It’s a retailer’s dream: a line of shoppers so long that the local police and fire departments are on-hand for crowd control and to ensure you don’t exceed maximum occupancy levels. Black Friday, the day after Thanksgiving in the U.S., has traditionally marked the kick-off of the holiday selling season. More importantly, it represents an opportunity for retailers to get out of the red and into the black.
With approximately 28 shopping days in the holiday season, Black Friday is certainly one of the busiest during this time period.
Is your value chain ready for the 2010 holiday season?
According to the National Retail Federation (NRF), holiday sales are expected to moderately increase this year by approximately 2.3 percent to $447.1 billion. While shoppers are still feeling a pinch from the economic downturn, it appears spending is finally starting to increase after a couple of difficult years. In another report, the NRF estimates that up to 138 million people will be shopping on Black Friday weekend.
While it may be too late to make wholesale changes in your value chain this holiday season, it is the right time to evaluate how things are going now that the holiday countdown is officially starting. As you prepare to extinguish the inevitable fires in your holiday value chain, consider the following and how you can improve things for next year:
Are you able to restock the shelves quickly? Inventory management and accurate demand forecasting are indisputably the most volatile pieces of the chain. Popular, must-have items often stock out on Black Friday. No problem if you forecasted accurately and can quickly replenish the shelves with more product. If you forecasted wrong and have a shortage of inventory, you might lose sales to your competitors. You might also be in trouble if your logistics providers cannot move inventory as quickly as needed. While some shoppers are very brand loyal, others are simply looking for a good deal and want to check one more gift off their shopping list. After all, as long as it’s the “pink one” the brand really does not matter.
Are your IT systems processing information efficiently?
Are you getting inaccurate information or seeing a time lag in feedback? The holiday selling season is short and delays in information or bad information can cost you in lost sales. In a survey conducted by the Business Continuity Institute in 2010, “Unplanned IT and telecommunication outages was the second most likely [supply chain] disruption, according to 35 percent of those surveyed, up from 20 percent last year.”
How are your channels integrated? The increasing popularity of online shopping has resulted in the coining of the term “cyber Monday” – the Monday following Black Friday when holiday shoppers return to work and begin shopping online (on their lunch breaks of course :) ). According to an Experian Survey, 57 percent of shoppers will buy online. Now more than ever, it is important to manage your inventory across multiple channels. As shoppers have become more comfortable with making online purchases, it is important for retailers and manufacturers to keep up with the trend. Customers looking for the convenience of 24/7 shopping and to avoid the crowds at the mall will turn to the Internet for their holiday shopping. If your online channel was not ready for this year, make it priority #1 for next year’s holiday planning. In addition to this, the online channel presents an opportunity to offer more product variations that retail store shelf space may not be able to accommodate.
What is your crisis plan to manage supply chain disruptions? In 2010, 70% of businesses had a supply chain disruption of some type. A disruption to your supply chain at any time of year can be costly. Add in the importance of the holiday season and the stakes get a little higher. Do you have a plan in place to manage disruptions to your supply chain this holiday season? What kind of contingency planning do you have in place? To learn more, check out these Value Unchained posts from the past year that have explored the topic of risk management.
While the focus today is on moving product through the forward supply chain, you will soon need to start thinking in reverse. The day after Thanksgiving is a huge day for sales. In the months following the holiday shopping rush we see the seasonal peak for reverse logistics. According to a study conducted by the NRF in 2009, 32.9% of recipients returned at least one gift.
What lessons did you learn last year that you solved for the 2010 holiday season? Are you ready for the peak from a returns perspective? Share your stories in the comments section below.
This is the third installment of our value chain best practices series. In part one we talked about process globalization and in part two the focus on was on supply chain sustainability. The next topic we wanted to share with you is supply chain risk, or more importantly, how to manage that risk. What processes does your company have in place to mitigate the inevitable risks that are inherent in any supply chain? Share your insight in the comments section below.
