With an increasing number of embattled retailers looking to make cost savings by taking money out of their supply chain, RedPrairie Supply Chain Industry Director EMEA Michelle Campbell is warning businesses operating in the industry not to act too hastily.
By Michelle Campbell
The supply chain is often referred to as ‘the heart and lungs’ of a business and could also be thought of as the arterial system that must carry everything smoothly, efficiently and predictably to where it is required.
Consider what happens to the human body when that system is squeezed – the pressure rises, the flow is interrupted, bits stop working and we die.
And, although no-one would contend that the health (or otherwise) of a supply chain has quite such final consequences, it can represent the difference between profit and loss – the retail equivalent of life or death.
The retail supply chain has long been seen as a rich source of cost savings and never more so than over the last few years. However, squeeze the wrong bit or squeeze too hard and the consequences can be severe – for example, whilst sourcing from low cost manufacturing locations has obvious advantages, these must be weighed against the risks associated with extended supply chains in terms of quality and time to market.
Failure to manage these risks can be disastrous for a retailer’s reputation.
Getting the balance right
The trick then is to squeeze in just the right place and with the right amount of pressure in order to take out cost whilst continuing to deliver a high quality product that is available when and where the customer wants to buy it, without ending up with a warehouse full of excess stock.
This is possible through the application of lean techniques and technology to provide supply chain visibility and control, from point of origin to point of consumption.
For example, the latest technology allows retailers to forecast demand much more accurately from item level data in their sales channels, where true consumer demand begins, and flow this up through the supply chain to drive all other activities, from the store to manufacturing plants and raw material suppliers, effectively matching supply with actual, rather than forecast, sales.
Within the distribution centre, modern warehouse management systems not only ensure complete visibility and accuracy of inventory, but optimise the productivity of the warehouse operation through the automation of processes and system-directed tasking. Historically the preserve of large retail distribution operations, the advent of ‘software as a service’ and computing in the cloud makes this technology accessible to smaller organisations.
Of course, inventory is not the only cost within the supply chain and there are a number of other areas in which retailers can streamline their operations.
The weakest link
Whilst the various elements of the supply chain may all be well managed, no business can be stronger, faster, more stable or more efficient than its weakest point.
For example, those who manage the warehouse may believe that transport is a separate entity and therefore ‘not my problem’. In reality, if the interface between warehousing and transport operations is not properly managed – for example, if you pick and pack in a different order than that in which you need to ship, you are creating congestion in your own facility. A transport management system allows retailers to determine what needs to go on which loads in line with delivery windows and capacity constraints and ensures that pick plans are built around transport plans (not vice versa) in order to optimise throughput.
Power to the people
Labour also represents a significant proportion of supply chain cost. Whilst simply taking people out will have a negative impact on supply chain efficiency, a major opportunity exists in relation to optimising the productivity of those people.
This can be done by optimising the warehouse itself in terms of layout and also through the use of industrial engineering techniques to model every aspect of the warehouse operation, in order to establish the most efficient methods for every task.
Combined with workforce management technology to monitor the performance of staff in relation to these standards, in our experience, retailers can achieve productivity improvements of ten to 35 per cent in a typical warehousing operation, with the added benefits of improved employee satisfaction and retention and reduced labour costs.
Speculate to accumulate
But, although there are risks associated with taking cost out of the supply chain, perhaps a bigger risk relates to the failure to invest in ensuring that the retail supply chain can meet the needs of today’s ‘buy anywhere, get anywhere’ consumer.
Whilst the proliferation of mobile devices and the emergence of social shopping provides retailers with additional customer touch points, it also places huge demands on the supply chain.
Questions regarding how much inventory to hold are no longer straightforward concepts and retailers must grapple with issues such as cross-channel or shared vs dedicated inventory and how the inventory is balanced, allocated and pulled across each channel.
Savvy shoppers are also looking for the best deal regardless of which channel they are utilising, for example, why pay for shipping online, when you don’t have to pay for shipping at a store? As a result, many retailers must eat into their budgets by offering free or expedited shipping for online orders to entice customers, making balancing operating costs with consumer expectations more challenging.
However, whilst there is no question that implementing the technology, processes and operations to properly capitalise on social and mobile channels presents a major challenge, it is one well worth investing in to overcome.
And, while it is difficult for any company to spend money in the current environment, there is overwhelmingly convincing data showing that the more ways you have to engage a customer, the more valuable they are to your brand. In other words, the more channels a consumer uses to shop with your brand, the more money they spend with you.
This relationship is perhaps as close as we can come in this economy to a direct line between investment and revenue.
Note: The views expressed here are those of Michelle Campbell and do not necessarily represent the views of Retail Gazette.