The Darwinian Supply Chain

Jim LeTartSupply chain processes have existed since Eve brought the forbidden apple to Adam, even though the term supply chain is a relatively recent one. Over the millennia since, supply chains have evolved at an ever-greater pace. During the long evolution of the supply chain there have been certain inflection points where significant change happens fairly quickly. We are in the midst of one such inflection point right now, with another one just around the corner. Are you adapting your supply chain quickly enough?

Charles Darwin is known for his theory of evolutionary biology that postulates that small, inherited variations allow individuals to compete and survive in the changing environment. This natural selection is often mistakenly equated with the concept of “the survival of the fittest,” which carries the connotation that only the strong survive. That is not true, as demonstrated by the failures of many once-strong companies who failed to adapt to the changing marketplace. Darwinism is about adapting to change, and that is what supply chain management has always done.

What is interesting about history is that at certain points in time several forces will come together to spur significant change. The extinction of the dinosaurs, the industrial revolution, the age of computerization and automation, and the Internet, are all examples of these inflection points that rapidly alter the trajectory of the world as we know it. The supply chain is in the middle of one such inflection point caused by the rise of omni-channel shopping. Those who can quickly transform their supply chains to provide superior omni-channel shopping experiences for their customers will be the big winners going forward. Those who don’t adapt will go the way of the dinosaurs.

Omni-Channel Myths
There are several myths about omni-channel that are holding some companies back from evolving into omni-channel capable enterprises. The biggest is that omni-channel only applies to retail. While clearly retail is most immediately impacted, many other industries are also affected to varying degrees. Consumer goods companies, third party logistics providers and other retail suppliers are increasingly being asked to directly fulfill ecommerce orders for their retail partners. Many other industries, such as industrial and automotive parts suppliers, medical equipment and supplies manufacturers, and suppliers to the home improvement / do-it-yourself marketplace, now have ecommerce sites and ship directly to consumers. Even many B2B companies allow customers to order online, creating smaller, more frequent orders similar to ecommerce shipments.

The second major myth is that providing a seamless omni-channel shopping experience primarily involves linking ecommerce sites with brick-and-mortar store experiences. The real challenge and payoff is in linking the many fulfillment options such as buy online / pick-up in-store, buy online / ship-from-store or direct-to-consumer shipments from DCs. The increased demands for same-day or next-day deliveries have raised the importance and difficulty of providing these seamless fulfillment options.

The Omni-Channel Inflection Point
Why is omni-channel causing an inflection point? Because the old ways of doing business are changing in three key areas—the role of the store, the role of the DC and the way merchandise is positioned.

The changing role of the store is obvious when you consider offering new services such as shipment or pickup of online orders. But stores are also now being used by shoppers as research points. Shoppers want to see or try on merchandise, or ask questions of store associates, before ordering online. This has implications for how merchandise is positioned and displayed, how stores are staffed, how associates are trained and equipped, and how store associates are compensated.

The impact on DCs is also dramatic. When retailers first added ecommerce channels, they frequently set up separate DCs for fulfillment or outsourced this task. To handle the volume of omni-channel orders and take advantage of a single pool of inventory and a single workforce, many companies are now bringing all fulfillment under one roof. But fulfilling single-item orders and handling parcel shipments is a lot different than replenishing stores with pallet and case pick methods and truckload shipments. Workers need to be retrained, labor management practices must be more exacting, incentive programs must change, and often new automation equipment is brought in. All of these factors must come together to provide seamless shopping / fulfillment experiences for customers.

Merchandising must also now change. The old product-based and channel-based merchandising “push” strategies no longer are adequate in the face of the consumer-driven economy. All companies must better understand their customers, segment and assort to their local preferences, and be agile enough to react quickly and profitably as customer demand changes.

The combination of these changing roles of the store, DC and merchandising are causing the current inflection point in supply chain management. If you are still handling these areas the same way you did five years ago, you are way behind your peers.

The Next Supply Chain Inflection Point
Consistent with the continued acceleration of the rate of change in the world and in business, the next Darwinian inflection point is coming right on the heels of the current one. The emergence of the Internet of Things (IoT) and 3D printing will drastically change supply chain operations faster than you might think. You’ll need to complete your omni-channel transformation before tackling this next step in Darwinian evolution. Will you be able to adapt quickly enough to survive supply chain natural selection?

 

In his role as Director, Thought Leadership at JDA Software, Jim LeTart is responsible for developing thought leading content to support JDA’s Plan to Deliver suite of integrated retail and supply chain plan and execution solutions. Jim came to JDA in 2013 through its merger with RedPrairie, where he spent over 13 years in various marketing leadership roles. Jim has over 35 years of sales and marketing experience in the computer technology industry, and is a frequent speaker, writer and blogger on how technology can improve business processes and outcomes. Jim has an MBA from the University of Michigan and a BSME from Marquette University.

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