data

People Will Keep The Lights On- Warehouse Management of Tomorrow

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Robots, algorithms, automated answering machines, self driving cars and unmanned drones….Are organizations moving closer to the lights out supply chain? Not. Most organizations have learned that keeping a close pulse on their customer’s market trends and utilizing this valuable information to make supply chain decisions can improve the brand growth and ROI. There are certainly technology solutions aiming for a lights out outcome, and market leaders, like Amazon, increasingly investing in automation and testing new solutions; however even from Amazon the prospect of a lights out fulfillment network in decades away.

Supply chain is the new competitive weapon of the business. As consumer closely scrutinize every business decision of their favorite brands, the supply chain ability to be accurate, timely and deliver goods as promised has become more important than ever. Progressive organizations are leveraging their supply chain and creating competitive advantage by building stronger partnerships with their main suppliers, diving deep into last mile delivery solutions, and incorporating the voice of the customer in forecasting and supply planning.

1.      Build Strong Partnerships with Key Suppliers

Companies cannot guarantee the integrity of their supply chain or quality of their product being far removed from sourcing and manufacturing processes. The growing expectation of accountability from consumers is pushing companies to become more engaged within their supply chain, build closer relationships with original equipment manufacturers and raw materials providers. Millennials prefer to make procurement deals directly with manufacturers- cutting out distributors. This process helps ensure tight quality controls, improve direct from factory cost savings; it also impacts margins and health of distributors who have thrived in this space. A research study conducted by UPS shows that millennials prefer researching companies online using tech channels that may be less familiar to older buyers. This trend has seen a 20% increase in the past two years and is expected to continue growing over the next 3-5 years, potentially eliminating a percentage of middle market distributors.

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As companies shape stronger partnerships in their supply chain and become more informed about their provider’s operations, new opportunities for data sharing, process improvement and collective costs savings will emerge. Currently, supply chain professionals struggle with the types and integrity of data available within and outside of the enterprise. Lack of accurate data sharing and collaborative analysis causes demand forecasting, supply and inventory bullwhip problems.  Accurately predicting and communicating demand trends across the entire supply chain will help businesses negotiate year-over-year price reductions in the order of 3%-5%. These are a direct result of setting shared goals with suppliers’ brands trust over time.

Successful organizations need to be connected to their partners to ensure real time sensing of risk, changes in demand, or updates to orders. In supply chain, as in business at large, success is 100% dependent on strong partnerships, the sustained consolidation of the marine shipping industry over the past five years is a clear indication that together we are stronger.  Will we start to notice more vertical integration of organizations across varying industries?

2.      Dive Deep into The Last Mile

This is the #1 opportunity for the supply chain to interact with the customer, and oftentimes one of the most impactful times in the customer delight process of any purchase. The last mile offers unique opportunities for optimization, and cost savings with a focus on guaranteeing customer happiness and brand loyalty. Many traditional, and online only retailers focus on improving the last mile service with real time order updates, which include reverse logistics, and sometimes even. Consumers expect products to arrive on time and not damaged, with continuous visibility into the delivery status. Some organizations, such as Amazon have gone so far as to ensure the package is pleasant for the consumer to open, while maintaining packaging costs low with their SIOC (ship in own container) program.

Over the past few years, as ecommerce growth has increased, leading companies invested pointedly into research and development for autonomous vehicles to help last mile delivery processes. Other service providers are expanding partnerships outside of the traditional shipping industry to continue improving services and transit times to consumes. For example, FedEx is increasing its partnership with Dollar General (8,000 locations) and Walmart (500 locations); the company is also investing in additional store fronts to continue servicing their most important customer sector, ecommerce SMBs. According to FedEx CMO “the FedEx Office retail locations bring in some of our most profitable small and medium business because [of] the experience they get when they are shipping…and they want the peace of mind of proper packaging.” This illustrates an understanding FedEx of just how important success in the last mile is for all involved.

Last mile delivery is most impactful for the food industry, there are numerous opportunities to learn from innovations in this space. Whether prepared or online grocery, organizations providing these services to consumers must be even more vigilant of last mile services.

3.      Listen to the Voice of the Customer

Traditional supply chain solutions were designed to solve problems within the walls of the organization. Globalization forces all businesses, including SMLBs to think globally. Most realize that success with continued growth fully depends on outside factors, some out of our immediate control but some which can be influenced. Analyzing existing or historical data only teams do not get full visibility of their customer trends. This approach delivers sub-optimal supply and demand forecasting models and leads to making decisions on based fragmented information.

Supply chain teams require real time point of sale data, consumer online sentiment, alongside partner driven forecast to assemble the monthly demand and supply planning. To successfully utilize the information organizations must diagnose customer behavior to prescribe the right market segmentation. Customers are getting closer to the supply chain- this is especially noticeable for higher end brands and items, where customers have immediate and direct impact on the well being of the organization, but this is increasingly truer even in highly commoditized consumer goods organizations.

