Why Supply Chain Transformation is Inevitable

Stephen DeAngelis

July 30, 2018

Change and transformation are never easy, especially if what you have been doing has proven successful. You know the old saying, “If it ain’t broke, don’t fix it.” Supply chain professionals would love that aphorism to be true. Alexa Cheater (@Alexa_Cheater), Product Marketing Manager at Kinaxis, reminds us, “Working in supply chain means getting comfortable with change — changes in supply, changes in demand, changes in capacity, etc. The list is virtually endless.”[1] Juan Perez, UPS Chief Information and Engineering Officer, agrees with that assessment and he believes technology is one of the primary drivers of change. “The way we move goods has never been static,” he writes. “In the 1940s, innovation meant streamlining processes with forklifts and ocean-bound shipping containers. Then computers brought ones and zeros into the mix, and suddenly we could make better, faster decisions to modernize our supply chains. Our systems are getting smarter every day, with decades of progress to build on. But today, the term progress doesn’t begin to describe the pace of change. The smart networks we know so well are becoming intuitive networks.”[2] Another primary driver of change in the supply chain is e-commerce. James Henderson reports, “The latest DHL Logistics Trend Radar report, found that businesses are increasingly ordering goods online, which is driving a need for ‘faster and more convenient supply chains’. Another key finding from the report is that customer demand is also driving growth in direct-to-consumer shipments of time-and-temperature sensitive goods.”[3] When you look at all of the trends affecting supply chains, only one conclusion can be drawn: Supply chain transformation is inevitable.

The 21st century supply chain

Although some supply chain management principles are timeless,[4] Jim Tompkins (@jimtompkins), Chairman and CEO of Tompkins International, believes there are new principles supply chain managers need to master in the 21st century.[5] “The digital tidal wave is changing supply chain,” he writes. Although not every driver of change is technology related, many of them are. The emergence of digital supply chains means supply chain professionals will have better visibility, more options, and more decision help. They can also be more collaborative, more customizable, and more customer-centric. Below are a few terms Tompkins believes you should understand:

  • Collaborative Logistics or Distributed Logistics. Tompkins notes, “By leveraging the network effect and economies of scale in multi-client environments, supply chains can become more local. New automated warehouses and optimization algorithms enable automated fulfillment and result in great final delivery to achieve low cost and high speed, customer-focused logistics.”
  • Digital Shelf Edges. Tompkins explains, “Electronic Shelf Labels or Digital Shelf Edge Displays are electronic displays that can be clipped onto a grocery shelf to indicate pricing and descriptions.” As technologies improve, inventory management will improve and out-of-stocks will decrease.
  • The Each Supply Chain. “There is a material handling principle called the Unit Load Principle,” Tompkins writes. The objective of the principle is to “leave unit loads together as long as you can. … When you must break open the pallet have everything handled as a case. Do not break the case until you are down to the customer selection the Each.” Here’s the problem: E-commerce has increased direct-to-customer sales. With Direct-to-Consumer, Tompkins explains, “we find we must break open the case as the customer ordered less than the case. The customer ordered an Each or Eachies. Once the case is broken, you thereafter have an Each supply chain. Since we have opened the case we have begun to think about replenishment of stores not by case, but by Each. This is typically demand-driven replenishment, an Each Supply Chain.” If you thought supply chains were complex in the past, the Each Supply Chain dramatically increases complexity.
  • Pop-Up Stores. “A pop-up store space,” Tompkins explains, “is a venue that is temporary, the space could be used for a sample one-day sale or most familiar the seasonal pop-up store, slated for a month or so, to market holidays such as Halloween and Christmas. Pop-up stores are used for marketing and building and awareness of a brand and/or product.” The staff at Retail TouchPoints reports, “The pop-up store has become a go-to marketing strategy for retailers looking to extend the brand and introduce new products. The pop-up industry has grown to approximately $10 billion in sales, according to PopUp Republic. Pop-up shops are being developed in a variety of shapes and sizes, as well as locations. They can be found in a traditional brick-and-mortar store — as a store-within-a-store — as a standalone kiosk or even via a motorized vehicle, taking the lead from the food truck craze.”[6]
  • Post-click Logistics. Tompkins writes, “Post-click logistics is the movement of goods to fill customer orders. Post-click, after the customer places their order, delivery is extremely important and a focus of post-click logistics.” In fact, last mile logistics is becoming a differentiator for many retailers.
  • Unichannel. “About five years ago we started hearing about Multi-channel as firms combine separate business units (typically in-store and on-line) called multi-channel operations,” Tompkins explains. “Then three years ago we progressed to Omni-channel where we integrated the operations and the inventory across channels to have a more integrated operation. Now comes Unichannel, the unified channel. The Unichannel is a model that recognizes that ‘e’ customers do not exist and in-store customers do not exist. All customers are customers and our focus must be on an integrated seamless customer experience without any channel differentiation.” Greg Maloney (@greg_maloney), President and CEO of JLL’s Americas Retail business, agrees with Tompkins that in the future we will no longer differentiate between retailing and omnichannel retailing.[7] He explains, “There are plenty of retailers that are connecting the dots to build a seamless supply chain. But even the best have not fully integrated across their distribution, e-commerce, and store networks. … So, are we ready to finally retire the ‘omnichannel’ crutch-phrase? …  I can see it, it’s not that far off I promise — the day when we can back to just talking about ‘retailing’ again.”

“Unfortunately,” writes Jonathan Webb (@j_p_webb), Head of Strategy Research at Procurement Leaders, “the world has grown more complex. Consumer demand is developing more fickle tastes, with shoppers expecting greater levels of customization and localization. On many occasions, consumers may not know what they want. As [a result], companies [need to] develop greater skills in managing a supply base that can meet these needs.”[8] He calls this 21st century supply chain an agile supply chain. Another name for an agile supply chain is a constantly transforming supply chain. In other words, not only is supply chain transformation inevitable, it’s constant.

Footnotes
[1] Alexa Cheater, “5 steps to supply change management success,” 21st Century Supply Chain Blog, 29 March 2017.
[2] Juan Perez, “Gearing Up for 21st Century Supply Chains,” Longitudes, 12 June 2017.
[3] James Henderson, “Supply chains becoming increasingly ‘consumer centric’,” Supply Chain Digital, 27 June 2018.
[4] Stephen DeAngelis, “Some Supply Chain Management Principles are Timeless,” Enterra Insights, 8 May 2018.
[5] Jim Tompkins, “Supply Chain – Things You Must Understand,” Tompkins Blog, 27 February 2018.
[6] Staff, “Pop-Up Stores Become More Than Just A Trend,” Retail TouchPoints, 2018.
[7] Greg Maloney, “Can We Stop Saying Omnichannel And Just Say Retailing?” Forbes, 28 August 2017.
[8] Jonathan Webb, “How To Create An Agile Supply Chain,” Forbes, 26 December 2017.