Protect Your Global Supply Chain from Risk
Is your supply chain safeguarded from unexpected risks? Events beyond your control, like natural disasters, pandemics, commercial failures and IP loss, can disrupt your supply chain and cut into your bottom line.
Be prepared should these risks occur by taking some easy precautions: identify potential risks before they happen, and create and maintain a contingency plan for your business:
Develop a risk management process
- Identify the categories of risk that could impact your business.
- Review the potential risk scenarios.
- Rate the likelihood of each scenario.
- Know the impact of each scenario.
- Prioritize each scenario based on the impact to your business.
- Choose a path: eliminate, manage, mitigate, or live with each potential risk.
- Develop your contingency plans based on the risk scenarios, and the path you select.
Communicate the risk assessment and approach
- Get executive support of your risk assessment and approach.
- Identify key leadership to execute on the plans.
- Establish cross-functional involvement to ensure all aspects of your business are protected.
- Establish cross-company support: involve your suppliers and partners for additional resources and protection.
- Clearly communicate the plan to the company through internal social media tools.
Keep it current – view as a process rather than a plan
- Test risk scenarios regularly to ensure that your plans remain effective.
- Keep the organization involved in the testing process.
- Communicate test results to the organization.
By following these proactive steps, you can protect your supply chain – and your business – from major disruption, maintain critical relationships, and avoid financial loss.
Today we hosted the latest installment in our Value Chain Exchange webinar series. I was joined by Dr. John Gattorna who provided a superb overview of the results of his research into the human factors that influence supply chain decisions and how a better understanding of those factors can improve alignment and results.
To summarize the problem statement from his research, we are consistently over servicing some customers and under servicing other customers but we do not have a mechanism to know which is which. In a supply chain world dominated by engineers, accountants and logisticians, and supported by rigid ERP systems, it is not surprising that the human element of the supply chain has been largely ignored.
The framework built by Dr. Gattorna in his more than 20 years of research challenges our traditional thoughts on customer segmentation and outlines a methodology to align customer buying behavior with supply chain design, organizational culture and leadership styles. With alignment, we have both a cost and a revenue opportunity. Dr. Gattorna’s research points to most markets having no more than three or four dominant buying behaviors.
We are already dealing with lean, agile and at times fully flexible supply chain requirements, but we are doing so without knowledge of the drivers behind these customer demands. Layering in this knowledge does not require us to abandon our existing supply chain principles, but it may create a path to providing a more effective and targeted organizational response to varied and changing customer needs.
The hybrid supply chain examples introduced toward the end of the webinar provide a very practical example of how best–in-class companies are constructing supply chains with lean manufacturing process at the front end through electronic manufacturing services and original design manufacturers, which feed agile supply chain capabilities (through companies like ModusLink) to meet customer demands with increased responsiveness and agility.
I think that this is a timely challenge to our thinking on how we manage the human element within our supply chains. I encourage you to watch the webinar on-demand if you were unable to join us for the live event, and to read Dr. Gattorna’s latest book “Dynamic Supply Chain Alignment.” Dr. Gattorna has kindly agreed to be available to continue the dialogue on the Value Unchained blog. We would love to get your thoughts and questions.
This Thursday, November 18th, the fourth installment of the Value Chain Exchange webinar series will begin at 10:00 AM EST. Register today for Dynamic Supply Chains: Unlocking the Value of People.
An effective and future-ready supply chain depends on the dynamics that people can bring to the flow of goods and services. During this webinar, supply chain thought leader and author, John Gattorna, will explore this dynamic through a model that aligns customer expectations with supply chain design, culture and organization.
The 'dynamic alignment' model focuses on understanding customers' dominant buying behaviors, and using this insight to eliminate over-servicing and reward customers being under-serviced. Gattorna will present four distinct supply chain types – fully flexible, agile, lean, and continuous replenishment – and suggest new ways of segmenting customers
The Value Chain Exchange webinar series brings together industry professionals in a dynamic exploration of the end-to-end global value chain, presenting best practices through expert insight and discussion.
