The Benefits of Progressive Supply Chain Strategy

If I asked you the name of America’s largest grocer, what would you say?

Kroger?

Safeway perhaps?

Maybe Costco?

The answer is Wal-Mart.

At the turn of the century, Wal-Mart was enjoying its rank as the number one retailer in America. They were beginning to explore penetration of the grocery market. Do you think the aforementioned chains were worried? Probably not. They scoffed the same way K-Mart, Sears and Montgomery Ward did when Wal-Mart begin its ascent to the top of the retail world. So how does a consumer products retail chain like Wal-Mart become the country’s largest grocer in record time? Wal-Mart gained a competitive edge and a seemingly insurmountable lead by studying the competition and understanding that a second, parallel supply chain would be required for the grocery business. It only stands to reason that baked goods and produce will require different forms of warehousing, handling and transport than cartons of paper products and wearing apparel. By creating a progressive supply chain to accommodate the specific needs of both groceries and consumer products, all in the same big box store, Wal-Mart jumped over every major competitor and never looked back.

Creating a progressive supply chain involves the development of an agile network of assets that can rapidly expand, contract, or relocate. Assets include distribution centers, trucks, people and technology. The progressive supply chain approach takes into consideration the introduction or retirement of SKU’s, customers and geography. The Wal-Mart story is but one example of how a company uses progressive supply chain strategy to gain an edge and improve net income. Companies ignoring the principles of progressive supply chain do so at their own peril. Rapid growth has been known to strangle a static supply chain leaving the company to play catch-up. Catch-up is deadly because the velocity of business growth can far exceed the company’s ability to throw money and resources at a sagging foundation.

The remedy? Plan ahead! Your next product innovation will guide the progressive steps required of your supply chain. The size, value or makeup of that new product may dictate a different supply chain strategy. Having an agile supply chain in place in advance of the product launch will be a gateway to intelligent growth. Would Wal-Mart be the country’s largest grocer had they failed to adhere to this strategy? Now that’s food for thought!

The Velocity of Business Change

My first mobile phone was the size of a brick. It had a curly cord and was hard-wired in my car. I’d be remiss if I failed to mention the pull-up antenna. I used this phone about the same time as I was feeding 5¼” floppy disks into my PC. Today’s hard-charging business environment renders mobile phones and PCs obsolete almost as soon as they are out of the box. Not surprisingly, at the time, the days of hard wired cell phone bricks and 5¼” floppies seemed like they were moving at technological warp speed. In fact, the “old days” were moving at warp speed. Today, warp speed is just ten times faster. Success in business is dependent on this recognition and doing something about it – continuously. In the world of supply chain, the ability to create agile, adaptive systems can be a distinct advantage for the savvy executive who recognizes the extreme velocity of business change.

The velocity of business change affects us all, certainly as consumers and most definitely as businesspeople.  If your company recognizes this phenomenon and is doing something about it, then the next generation of your best selling products is always under development. Sony was well known for R&D teams that were continually innovating the next generation of its market dominating camcorder.  A second Sony R&D team would simultaneously work on the generation of camcorder to replace the work of the first R&D team. This proactive product development strategy kept Sony’s camcorder product in a market dominant position for many years.

Steve Jobs recognized the velocity of business change. The ever brash Jobs shunned market research, proclaiming that consumers didn’t know what they wanted until Apple told them. From personal computers to phones and tablets and now iBooks and iCloud based services, Apple has been on the forefront of change in the world of business for a long time.

Thanks to innovative companies like Sony and Apple, technologies in our fast paced world are now converging. Mobile phones are now mini computers with cameras, book readers and music players. Televisions have come a long way since the days of black and white screens with three channels and rabbit ears (covered in tin foil) to get a clear picture. Today’s TVs are also Internet capable, changing the way we rent movies and even the way we watch our favorite programs. All of this converging technology simply means the extraordinary pace of change in the business world is here to stay, all at speeds that may seem fast today but will be deemed slow by tomorrow’s standards.

