30 years ago the term ‘supply chain’ didn’t exist, now it’s commonplace. Arguably the emergence of Enterprise Resource Planning (ERP) systems showed businesses the need for better planning and integration within logistics.
The movement of ‘stuff’
Today, in most industries, if there is a problem, it almost always comes as a result of something not moving. Consequently it must mean its supply chain’s problem, right? Wrong. The ‘supply chain’ involves a vast operation of inter-connected functions, teams and individuals. How can problems be the fault of the ‘supply chain’ function? Working in ‘supply chain’ means being responsible for everything, and accountable for nothing.
Supply chain is the work horse of retail, adding value as the link between merchandising and operations. In most modern retailers, regardless of size, channel mix, digital maturity etc., there is a function that procures product from suppliers, and a function that physically moves the product through the retailer’s network. In reality, there is a lot that takes place inbetween those functions too to ensure the right product gets to the right place, at the right time, and in the right quantity. This is where an effective supply chain function can really add value.
Making it work
In reality a retailer needs to have a supply chain team who are good communicators, coordinators and planners. They need to be close to the operation and have good relationships, in particular with those in control of steering the business. They need to help facilitate all functions, from merchandising (so they raise purchase orders aligned to when stock can best flow through the business), through to the operations teams (who are managing flow and capacity across the network to keep all stock moving).
However, in practice this can be difficult to achieve. Merchandisers are forever under pressure to achieve better margins, so will order larger and end up bringing in too much stock (but at a cheaper cost price), or switch to a supplier that is unreliable. Alongside this, the operations team will use services that are too expensive (but faster) and will be looking to put constraints in place to lower costs (such as reducing capacity and creating bottlenecks).
If these two functions continue to pull in opposite directions, by 2018 most retailers will have half of their employee base working in supply chain, trying to alleviate the issues caused (from customer complaints to heavier returns management and quality issues)! Clearly this would erode margin the merchandise function is striving to achieve, while simultaneously kyboshing any costs that a logistics operations function are looking to save.
Focusing on the customer
Clearly the different functions need to come together. Over the past 5 years, the role of the Chief Customer Officer has been taking hold among retailers. Aimed at creating a culture of customer-centricity throughout the business, it can be a real help for supply chain. Focus on the ‘customer’ should provide impetus for all functions to align and work more collaboratively together. In this way true alignment to a ‘Consumer Driven Supply Chain’ would reduce errors, delays and cost in retail supply chains; but importantly keep the eye on the ultimate objective – delighting the customer.
To achieve this is easier said than done. Cultural shift is neither easy or fast. It also requires a redefinition of cross- business KPIs and operating model to embed the shift in behaviour. Retailers will need to rethink the traditional “back office” mentality; for this to work everyone needs to become a customer support or customer service colleague – who is brave enough to make this shift?