RSR Research: Supply Chain Transformation – SMB Retailers’ Unexpected Challenge

Discussion
Aug 09, 2012

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

In our March 2012 study entitled Retail Supply Chain 2012: Globalization, Localization, and Cross-Channel, RSR Research highlighted retailers’ #1 operational challenge: re-aligning supply chains to meet the challenges created by consumers’ omni-channel shopping behaviors and that past sales are no longer enough to predict future demand. But looking inside the numbers, we found that that concern is largely driven by retailers with annual top line revenues of more than $500M.

Retailers with top lines below $500M (Small to Mid-size Business or SMB retailers) are much more challenged by an internal issue: organizational friction between the merchants and supply chain operators. Given this friction, it’s perhaps not surprising that "too much inventory" and "lost sales from out-of-stocks" are also challenges for these retailers.

The reason that "organizational conflict" is such a big challenge for SMB retailers comes into better focus when we look at responses from a July 2012 RSR study, Executing on the Promise: Retail Fulfillment 2012. In that study, we noticed that by far the biggest inhibitor to addressing consumers’ cross-channel shopping behaviors was "our supply chain is not designed for omni-channel fulfillment." But unlike larger retailers, fully 50 percent of SMB retailers reported that "lack of active top level support for a cross-channel strategy" (compared to only 19 percent of larger retailers) is an obstacle to moving forward. In other words, many retailers are allowing the conflict between supply chain managers and merchants to fester.

Because the real challenge is to re-think the company’s operating model, the entire executive team needs to get engaged. The CEO needs to know that the supply chain supports the go-to-market strategy. The CFO needs to bring money-management expertise to the table to ensure that inventory, which is after all nothing more or less than money in another form, is being leveraged profitably and with minimum cost. The Chief Merchant needs to know that merchandise plans consider the true cost to land that merchandise. The Chief Marketing officer needs to work with the supply chain to ensure that demand-generating campaigns can be supported. The COO needs to make sure that all the selling staff at the point of interface with consumers has what it needs to satisfy customers. The CIO needs to know what service levels are required throughout the demand fulfillment chain and position information technology resources accordingly. All of these executives need to be at the "Supply Chain Roundtable."

Discussion Questions: Are small to mid-size retailers at a disadvantage versus larger stores in developing competitive omni-channel strategies? In what ways do you think smaller retailers can overcome the supply chain and organizational challenges mentioned in the article?

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7 Comments on "RSR Research: Supply Chain Transformation – SMB Retailers’ Unexpected Challenge"


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Ryan Mathews
Guest
9 years 9 months ago

Larger retailers have little choice when it comes to making omni-channel strategies work because the cost of failure is so high. Smaller organizations need to make supply chain as much of a focus as larger companies do and then the organizational challenges will sort themselves out.

Ralph Jacobson
Guest
9 years 9 months ago

Smaller companies can be more agile and responsive to changes in the marketplace than their larger competitors. Additionally, there are many global alliances that smaller companies can leverage to gain economies of scale. These alliances can be very localized, national or international in scope. They can employ processes like backhauling, etc. to take advantage of supply chain efficiencies that typically larger organizations utilize.

Camille P. Schuster, Ph.D.
Guest
9 years 9 months ago

Larger companies are often more aware of trends, so feel the need to respond more quickly. For the challenge of either out-of-stocks or communication between the supply chain and merchandisers to be successful, an integrated way of managing, analyzing, and transmitting information throughput the supply chain is necessary. Getting top management to be aware of the competitive necessity of the change, to budget for the change, and offer the training necessary for successful implementation is not easy.

Martin Mehalchin
Guest
Martin Mehalchin
9 years 9 months ago

More great research from RSR. Sure, small chains are at a disadvantage and they should definitely take the “Supply Chain Roundtable” approach suggested in the article. However, there are other ways they can compete too. In my view, small chains are more likely to successfully execute a service-oriented strategy based on elements like superior category and product knowledge or value added services attached to the sale. Smaller chains can also work with smaller manufactures, who may be having a hard time getting assorted at the large national players, to build a more unique assortment.

Gordon Arnold
Guest
9 years 9 months ago

This is one of the best discussions I have read and is very real time in present day retail. Failure to consider this argument for future growth and expansion plans will be most telling in future sales results for serious retailers and suppliers.

James Tenser
Guest
9 years 9 months ago

More terrific insight from Brian Kilcourse and his colleagues at RSR. Inventory inaccuracy (- and +) remains a bugaboo across the retail industry. Amazing to discover that OOS and EXI are not improved much by better supply chain processes. Why? Because the problems live at store-level, where the controlling systems require minute-by-minute sensitivity.

I believe <$500MM retailers are both disadvantaged and advantaged when it comes to addressing this disconnect. They can be much more nimble than their behemoth competitors, but they can also be much more overwhelmed with the many moving parts inherent in the omni-channel approach.

Tom Redd
Guest
9 years 9 months ago

In the SMB space, turf is more “valued” then in larger shops. It is old traditions that are followed relating to who really OWNS what. Retailers in this situation need to have a CEO willing to roll out the “retail Org ROTO-TILLER” and stir up and eliminate the turf/ownership issues and help the leaders evolve into a team-driven retail operation.

Time to stir the dirt!

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