Continuous innovation is a primary success driver in our fast-paced world. Continuous innovation without commensurate ingenuity injected into a dynamic supply chain may just be the kiss of death. Consider some of the quandaries including, but not limited to, quantities and locations of bricks and mortar sites and overlapping and changing sources of supply. To invent the iPhone and iPad, Steve Jobs envisioned product design and materials not commonly found in prior generation products. This meant refining major aspects of its supply chain which were different from prior generation products. Creating an agile, asset-light supply chain is a critical success factor when navigating the velocity of business change.

How Supply Chain Helped Apple Lose the Worms

The recent Steve Jobs biography written by Walter Isaacson tells the story of Jobs’ return to Apple after an eleven year hiatus. Jobs was tasked with turning around a failing company that had lost its way. During Jobs’ first run with Apple, it was a highly profitable company which operated under the philosophy of making great products with the premise that less is more. Jobs’ believed in simplicity for the consumer and attributed much of his success to his belief in a minimalist approach. Given this, imagine Jobs’ horror when he returned to the company to find Apple awash in red ink and months away from a potential bankruptcy filing. Beyond its signature products, which Apple was producing without innovation or accolades, the company worked on so many different products and variations of products that, somewhere along the way, it had lost its focus. One of the many issues Jobs had to address was two months of on-hand inventory, a staggering figure representing hundreds of millions of dollars in an industry whose products were largely considered “perishable.”

Jobs immediately reduced the on-hand inventory to one month, a significant achievement but still a long way from where the company needed to be. To get to the next level, Jobs engaged Tim Cook, a seasoned supply chain manager who brought on-hand inventory down to just four days, saving the company millions and creating a more agile supply chain. Through alignment of supply chain and business objectives, Apple was able to restore its position in the world as a profitable company that created innovative products to delight its customers.

How Not To Run A Business

I have been going to the same dentist for years. I like my dentist. The people in the front office are nice but, like with many doctors’ offices, they run the show. The “show” is also a business. The patient is a customer. The failure to recognize this is illustrative of how not to run a business.

When I finish with the dentist, they want me to make an appointment for the next six month check-up. That’s fine by me. The problem is the dentist doesn’t schedule beyond four months into the future. To get around this issue, they ask the patient to call the office in two months to make an appointment four months out. I am forgetful. I ignore this task even though I place a reminder in my calendar. After years of repeating this cycle, I finally asked the dentist why they don’t get a computer system that enables the patient to make a six month appointment immediately after each visit. The young lady replied, “We can do that, we just choose not to.” When I asked, “Why?” she replied, “Our hygienist can only schedule four months out and we do not want to have to call patients and reschedule them.” I asked her if it doesn’t make more sense to have the hygienist conform to the needs of hundreds of patients. She told me, “That doesn’t matter; we always have lots of patients coming in.”

The meaning was clear. Since there is always a stream of patients coming through the door, it doesn’t matter if we alienate some along the way. How many businesses have failed using this approach? I pointed out that the dentists’ office should view the patient the same way a business views a customer. The response? “Well, this is the way we’ve always done it.”

I just wanted to scream. In the spirit of the season, I thanked this young lady for her time and efforts and went about my day. Afterward, I couldn’t help thinking how destructive these types of attitudes are in business. Shouldn’t everything you do, and I mean everything, be based upon the needs of the customer?

Supply Chain & The Law of Unintended Consequences

In the world of computer programming, every coding change must carefully consider the impact to the remaining portion of the program. Failure to exercise discipline in this regard results in the unintended consequence we call “a bug.” We frequently experience this same phenomenon in day-to-day life when we are assembling a newly purchased product and we determine we don’t really need to read the instructions. This leads to an avoidable error which may prove dangerous, costly or both.

