It’s time to get serious about supply chain collaboration (again)

Discussion
Oct 01, 2014

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.

Retailers need a new definition for "supply chain visibility." They have long been telling us that they desperately need more supply chain visibility and yet inexplicably seem unable to make any progress towards achieving that goal.

Whenever we dug into the "amount" of visibility that retailers had achieved, it was always pretty miserable — inbound to the DC, and maybe inbound to stores. As much as supply chain leaders expressed frustration over a lack of visibility, merchandising is the boss — the dog that wags the tail. And the merchandising team is typically not incented in a way that makes them care about inventory accuracy.

My new theory is that retailers are defining supply chain visibility in a way that fundamentally differs from how I, as an observer, might define it. In reality, what retailers mean is better visibility into orders and demand, not inventory — visibility into the things that help merchandising plan better, rather than visibility to help the enterprise better allocate and fulfill inventory.

When supply chains only went in one direction — from supplier to store — that view could make sense. But when every point in the supply chain becomes a potential fulfillment hub, that philosophy gets completely upended.

Consumers want their products fast and they want them delivered to their doorsteps for free. At this moment, there is a margin-to-weight ratio for retail goods. On one side of the ratio, it is economical for products to be shipped or delivered (big ticket items, fashion, etc.), and on the other side of the ratio, it is not at all economical (CPG, grocery, etc.).

But in order to most effectively meet consumer demand in that kind of world, where the threshold for "economical to ship" reaches something close to $0, the whole retail ecosystem is going to need to know where every single piece of inventory is within the supply chain. They’re all going to have to have the ability to grab one piece of product from anywhere within that supply chain and get it to a specific point of demand.

So, as has been urged by RSR and others, supply chain collaboration — including with merchandise vendors, distributors and logistics providers — is going to have to happen, not for planning purposes, but in order to make the whole supply chain as lean and yet flexible as possible. But that just is not going to happen until retailers value inventory visibility, in order to meet consumer demand no matter how it may get expressed. No one is going to be able to do that alone.

Do you agree that retailers have to expand their view of supply chain visibility to include inventory accuracy? How else does supply chain visibility have to be expanded when every point in the supply chain becomes a potential fulfillment hub?

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14 Comments on "It’s time to get serious about supply chain collaboration (again)"


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Chris Petersen, PhD
Guest
8 years 4 months ago

When there is enough “buffer” in the system, you can afford to be sloppy and lazy about precision. I wholeheartedly agree with Nikki Baird on this one. It’s not only time to get serious about inventory visibility, it is a retail survival imperative.

Amazon has completely changed the game in terms of visibility of inventory within their own systems, and all the way to your door. Not only does that take cost out of the supply chain, but it creates entirely new levels of consumer satisfaction and expectations. Via Amazon I now expect to know what each vendor partner selling on Amazon has in stock, and then be able track it by day when it ships all the way to my door.

Beyond costs, retailers need to realize that consumers are voting for high levels of service and confidence that come with inventory and supply chain visibility.

Keith Anderson
Guest
8 years 4 months ago

RSR is right to sound the alarm.

In pure brick-and-mortar retailing, in-stocks and shelf execution are still perhaps the greatest lever retailers have to drive sales—hence Walmart’s relentless focus on “on-shelf availability” over the last 18 months.

And the promise of flexible fulfillment options (especially pick-up or ship-from-store) is contingent on accurate perpetual inventories.

But these capabilities require major systems investments and process overhauls, and many retailers seem to be deferring the investment.

It often takes a critical mass of high-visibility competitors taking action (or a small number of breakout success stories) to spur the rest of the industry.

Ryan Mathews
Guest
8 years 4 months ago
In some cases yes, but the more pertinent question is where does it stop? Do, for example, supply chains extend all the way back to raw material producers? Of course, so, does a retailer in Topeka need to monitor commodity market conditions in Africa before they can effectively sell coffee? Probably not. There’s the added problem of processing more and more total inventory information. While Nikki is spot on about the need for a broader scope in an era of continual technological innovation, systems could quickly drown in data that isn’t mission critical. Note: Those same systems are uniquely ineffective in terms of their ability to process POS and/or customer data. The critical phrase in the question is, “… when EVERY point in the supply chain becomes a POTENTIAL fulfillment hub.” It’s possible to create a model which is, in essence, is a logistics version of Zeno’s paradox of motion where potential inventory impacts are examined in a series of an infinite regressions of “what ifs” but that’s hardly a practical approach. So, as is… Read more »
Dave Wendland
Guest
8 years 4 months ago

Supply chain visibility has ALWAYS been an issue and will ALWAYS be a concern. The scenario presented by RSR sounds great in theory but I believe cost constraints will keep it outside reach. Not to mention concerns about product integrity (especially in the consumer healthcare industry where our firm focuses its attention).

I’m an ardent proponent of collaboration and feel much can be done to improve visibility between suppliers and retailers. It continues to amaze me that alignment remains an issue for many—putting the customer first should be a shared goal. Let’s work more closely together to make it a reality.

Camille P. Schuster, Ph.D.
Guest
8 years 4 months ago

Determining which information is necessary for making which decisions is the first step. Having all information available to all players in the supply chain will overwhelm all the players. However, some information is critical for demand planning, some information is critical for order fulfillment. Who needs which data when to make what decisions? This approach is still a major challenge without making supply chain information available at all possible fulfillment hubs.

