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.
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.
- 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.
- 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.
- 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.
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.
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.
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.
New international trade agreements do not protect companies from price wars with foreign nationals. Congress is investigating multiple Chinese companies accused of “dumping” fabrics on the US market at prices too low for domestic companies or rivals to compete with. Current findings are more information on this investigation were released by the International Trade Organization earlier this month. Trade_ Commerce_ Antidumping Investigation
Maritime safety for workers and marine life is important. Businesses have a large footprint on the environment and ocean transportation still lies at the heart of global organizations.
New regulations on weight declaration is meant to create more transparency in the transportation and logistics industry.
How will this change the current structure of the logistics market? We have seen major consolidation and M&A in the market in the past three years, more regulation will help weed out the remaining week links and leave maybe five major shipping lines ruling the oceans.
How will SOLAS affect wholesale businesses, small and large distributors, and will this regulation also create a urgent need for upgrades at manufacturing facilities around the world?
Coming to a port near you July 1st, 2016. Stay informed!
Recently I attended a panel discussion on supply chain sustainability sponsored by the Council for Supply Chain Management Professionals Southern California Roundtable. The diverse panel consisted of leaders from Sony Electronics, Vans,FoodLogiQ and Clean Energy Fuels and offered a rich discussion surrounding efforts to implement sustainable practices in large international supply chains and how these measures can help add resilience along the way.
Some of the key points that came of out the discussion are not industry specific and resonate across the board:
- You can’t change what you don’t know. The burden of carrying out an audit lies on the suppliers; FoodLogiQ offered the example of McDonalds and how the food giant required their potato suppliers to offer information regarding the growth of the vegetable, with the ultimate goal of lessening the amount of pesticides used to grow them. The farmers had to invest time and money to monitor this, but in the end this information proved valuable for the company and its suppliers. McDonalds potato suppliers now use less pesticides, costing them less in the end and protecting the land for future production.
- There is a new code of conduct that electronics, apparel and food manufactures expect their suppliers to follow. The sustainability program for Vans is far reaching and part of a more elaborate effort of the larger organization Vans belongs to, the $12 billion apparel and footwear international giant VF Corporation. Vans communicates with their suppliers regarding their sustainability efforts and monitors the impact of their operations as well as their products. They worked only with certified suppliers and conduct audits at manufacturing plants to ensure that the suggested guidelines are followed. Vans uses the Higg Index to measure product impact and the VF Corporation is part of the Sustainable Apparel Coalition, a non-profit organization that strives to create a shared vision of sustainability built upon a common approach for measuring and evaluating apparel and footwear product sustainability performance.
Sony Electronics has undertaken a huge effort to phase out the usage of certain chemicals and sustainable sourcing through conflict minerals policy and management. They have implemented stringent audits with their suppliers and require them to complete a certification process prior to developing a partnership.
- Packaging is key. Most of the time we think a lot of the impact lies in transportation but both Sony Electronics and Vans strongly agree that packaging offers great opportunities for lessening the impact of products. In both cases their research into the company’s operations show that materials and manufacturing are the biggest impact vs retail and distribution. Lifecycle assessments offer sustainability managers an understanding of how the product fares from manufacturing to disposal. Both Sony and Vans agree companies agree that sustainability measures should spread across the organization but they point out that some of the time these measures cannot be properly valued, and therefore it is hard to get teams behind these efforts. They suggest that the best way to implement sustainability measures in a large organization is to understand your footprint, find your hotspots and go after it!
- You can’t do it alone! FoodLogiQ is a partner to some of the largest food chains and food retailers in the United States. Their work with McDonalds, Chipotle and now Whole Foods Market has helped these companies become more conscious about their operations and purchasing, but has also aided in educating consumers. Have you seen the Good/ Better/ Best labels on fresh produce at Whole Foods Markets? That is an effort to help consumers make more informed decisions while helping farmers undertake better measures to protect their land, lessen their water usage and practice wise pesticide control.
Finally Clean Energy Fuels is one of America’s largest natural gas suppliers for trucks clean fleet trucks. Their efforts span from servicing local garbage trucks, through partnerships with various cities around the country to supplying large cargo trucks for companies such as C.H. Robinson and Southern Counties Express. Without their efforts these companies would still be heavily dependent on oil which creates numerous pollution problems around the country but specifically here in Southern California.
This blog is meant to share, discuss and outline challenges and opportunities in supply chain management and sustainability. Supply chain and operations management are areas of business constantly evolving and give leadership endless opportunities for increased efficiency, cost cutting and innovation. I want to outline and debate best practices in systems innovation, data management and the building blocks for resilient global supply chains.
Looking forward to thoughts and comments!