This premise also holds true in supply chain. So often, the quest for immediate cost reductions can submarine other well run processes. A senior TBB Supply Chain Guardian (SCG) consultant told me the story of how a major manufacturing company for whom he once worked aligned itself with a new primary supplier thousands of miles away. The distance factor was mitigated by an aggressively negotiated rate with the railroad. All went well until the railroad pulled out of the deal. With the manufacturer committed to the supplier, the transportation had to be shifted to truckload, running the cost of the relationship well beyond its projected dimensions and creating a ripple effect all the way down to the price of the product borne by the consumer.

The same SCG consultant also recalls how a manufacturer he worked for capitulated to the demands of a large customer to locate a distribution center near its facility for emergency product only. The intended consequence was to please the large customer and build goodwill with greater sales revenue. After a period of time, the large customer decided they no longer had to be a stocking partner and forced the manufacturer to carry all inventory in the nearby distribution center. The unintended consequence was a degradation of margin from excessive labor, inventory and facility costs.

When a computer programmer writes new code, it is considered a best practice to test the code to insure it is bug free. Supply chain practice is no different. The law of unintended consequences may be defeated with proper planning and due diligence. As they say in the construction trade, “measure twice, cut once.”

I’m Sorry, There’s Nothing I Can Do

As a customer with a problem, no one likes to to be told, “I’m sorry, there’s nothing I can do.” My reply to these drones devoid of customer service skills is “There’s always something you can do. You just choose to do nothing.” This rarely gets me anywhere but makes me feel a bit better.

We are all now solidly in the throes of holiday shopping. In all likelihood, you will need to venture out to a mall for at least a portion of your shopping. I will confess I only go to a mall under extreme duress. Many retailers hire seasonal help for the holiday season. Training for these part-time associates will vary. In fact, some retailers don’t train their full time staff so well. Nevertheless, odds are you will need to ask one of these frantic people in holiday, overload mode to do something slightly out of the ordinary. Perhaps, it will be a return without a receipt. Some retailers get it. For those companies, this example will not apply. The rest? Well, I am sorry. There’s simply nothing they can do!

If the retailer knows they carry the sweater you are returning and the tags are still on, why can’t they exchange it or give you credit? There really is no reason, it’s just their policy. What prompts this policy? I believe it is two things. One, a definitive lack of understanding of the customer mindset in today’s marketplace and two, fear of processing returns.

If supply chain processes were properly aligned with business objectives, returns would be routine. For instance, if the retailer’s business objective is to grow market share by offering the world’s best hassle-free, customer service, returns would therefore be handled with ease…all the way back through the distribution centers from which they came…back into inventory, to the vendor for a credit, or off to an outlet store. Imagine the competitive power retailers with this ingenious, common sense approach would possess. It might even make a curmudgeon like me venture out to the mall more often.

Why Spending Cuts Are Not the Only Answer

In times of economic difficulty, many companies immediately react by looking for lower costs. These costs may take the form of lower transportation rates, warehousing fees and the cost of materials. Companies in reactive mode will also attempt to maximize cash flow by negotiating extended payment terms. Spending cuts as a sole prescription for what ails a company is only a recipe for short term success. To create long term success, a company must implement a proactive approach.

A proactive approach to managing supply chain requires understanding the business environment from three perspectives: your customers’, your competitors’ and your own.

Any sound supply chain strategy must take into consideration the needs of the customers. Are they attempting to reduce inventory levels? What programs are they offering their own customers? What is their plan for acquiring expanded market share?

Which of your competitors has you most concerned? Is there new technology, product or service they have that you don’t? What stands in the way of overtaking the competition?

What are your company’s strategic business objectives? Are you looking to increase margin? Expand geographically? Introduce new products? Offer faster order processing?

Regardless of the answers to this set of example questions, one fact remains certain; the company that regularly performs this exercise will ultimately be healthier than the one that does not. Strategic planning and corresponding supply chain alignment is the recipe for long-term success.