How Consumers are Transforming Supply Chain

Jim LetartThere’s a new boss in town and she is tougher than any boss you’ve had before. She wants what she wants, when and where she wants it. She’s the new digitally-empowered consumer and she is dictating how retailers and consumer goods companies must transform their supply chains to serve her.

This new boss will access your brand wherever and whenever she wants through the device of her choice. There are no channels for her, just a demand for consistent, seamless shopping experiences. She’ll reward those brands who provide this shopping experience with her loyalty. Those that don’t, get on her “naughty” list. In fact, in a survey of over 1,000 consumers conducted by JDA last month, one in four consumers who shopped online over the past year say they experienced a negative issue with delivery, and of those, 50 percent said they would not shop with the retailer who disappointed them over this holiday season.

What it Means for Brands
Gone are the days of linear supply chains. The convergence of physical and digital commerce through the consumer’s buy anywhere / deliver anywhere / return anywhere shopping journey is requiring retailers and consumer goods companies to rethink and transform their supply chains from a product-centric to a customer-centric focus. This has many implications for supply chain management.

First, companies have to get serious about finally establishing true end-to-end supply chain visibility. This includes accurate counts of what inventory is in each store, and extending this visibility to the consumer so if she places an order online for pickup in her local store, she knows it will be available when she gets there. And your ecommerce system must have that store-level visibility so that if the merchandise she wants is not in her local store, you can offer either for her to pick it up at another nearby store that has it in stock, or you can deliver it to her home or office.

Of course, making these kinds of decisions, such as offering a free home delivery alternative, requires that your ecommerce system has access to supply chain execution cost and constraint information. It doesn’t make sense to offer that alternative if you can’t meet the promised delivery timeframe or the cost wipes out your margin on the sale.

The second big change is in how your distribution centers must operate. Instead of just handling case or pallet picking for store replenishment, they now must also handle large volumes of small order picking along with cartonization, parcel manifesting and parcel shipping. While many companies outsourced ecommerce order fulfillment when channels were separate, that is a lot more problematic and expensive as physical and digital channels combine and online sales rapidly increase. For example, if an order is placed online through a separate ecommerce channel for in-store pickup, how is the inventory accounted for and how does that impact replenishment planning?

There are other considerations for the DC. Is automation equipment such as conveyors and sortation systems warranted to handle the higher each-pick volumes? Will slotting software improve picking velocity and cost? Should DC layouts be changed to accommodate these new requirements? These considerations aren’t just about cost, either. With consumers’ demands for same-day or next-day deliveries, the DC must now be much more agile than when you had standard replenishment processes.

The third major impact is on labor, both in the DC and in stores. Item-picking in the DC is more labor intensive and requires different skills and training than case and pallet picking. The new requirements for cartonization, packaging and manifesting for online orders add time and complexity. Labor management systems are needed for accuracy and efficiency.

In stores, order fulfillment is a whole new ballgame. It not only requires new skills, but also different scheduling, task management, training and incentives. For efficiency and accuracy, many of these new tasks are best directed through mobile devices.

Store associates also need help deciding what to do with the much higher volume of returns from online orders. Should the returned items be restocked, sent to another store or DC, repackaged or repaired, or returned to the supplier? Stores are much more complicated places to manage than they used to be. More automation is a must.

What it means for planning
Planning for consumer-driven omni-channel operations is much more complex than when ecommerce and store operations were separate. Basing inventory plans on what was shipped from DCs no longer is adequate because it doesn’t identify the source of the demand.

For example, if an associate at one store saves a sale on an out-of-stock item by locating it in another store, how is that demand accounted for in replenishment planning? Traditional planning systems will falsely identify the demand as coming from the second store, resulting in too much stock being replenished to that store versus the first one where the actual demand was generated. New demand-sensing planning systems are needed to accurately identify true demand in order to properly plan replenishments.

I am just hitting the tip of the iceberg in defining the many ways today’s new boss is transforming supply chain operations. Suffice it to say that those companies that achieve end-to-end visibility, develop efficient omni-channel fulfillment operations, and transform their stores will be the winners going forward. To learn more on this topic, go to JDA.com.

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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