Tracking the brand, the consumers who interact with it, and translating this data into intelligent information that can help drive precise winning decisions. Supply chain needs to work with the data and truly know the customer. Who drives the business? E-commerce companies such as Amazon have huge amounts of customer data that can be used to target specific people and convince them to buy certain things. With mobile apps and loyalty programs, chains such as McDonald’s, Burger King, and Starbucks are attempting to similarly track customers, adjusting options to convince them to spend more. Supply chain teams need to be in the know of all these push/ pull strategies and collaborate cross-functionally to truly understand consumer trends.

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So, are we heading towards an era of lights-out supply chain management? No! Supply chains, as most consumer dependent businesses, rely on people to run them successfully. People to build the right supplier partnerships, people who can strengthen the connection between a brand and customer when the product is delivered, and people who can reach into the hearts of consumers and understand what drives them.  Lights Out? People in the Supply Chain of Tomorrow.

This article first appeared on https://www.letstalksupplychain.com/blog/- make sure to visit Let’s Talk Supply Chain website for the latest #supplychain discussions, videos, articles and podcasts.

Supply Chain Dynamics: What if… We Could Think Differently

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Supply chain innovation means taking full advantage of best of breed technology and data algorithms that empower intelligent decision-making. The exchange of information, from inside and outside the organization, must be real time, autonomous and continuous.

Previously, I shared an article with insights into the integration of advanced data analytics in supply chain planning. Last week I had the opportunity to participate in a discussion on this topic at the 13th Annual Supply Chain and Logistics Summit. I also attended presentations from Kellogg, Johnson & Johnson and Colgate Palmolive; companies recognized as leaders in supply chain innovation and part of this year’s Gartner Supply Chain Top 25 report. Each speaker mentioned the importance of real time data integration and end-to-end visibility, and gave examples of how this is currently achieved in their respective organizations.

For more than 98% of global companies, implementing a data strategy and using advanced analytics, especially within the supply chain, is a challenge. Not all companies have the talent or financial resources to undertake this type of project. Investments in data structures, analytics and employee training are costly. Knowledge gains from this information are still fragmented between functional silos and across supply chain networks, creating a lack of value and low ROI.

What if we think differently about supply chain data, network collaboration and knowledge sharing?

1. What if we brought everyone to the planning table?

The Sales and Operations planning process (S&OP) has taken a leading role in supply chain design. S&OP is a great way to connect previously detached processes and prepare a better forecast. This process often falls short because we do invite all departments involved to the planning discussion.

In the consumer-packaged goods industry the cost of logistics accounts on average for 7% of revenues. Logistics partners and internal stakeholders are not part of the S&OP process. This creates a discrepancy in understanding the total cost to serve, and can lead to major challenges in meeting demand and preventing stock-outs at retail stores. Unforeseen trouble in the transportation and logistics network can also hurt brand image. When we involve all actors in the planning process and use data from all nodes within the network we are able to prepare more accurate forecasting models.

Speed and agility are the most important drivers in meeting customer demand. As supply chain executives we must take full advantage of all the knowledge available in the data and capitalize on our partner’s core competencies. This is the model of future intelligent supply chains.

2. What if we removed longstanding communication barriers?

Functional, siloed organizational structures are standard. A chain of command exists in every organization, each department has specific KPIs, and actors in a supply network have individual vested interests. The ultimate goal is to drive down costs, extend payables periods to release working capital and increase gross margin, all without regard for how this affects the overall system.

This is a direct result of the lack of communication and visibility within organizational departments, and throughout the entire supply chain.

What if we used data knowledge to create an unprecedented alignment of all stakeholders, with common KPIs across the entire network?

If we did this, we could create truly agile supply chains with increased flexibility and visibility. This network could offer better response to omni-channel customer demands. We could lower overall costs and risk by incentivizing shared inventory, shared operations and gain complete chain visibility.

Ultimately, we would create real time automated information sharing networks and continuous supply chain optimization. Participating in such a system creates value for all actors; it promotes proactive policies for risk prevention and creates cognitive systems that learn over time.

3. What if we built supply chains with end customers in mind?

A recent study from Terra Technology finds that for most companies 10% of items generate 75% of sales, and that the bottom 50% creates a long tail contributing to only 1% of sales. The costs associated with planning, producing, moving, storing, marketing and shelving all of all products affect the overall bottom line.

Only 18% of suppliers receive point of sale data from retail partners. Without SKU level data from downstream partners in the retail sector it is impossible for upstream actors to plan accordingly. Furthermore, the retail sector continues to charge upstream suppliers for these insights. New research from GT Nexus finds that around the world 81% of adults have tried to purchase a product that was out of stock at a brick and mortar store. The study also shows that this leads consumers to become dissatisfied with the brand, 1/3 of shoppers blame the retailer and 65% of them shop for the product online from a competitor.

