Supply Chain Optimization

In light of strapped IT budgets, savvy retailers are prioritizing investments with processes and tools that have the largest impact on their business. While initially concerned with maintaining same-store sales at the expense of margin, many companies have shifted attention to staying profitable by placing a greater emphasis on inventory—one of the biggest investments a retailer can make.

“Retailers need to find ways to better align the inventory that they purchase with their customers,” said Chris Allan, co-founder and chief strategy officer at Quantum Retail, a Minneapolis-based provider of supply chain software solutions. Chain Store Age Web editor/associate editor Samantha Murphy spoke with Allan about how the supply chain sector is changing and what retailers can do to stay competitive

What supply chain trends are you seeing across the industry right now? 

The increase in the ways retailers can reach out to customers has put a strain on existing forecasting and replenishment processes. In many cases, it is also increasing the inventory investment required to support the business, with each of the channels being operated semi-autonomously with little-to-no sharing of information or consistency of customer experience.

In order to maintain growth, many retailers are also looking overseas away from their congested home markets. This has led them into unfamiliar markets with new challenges and constraints. All of this, coupled with the current state of the economy, has driven the desire to understand the needs of the market at a lower level of granularity.

What are some of those needs? 

The shift has caused a need to create local assortments and inventory fulfillment that reacts to local needs. Most retailers’ existing processes and systems were developed to meet the needs of the average, not the individual, but in order to increase demand in today’s markets, the next step for retailers is to take on the challenge of localization.

In addition, the supply chain is no longer a simple hierarchy for moving product from vendors to stores—whether it’s creating new supply chains to be more reactive to the consumer or dealing with off-shore/near-shore sourcing. It has become a complex supply network with bi-directional logistics and inter-store stock movement, serving franchise partners direct from overseas suppliers and, at the same time, bringing domestic product to them on a long lead time.

What is the single biggest supply chain challenge facing retailers? 

First, it’s important to recognize that consumers are less predictable than ever. Customer loyalty is essentially a thing of the past, and buying patterns are changing and evolving faster than ever.

The single biggest challenge retailers are facing is aligning their offering to local market demand and supporting that proposition through their supply chain. Retailers are realizing that what happened this time last year is no longer relevant to their business. Grouping stores together because they perform similarly will only deliver average results—the devil is in the detail, and retailers cannot afford to ignore those details any longer.

How are retailers overcoming these obstacles? 

Inventory is one of the most significant investments that a retailer makes, and, in many cases, this investment is a bet. The costs involved in placing inventory chips in the wrong place is substantial, so retailers are trying to get smarter about understanding where products are likely to sell and why. This does not mean better forecasting, but understanding how to deal with uncertainty.

This requires retailers to be more reactive to changes they are seeing, which in turn puts more pressure on the people, processes and systems. Retailers can achieve this by throwing people at the problem and focusing on a small area of the offering, but it is not a solution that will scale across the business without fundamentally addressing some over-simplifications that exist in the current process.

What can retailers do to better position themselves? 

The current economic environment is a gift for the good retailer. It does them the service of highlighting the shortcomings of their supply network and giving them the opportunity to address them. This means removing assumptions from their processes, taking away simplifications and dealing with details. Retailers that embrace the fact that their customers have changed—and will continue to change—will be successful. They need to align their supply network with what customers are asking for now, not what the retailer assumed they were going to ask for, or what they asked for two weeks ago. Retailers need to have a holistic fulfillment process that reaches the length of the supply network, and it needs to be built around aligning the inventory investment with local market needs.

The retailers that address these issues will make it through this downturn and position themselves as strong, profitable, successful and reactive market leaders of the future.