Gajendra Ratnavel
Guest
8 years 4 months ago
Although technical, the visibility to the supply chain is fairly straight forward today, however, the issue is much more complex. Supply chain efficiency is a massive competitive advantage. I can tell you that, personally, I would never expose this outside my company. We spent a lot of time and effort in developing our supply chain and it will remain one of the companies’ most coveted assets. Just to give you an idea how important I feel it is, it would be like posting the source code to our flagship software product. However, there may be a solution to expose parts of the supply chain without giving away your whole supply chain system. I am going to use a simplified supply chain of cotton to t-shirt as an example. Cultivation -> Cotton Gin/Lint -> Yarn -> Fabric Mill -> Product Manufacturer -> Retailer Each stage has inputs that affect the output. For example, cultivation inputs may be weather, fertilizer supply, healthy plants, etc. For cotton gin/lint, maybe to cotton, working machines, etc. I am no cotton… Read more »
W. Frank Dell II, CMC
Guest
8 years 4 months ago

Supply chain visibility always included inventory accuracy, this is not new. The problem has been having an accurate store inventory. After over 25 years of POS scanning, will still have store inventory errors. Yes, some is due to shrink and damage, but without proper procedures this will continue. There is simply no reason the complete supply chain could be driven by consumer sales with no associate interaction. This should eliminate forecasting which creates the greatest inefficiency in the supply chain. Retailers should really look at the cost side of using the store as a fulfillment center. Every time product is touched in the supply chain it accrues cost. Additional handling in the store only increases the cost.

Simon Jones
Guest
Simon Jones
8 years 4 months ago

Absolutely correct, real-time, accurate SKU-level store inventory control is essential for a demand chain to work. Do this and you could predict off-sales, out of stocks and reduce fresh waste to start off.

Tom Redd
Guest
8 years 4 months ago

The secret to winning the next phase of this millennial-driven, fast changing retail game will be the supply chain — from plan, to fulfill, to returns management. All the heads are turned towards the shopper and not watching behind them as their DCs/hubs etc. are dying for improvement.

Stop the consumer/shopper this and that and get focused on how to best move products into the channels.

Cathy Hotka
Guest
8 years 4 months ago

Nikki’s exactly right. To have the kind of fluid and adaptive supply chain that’s going to be required in the mobile age, retailers are going to have to be able to locate finished products anywhere in the manufacturer-to-retailer continuum. That’s going to take a variety of technologies to accomplish, but the results would be truly exciting — genuinely frictionless commerce for consumers.

Melanie Nuce
Guest
8 years 4 months ago

I agree with Nikki that inventory identification, tracking and management will be the core competencies that matter most in achieving omni-channel success. The good news is there is already a system of standards (full disclosure that I work for GS1 US) that provides a ready-made foundation to ensure that not just inventory visibility is achieved, but real-time inventory visibility.

Item-level RFID has been piloted for years and is making headlines, most recently from retailers like Macy’s and others that are committing to RFID to drive supply chain efficiencies. There are numerous use cases that prove its effectiveness as the backbone for delivering on omni-channel. Seems that as the value of inventory visibility is underscored, RFID should be as well. To deliver products quickly to the customer at the right moment, standards-based technology such as EPC-enabled RFID is critical in providing the requisite level of visibility to make this a reality.

Ralph Jacobson
Guest
8 years 4 months ago

Seriously?! Are we still dealing with misunderstanding the components of what make up the supply chain, or better said, “supply networks”?

What is more important than “inventory accuracy” when it comes to supply network optimization? I challenge CEOs to walk into any of their stores, including new, flagship stores that corporate people walk through every day, and look for out of stock conditions and reserve inventory levels. We have found more than 30% out of stock conditions in multinational retailers in critical product categories. Additionally, we typically see fewer inventory turns per store than the product delivery schedules would allow if leveraged to the stores’ true holding capacity.

Bottom line, we have got to start getting this right. Basic, decades-old challenges are still killing profitable growth around the world. This need not be complicated, just consistent in the way we approach the challenge throughout the global “supply networks”.

Ed Stevens
Guest
Ed Stevens
8 years 4 months ago

Nikki is definitely right that a new level of supply chain visibility is required for retailers to compete in the future. Low-cost, scalable, and very open platforms are the key enablers. What’s more, these platforms need to be intelligent as to multiple entities, varying roles, capabilities, and even pricing.

A new generation of supply chain platforms will power this revolution, and retailers will be able to adopt them in bits and pieces, gaining momentum and making progress without needing to make major investments.

Vahe Katros
Guest
Vahe Katros
8 years 3 months ago
I don’t know the details of supply chain management these days so I am going to focus on soft stuff—first lets look at collaboration. In a fast follower industry, someone needs to go first. In the past, collaboration initiatives helped the industry. They were back office in nature and the closest we came to involving the customer was forecasting. People wanted to help, but has the motivation and incentive changed? The supply chain problem outlined here has a customer element as in b2b2c. With industry consolidation on the horizon, will the remaining players, who might have been collaboration leaders in the past, want to solve this problem? And what is the problem? As is usually the case with business process re-engineering (do they still call it that?), there are many. In the b2b2c scenario, some of the problems are anxiety over unknown waits and service levels. If S=P-E ( S stands for satisfaction, P for perception and E for expectation) How much of the problem is supply chain vs. brand management? I don’t know. Collaboration,… Read more »
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