Unlike excess inventory, we cannot measure the lost sales due to inventory stock outs. We must rethink the design of our supply chains, the sharing of knowledge within organizations and networks to gain visibility and become truly agile. Lack of collaboration is an archaic practice in supply chain management and will serve to further distinguish leaders from laggards.

If we really planned the supply chain with the end customer in mind we could significantly lessen the number of stock outs. E-commerce and click-and-collect models apply new pressures on global supply chains. We can no longer use the same fragmented processes, information and technology to meet demand and enhance customer experience.

The future of competition is no longer business vs. business, but supply chain vs. supply chain. We must empower our supply chains to sense system changes and adapt accordingly, while increasing collaboration within our global networks.  Our ability to think differently about managing supply chain processes will lead to the development of truly intelligent organizations.

Holiday Season is Fast Approaching, Compete with Amazon Without Free Shipping

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If an organizational goal is to compete with Amazon at e-commerce you’re likely setting your company up for failure, it also underlines a business strategy that lacks an understanding in the power of their brand and market niche. However, this should not discourage any company or brand from striving to improve on their e-commerce metrics, operational or otherwise. In the past month we’ve seen Amazon force brand giant Nike to become part of their platform, after years of resistance. This is because Amazon is only as successful as the power, and quality, of the brands in which it transacts.

Nike, along with many other strong brands, have concerns about this partnership: counterfeit products, Amazon cannibalizing customers from the Nike web storefront platform, and eventually Amazon private label production of Nike style footwear. These are all valid concerns, and when a longstanding leader like Nike is reluctant, enterprise and SMB’s should all take notice. Amazon focuses on three main pillars of service: price- right price, not always the lowest; selection- all the selection; and convenience- best way for the customer to get to the products; however, they cannot control a brand’s connection to the customer and will never have the ability to build strong relationships across such a large and diverse network.

  1. Take Advantage of a Diverse Logistics Network

 

Amazon does logistics right; there’s no denying that the company has become a leader in supply chain optimization and operational efficiency. One reason Amazon is so successful is that they have mastered a flexible and wide logistics network; that the company primarily runs with its own employees. They also have numerous vendors who service them through Drop Ship programs therefore expanding their outreach. Various platforms exist that connect organizations that need warehousing space that have organizations with extra space in over 45 markets across North America. Using these types of shared space networks will empower businesses to proactively plan for peak times, better understand their marketplace and place the right assortment of product closer to the end consumer. By placing the product closer to the customer companies can offer free shipping without detrimental hits to their bottom line; but more importantly they can offer fast delivery and further delight the customer.

 

  1. Develop Deep, Collaborative Relationships with Suppliers

 

In total Amazon sells over 480 million products just in the USA, this is an 8% growth from December 2016; the company is also shipping a large portion of their assortment to 180 countries around the world. Their Achilles heel is forecasting! Brands know their product, assortment and suppliers better than Amazon. This creates increased risk in the Amazon supply chain which is why there is an increased effort to start sourcing most of their fast moving ASIN (Amazon Standard Identification Number) directly from vendor factories. Their ultimate desire, as we can see in the apparel industry, is to move their supply chain directly to the OEM (Original Equipment Manufacturer).

Build trust with suppliers, create collaborative forecasting program and share in raw materials risk. Provide manufacturers and factories with visibility into your sales and operations planning data and give them a stake in the game.

 

  1. Brand and Assortment

New product launches are the best opportunity for brands to connect or reconnect to customers, educate and listen to their feedback. With a vast and global supply chain Amazon cannot understand all nuances of their vendor’s supply planning and network risk. As such, the company is searching to increase the number of drop ship partners across the country. Unlike most retailers, Amazon does not accept a fee for this program, however they pitch the service as the brand’s opportunity to place the product in the customer’s hands faster as it does not have to circulate through the Amazon network.

For some legacy products this makes sense, but for newly released products brands should be very weary of placing these into the Amazon supply chain. The optimal approach for new products is to limit and control the supply chain as much as possible, and back this up with enough marketing dollars that the needed visibility exists and sales take off without Amazon.

  1. Shipping

Shipping does not have to be free, however it does have to be hassle free on the outbound as well as reverse logistics. Analyzing Amazon’s SEC filings for 2016, the company calculated a net landed cost for products at their customer’s doors of $7.2B.

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According to Amazon’s CFO, Brian Olsavsky, the total spent on shipping increased by 30% YoY driven by the fact that more than 50 milling items on their catalog are now eligible for free two day shipping, which has also increased over 70% from the previous year. As a percentage of the total company revenue the shipping costs were reported at 53.3% a the end of 2016; this would cripple most other businesses.