View Past Value Chain Exchange Webinars On-Demand:
In the final post on the Returns Management: Too Many Cooks theme I felt that it would be appropriate to share some of the best practices that we have seen deliver value. There is no secret sauce, but a host of ingredients from the supply chain larder can be applied with good results.
- Solve the problem close to the customer. A focus on first-time fixes, either with or close to the customer, helps resolve problems quickly.
- Recognize that the problem stretches beyond organizational boundaries. Work with channel and supplier partners to understand the extended process and to align interests.
- Remove good product from the returns stream early to reduce processing cost and accelerate value recovery.
- Map reverse flows and use network optimization tools to reduce transportation and processing costs. Simulate performance with different return rate and cost assumptions prior to changing execution.
- Consider integrated returns, triage and repair operations to reduce hand-offs and accelerate returns cycle time.
- Accelerate the returns cycle to reduce spares inventory. In a closed-loop returns cycle with a high yield of no- fault-found and economic repairs, returns are an effective source of supply for spares inventory.
- Apply inventory optimization techniques to optimize inventory for service. By defining inventory in terms of service level requirement rather than days or weeks of supply, there is an opportunity to significantly reduce inventory investments while improving product availability.
- Manage repair based on an ROI rather than a transactional repair cost basis. Recognize that the yield and product recovery play a key role in the value being derived from repair processes.
- Consider value recovery as an ongoing process rather than a project. Understand the causes of excess and address these while the inventory is still ‘fresh’ (and more valuable) rather than waiting for it to become a balance sheet problem.
- Develop multiple recovery channels for excess. While the market return within a recovery market is frequently fixed, the level of recovery from different channels can vary significantly.
Like any recipe I am sure that there are more chefs’ tips that you can add to the list above. We would love to get your inputs. Happy cooking!
In this second post of our value chain best practices series, we provide some insights into supply chain sustainability. The first post of this series focused on process globalization. As always, we welcome your feedback and input – if you have anything to add to our insights below, please use the comments section.
It's here to stay so acquire a taste for it ... one bite at a time
While sustainability is expected to be a key driver of how leading companies build and manage their supply chains in the years to come, there really is no threshold at which an organization officially becomes green. Nor is there a point at which you can check it off your list of priorities and move on. Environmental sustainability is an ongoing objective, intrinsically connected to your brand - much like being lean or customer-centric.
Orchestrate sustainable efforts across the complete value chain.
It is essential for companies to orchestrate sustainable efforts across the complete value chain, from product development and manufacturing to packaging, transportation and end-of-life management. When sustainable improvements are considered from this holistic perspective, most organizations will realize cost savings and positively impact the bottom line. It’s a common misconception that sustainability efforts will drive up operational costs. In fact, the opposite is frequently true, since sustainability is achieved through efficiencies and optimization. You want to minimize costs, maximize profits and reduce the impact your products have on the environment. The goal is to net out labor costs versus transportation costs to determine the real savings and environmental impact your choices will have.
Take a bite-sized approach.
While you want to evaluate the end-to-end value chain, you do not want to embark on all possible initiatives at once. Take a bite-sized approach, focusing on manageable goals within one or two particular process areas at any given stage. Map out which areas will not only provide the best sustainable return, but the lowest cost and the most brand impact. Then determine which ones are the most valuable for your business goals.
Remember supply chain basics.
It is important to note that sustainability is not achieved independent of traditional supply chain optimization strategies that shape global manufacturing operations. For example, strategies used to combat rising transportation and logistics costs such as minimizing dead head miles and expediting fulfillment to improving capacity utilization and intermodal shipment routing can benefit the transportation carbon footprint. These efforts simultaneously contribute to reduced energy consumption, fuel combustion and carbon emissions.
Some targeted efforts that can produce quantifiable improvement in both the operational and environmental footprint include:
- plant and network redesign;
- packaging reduction; and
- end-of-life management, such as product reuse and recycling.
