturer/brand manager/distributor.
I confess to a certain amount of surprise that a return to some percentage of local sourcing hasn’t gotten more play. A scant few retailers (or manufacturers) outside of supermarket and chain drug actually source private-label goods close to the point of demand in the US. But apparently changing sourcing strategies is barely on the table.
Thus, inventory has to be a shared resource once it has landed, otherwise, out-of-stocks and inventory imbalances will go through the roof.
Happy holidays, everyone.
Wow, max points for creativity and effort! But to answer the question…. The biggest change that RSR saw in its research was a greater awareness of hidden risks. 2008-09, with their seesaw in transportation costs and commodity costs, and yes, widely variable demand, exposed some flawed assumptions in the way that many retailers and manufacturers optimized their supply chains–it wasn’t that they weren’t optimized before, it’s just that they were optimized against some assumptions around oil costs in particular that turned out not to hold. An extended supply chain that reaches into China and beyond is great–when oil is $40 a barrel. It’s suddenly not so great when oil is $140 a barrel.
Retailers and manufacturers alike are taking another look at their supply chains with a new eye for what risks they are exposed to. No one can eliminate all risks–but you can reduce your exposure, you can hedge, and you can position options that you can kick into effect if the situation warrants. So, some manufacturers held raw materials inventory and options on manufacturing capacity–just in case. Some retailers have been working on exposing supply chain costs internally, so that a merchandiser can make an intelligent call on whether to expedite to make a sale date, or let it slip by a couple of days–whether it’s cheaper to expedite, or risk too much inventory in the wrong location.
While 2009 may have been a year to forget, actually, the lessons learned from it are ones to remember.
“Just-in-time” was an interesting concept the U.S. adapted from Japan. It was to allow retailers and others to lower their inventory (and associated carrying costs) and still meet the demands of the customer. Over time, we have seen this morph into something that many have been taken too far, resulting too little inventory to meet demand.
There is hope on the horizon in the form of new technology that monitors inventory levels, better forecasts demand, handles dispatching of supply, etc, by linking the various demand points along the supply chain from retail to manufacturer. In some cases (most notably retail fuel for the c-store industry) we have seen the technology include even linking various on-board devices (OBDs) into the supply chain system to allow for real-time monitoring of a delivery fleet.
What will work best for a particular scenario will depend on the current state of the art, the channel involved, etc. That being said, there is no question supply chain management will continue to improve or those along it will not survive.
I’d like to nominate Dan for “Best in Class” in creativity for this piece. Nice job!
One problem I see for mid- to high-end retailers is that they cut too much inventory this year because of a fear of getting stuck with a lot of merchandise as they did last year. So, this year they are losing sales because of out-of-stocks and complete “sold outs.” It’s tough to manage demand when you are talking about whether you’ll sell 4 or 6 units of an expensive item.
Thankfully, Supply Chain has garnered the well-earned/high regard that they deserve on the great impact they have had on Retail Revenue, Margin, and Profits–this group has faced more challenges in the past 18 months than most have had to deal with in the past 10 years–excess merchandise, gas prices, shipping channels, effective allocation in various regions, cross-shipping, etc.
For 2010, Demand Planning has to be priority #1 for the group. It impacts each Quarter, and it leads to more effective and efficient applications over the long run. That means that Supply Chain has to be a part of the CONSUMER discussion. Having those consumer insights will support their efforts for greater wins in the New Year. And, it will bring them to the center table as the critically important team members that they are.
Definitely yes, the downturn has reshaped supply chain strategies. It has made retailers realize that much of the cash flow was trapped in supply chain inefficiencies. Inventory was always a big item on the balance sheet and retailers attacked it first just to realize that trimming with a blunt knife could do more harm than good. This will perhaps lead to focus on inventory next year around too.
Retailers should invest in getting inventories right. Localization-enabling technologies would be in focus and so will be demand predicting/forecasting upgrades in line to drive the changes in business. Retailers should focus on reducing the lead times, then pressure would be on vendors to innovate and work on new business models to bring in supply chain efficiencies and agility. Hence, sourcing applications will also be in focus.