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Provide customers with realistic expectations, partner with the best last mile delivery providers and keep a pulse on the average rate in the market. Exceed expectations and impress the customer by anticipating post-delivery needs, do not put the business at risk to compete with Amazon’s free shipping policy.

The best thing about not being Amazon is that your customer service team can excel in understanding your brand and product and speak to the customer from experience.  Brands can listen, receive feedback, and act on their customer’s opinions. Amazon invests in improved customer service, but without the brand and product knowledge their service is lacking expertise and revolves around product delivery and directing the customer back to the original manufacturer.

Excellent customer service, coupled with strategic management of your supply chain will set you up for a successful holiday season and a strong brand in the future. Amazon will continue to grow. Being small, nimble, innovative and true to the customer will help true brands survive and strive.

Supply chain disruption – 3 lessons learned from past trends

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Supply chain disruptions are business disruptions. There is no portion of the business that is isolated from interruptions upstream or downstream in the supply chain. As SCM become more strategic in business planning, we gain a deeper understanding of how challenges and opportunities in the supply chain can impact the overall performance of the business.

1. You are only as strong as your partners are!

Supply chain disruptions are rarely under the control of business operations or supply chain executives. Oftentimes we build partnerships to help us plan for the future and put our trust in companies to support our supply chain goals.

“Freight is the heart of supply chain management. Without the ability to quickly and effectively move merchandise around the globe, the business’ ability to succeed is limited”

Global companies agree to large ocean freight contracts to stabilize yearly transportation costs, and have a baseline budget for their expected TEU transportation.

Most SMBs will likely use an NVOCC for this service; this means that a 3rd party forwarder handles all the company’s documentation and freight arrangements door-to-door. Such a practice puts SMBs at a disadvantage which became very clear during the demise of Hanjin Shipping Line. Without their knowledge, many U.S. businesses found their merchandise on Hanjin vessels due to decisions made by their NVOCC. According to SeaIntel, at the time that Hanjin filed for bankruptcy protection, the company had 43 vessels in transit with 540,000 TEU of cargo on board.

Given the time of year, the merchandise on board of the ships was planned inventory to service the U.S. and other global consumers during the 2016 holiday season. One way in which larger businesses can protect themselves from such disruption is to take this decision in-house and assign a responsible party to manage their logistics network. In this case, companies can go directly to the shipping line and negotiate long term contracts at fixed rates. Companies should fully research the shipping lines they contract with and their terms of service. Generally, there is a high TEU requirement for competitive rates and this can often backfire if the logistics team chooses a poor partner.

2. Useful, accurate predictive analytics are key 

Data from the closing of 2016 shows that retailers had increased faith in consumer spending during the holiday season, and accordingly, increased inventory holdings in the last quarter. The National Retail Federation states that the year-end increase in import volume came as a surprise to many in the retail industry. The NFR raised its forecast to a 7% gain at major U.S. ports, from 3.2% in an earlier report, while November imports rose 11.2%, beating the prediction for a 3.6% year-over-year gain.

For manufacturers and wholesalers, customer trends often include paying close attention to the retail channel as well. Very aggressive sales and inventory management trends from Amazon, and other e-commerce retailers, created market disruptions driving many brick and mortar shops out of business. Their aggressive practices continue to take markets by surprise.

“Staying ahead of customer trend curve-balls requires alignment and communication”

At the end of 2015, days before Black Friday, Amazon reconstructed their inventory management strategy, significantly shortening their days of inventory on hand. This was a strategic move enabling the company to release cash at the end of the year, and force their vendors to enter a vendor-managed inventory system within a few weeks.

Amazon, Alibaba, and Ebay changed the way end consumers search for products and make purchases. Companies have to be prepared for last minute decision-making and must have flexibility in their supply chain to deal with spikes in demand or disruptions upstream.

Understanding shifting consumer behaviors is not a one-time effort, and must be ongoing. Successful organizations are proactive in learning about their customers’ needs and prepare to meet them ahead of time. It is imperative that this effort be shared across the organization to connect knowledge from the sales team to the supply chain.

3. Your supply chain must be flexible enough to adapt

For operations professionals, the constant goal is to continuously improve on previous processes and recognize tangible cost savings. In business, however, we cannot operate in silos. Our planning and preparation can only solve for a certain percentage of all the processes covered globally. To prepare for events such as the disruptions listed above, a company’s supply chain must be flexible and the managing team must have the tools to make last-minute well-informed decisions.  A flexible supply chain should be able to detect and respond to issues and opportunities in the short and long-term with the best choices for the business.

Understanding and preparing for operational challenges is crucial to growing a successful global brand. 

Strategic planning can make the difference between hitting the mark on profitability and customer service and failing to compete in the global marketplace. Understanding the sources of disruption in a company’s supply chain makes the operations team indispensable in drafting future growth and driving strategy to support this.

This article first appeared on TradeReady the Blog for International Trade Experts.