CSCMP 22nd Annual State of Logistics Report Panel (Source: Penske)
How are manufacturers and retailers changing their supply chain and logistics strategies in response to the current state of the economy and logistics?
That was one of the questions I asked the panelists at last week’s CSCMP 22nd Annual State of Logistics Report panel session (click here for related commentary). Jeff Pilof, Group Vice President of Transportation at Macy’s, summed up his company’s response this way: “A lot of Macy’s efforts are about developing supply chain efficiencies.”
He provided several examples:
- In transportation, the focus is “less about the rate and more on how to use transportation more efficiently.” Improving cube maximization, both of ocean containers and truck trailers, has been a priority. The company is also using more intermodal.
- Macy’s is also expanding its DC Bypass capabilities. While DC Bypass is not a new concept in the retail industry, it is relatively new to Macy’s. Perhaps not coincidentally, Mr. Pilof is also the Chair of the VICS DC Bypass Subcommittee.
- Rather than doing big replenishment buys, Macy’s is focused on “replenish to sales,” which means smaller, more frequent deliveries to stores, but also less inventory.
- Like many retailers, Macy’s reaches consumers through multiple channels: online, mobile, and stores. Rather than having separate pools of inventory to serve each channel, the company is aiming to take an “omni-channel” approach, where demand and inventory are managed in a more integrated and holistic manner.
No doubt, these efforts are contributing to Macy’s positive financial results. Here are some excerpts from the comments made by Karen Hoguet, Macy’s CFO, during the company’s Q1 2011 earnings call:
We feel great about our performance in the first quarter. Our sales growth continued strong, producing a 5.4% comp store sales increase on top of last year’s 5.5% increase. As we have said repeatedly, the momentum from our restructuring and the implementation of My Macy’s is building and bodes very well for our future. And the profitability of the business increased dramatically in the quarter, with earnings per share more than tripling.
In the quarter, average unit retail was up approximately 1%. Our inventory continues to be in great shape, both in terms of quantity and quality [emphasis mine]. At the end of April, comp store inventory was up 2.8%, well below our expectation for comp sales in the second quarter.
We are off to another strong start this year, and we have every expectation it will continue. There has been a lot of speculation about how the consumer will react to higher gas prices, price inflation, stagnant housing prices and a myriad of other macroeconomic factors. No one, of course, knows how this will all play out, but we do feel great about our company’s ability to continue to outperform the competition no matter the environment [emphasis mine].
That last phrase — “to outperform the competition no matter the environment”— sounds like a great mission statement for any company. It also suggests that in addition to becoming more efficient, companies need to develop more agile/responsive/flexible (pick your favorite adjective) supply chains. Again, this is not a new concept. For example, in his now-classic article “The Triple-A Supply Chain” (Harvard Business Review, October 2004), Stanford University professor Hau Lee wrote:
First, great supply chains are agile. They react speedily to sudden changes in demand or supply. Second, they adapt over time as market structures and strategies evolve. Third, they align the interests of all the firms in the supply network so that companies optimize the chain’s performance when they maximize their interests. Only supply chains that are agile, adaptable, and aligned provide companies with sustainable competitive advantage.
The only difference today is that more companies are actually starting to “walk the talk” because “sudden changes in demand or supply” are occurring more frequently and “market structures and strategies [are] evolv[ing]” more quickly.
When it comes to the state of the economy and logistics, is the glass half full or half empty? That was my first question to the panelists. Overall, the panelists were optimistic about the road ahead, primarily because all stakeholders in the industry — shippers, carriers, 3PLs — have a proven history of responding to difficulties with innovation, a topic I discussed in my recent posting “Want to Spark Innovation? Create Values-Based Constraints.”
But Mr. Pilof also added, “Half full or half empty, it doesn’t matter; there’s still half air in the glass,” which is symbolic of all the inefficiencies that still exist in virtually all supply chains today, even the ones considered best-in-class.