As a result of regulatory compliance, consumer demands, retail mandates and a wealth of other pressures, sustainable supply chains are on the global radar. The approach outlined above can produce near-term results to satisfy internal and external stakeholders, while clearing a path for longer-term continuous improvement planning.
In our previous post Returns Management: Too Many Cooks – No Clear Recipe for Success, we outlined the potential problems caused by a lack of incentive alignment between the various parties involved in the consumer product returns process. While there may not be an ‘out–of-the-can’ solution to this problem, our experience with clients in this area can help to define some key elements of the recipe.
We will start with an understanding of how the ingredients combine to create a valuable recipe:
Provide service to the customer: Surely this must be a key objective of a returns program. The customer ultimately pays the bills and we need to ensure that we define the level of service we want to provide for our products to meet their needs and reflect the service promise of our brand. That service promise may vary by product or by channel and needs to be supported by the margin structure of the business.
Maximize the net recovery of the returned product: This is the net of the recovery available for the product minus the cost of getting that recovery.
Recovery is market driven: Products, components and recycled materials typically have a recovery that is dictated by the market but can be influenced by a number of factors including product condition (new, open box, non functional), the recovery channels, warranty coverage and time (especially important for products with declining average selling prices). In practice, this can be a difficult concept for finance organizations to come to terms with. They are frequently part of the disposition approval process and come from a world of cost certainty of component and manufacturing costs.
Cost to recover needs to be judged on a return on investment basis. Every time we touch, move, test or repair a product we add to cost which is taken from the net recovery. Our recipe needs some mechanism to assess the incremental cost of a series of actions and the likely impact of those actions on the recovery.
Cost may not just be measured in expense terms: There is a social cost that also needs to be taken into account in returns management. Consideration needs to be given to the end of life disposition of products and their impact on the environment and our sustainability goals.
There may also be an Intellectual Property or brand protection ‘cost’ which manifests itself in a need to control the flow and destination of returned products to protect the value of new product and genuine component sales.
A little design can save a lot of execution: Getting a product to a desired condition can occur in many ways. Supply chain network optimization and simulation can play a significant role in designing a more effective cost versus return equation. Unlike the forward supply chain, however, there is a need to understand the impacts of variable yields from no fault found testing, triage and repair processes and potentially the impact of time on recovery. While it is possible to invest significant time and complexity in this area, it is important to keep the execution processes simple and robust.
Market intelligence and process visibility are critical to driving net recovery: While it is rarely possible to predict exact recovery, maintaining an up to date range estimate is important to help set the parameters which guide the process path for returned products.
I have not dwelled above on the impact of warranty which can clearly impact the decisions of the customer, the retailer and the OEM. It can provide certainty for one party in the returns process on the recovery but can frequently drive behaviors that increase the total cost of managing the returns process across the various partners in the process.
In the final post in this series Returns Management: Too Many Cooks - Recipe Tips, I will look at some of some of the practical steps and guidelines that we have seen to systematically improve recovery. If there are other ingredients that you would like to suggest we would love to hear them.
This has been a challenging year for global supply chains with volcanic ash halting European flights and more recently bombs found on cargo and passenger planes this past weekend.
A recent Daily Telegraph article points out that in most cases it is not known if parcels will travel on a passenger plane or cargo plane. In fact around 50% percent of all cargo now travels on passenger planes. Terrorists have clearly found one of the weakest points in the supply chain and are exploiting it fully. The use of advanced equipment that makes it more difficult to detect bombs may drive the world to relook at its security regime.
Some possible scenarios that could protect air travel from terrorism include:
- The banning of air cargo on passenger planes which could cause massive difficulties for global supply chains. Capacity would be effectively halved and costs will go up while time to market is slowed
- Profiling of packages by region and if a return address is omitted may be required.
- An increase in security checks at freight hubs may cause delays in air shipments globally and potentially create bottlenecks.
- Banning air shipments from at-risk countries.
- Increasing security charges to pay for more modern equipment in airports.
- Carriers to gather more detailed data on shipments.
The carriers moved swiftly in this case suspending airfreight services from Yemen.
Overall, no matter what measures are applied, it will drive changes in the air freight supply chain. We need to stay close to the key players in the business and be ready to adapt to changes in the supply chain.
For some additional thoughts on this topic, check out this blog post on Spend Matters that examines balancing security vs. supply chain efficiency and also read their post on terrorism in the supply chain.
Last year ModusLink created a series of tips and best practices for supply chain professionals. The series ran as an email campaign. After recently reviewing the content, I realized these tips are still highly relevant and useful. I thought our Value Unchained readers might also be interested in this information. Below, in the first installment of this tips series, are some thoughts on process globalization.
In the coming weeks I will be sharing additional installments of this series with you and welcome your feedback on each of the topics.
Converting theory into results has eluded many; refine your approach for greater process integration
and operating flexibility.
Globalization efforts are typically driven by the dual objectives of reducing total costs and improving access to local markets around the globe. Many companies have failed to implement the infrastructures needed for effective control of supply chains spanning multiple countries.
Frequently Evaluate Supply Construct & Design
To achieve the needed operating flexibility to support expansion efforts, companies should revisit the construct and design of their global supply network on a regular basis. A globally dispersed supply chain adds complexity, requiring companies to make informed decisions about where to establish facilities and whether lower-cost production regions will deliver the desired return. It is critical to consider where and when core processes should be executed and how to integrate technology systems and processes.
Where supply chains once served a company's needs for up to five years, constantly changing market dynamics require a regular review to ensure that the supply chain network remains supportive of corporate and market objectives. Many companies have moved to annual review cycles and have embedded network design principles in new product introduction cycles. More frequent analysis, while interesting, may lead to the introduction of a cost of churn in the supply chain.
Network Optimization is Key for Success
Today, each regional market presents a unique set of challenges and advantages that impact supply chain performance and cost, from materials, labor rates, and logistics to taxes, customs and time to market. A thorough analysis of these market conditions, cost factors and operating variables—and the trade-offs among them—is critical for determining the best location and time for executing core processes. This practice of Network Optimization helps balance time, distance and service in the global supply chain. It can also identify gaps in performance and fixed asset restrictions that may prohibit the seamless execution of sourcing, configuration, fulfillment and aftermarket processes across the globe.
Remember that network optimization is a scientific approach but it is also subject to the variances of forecast vs. actual data. It is important to recognize the need for tolerances when reviewing results.
Globalization is not solely about extending the supply chain; it’s about optimizing it for service and cost. The construct of the global supply chain network serves as the foundation that will make — or break — these efforts.
Recently I attended a seminar on e-commerce solutions. One of the topics discussed referred to the online customer experience and the usage and importance of the homepage/landing page of e-commerce stores. During this conversation, we referred to the real-world experience when you enter a shop through the front door. Retailers can promote their goods in the shop window and make it attractive for visitors to come inside. When a customer enters your store you can inform him about new products and draw attention to promotions and special discounts.
How does this work in the e-commerce virtual world? Many clients will enter your Web store via the homepage also known as the front door. Many clients will also enter your e-commerce shop not via the homepage, but they will drop into your store directly in front of the shelves also known as product pages containing the goods they are looking for. This happens through search engines and/or through compare sites. They will probably never go to your homepage where you have put so much effort to give it the superb fancy cover and the special banners and promotions. The homepage where your team members have been fighting for space to get their products the right attention may never be seen by many of your customers.
As customers can enter your e-commerce store several ways, you have to be sure that every (product) page will deliver a similar, welcoming experience as they would have on the homepage, thus creating the optimal multichannel experience. And are your customers also directed to the other available products and promotions that they can’t resist? So instead of one homepage, you may have many “welcome pages.” Are they all treated with the same attention?
In the discussions that we had, several participants informed us that they had not looked at their Web store from this angle and noticed that the customer experience can be improved.
How many homepages does your e-commerce store have?