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 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.

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.

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?

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.”

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.

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.

Now let’s couch it in terms of supply chain management. Every business has customers that behave in ways that dig into expected margin or otherwise cause higher labor expenditures. Your choices become challenging. You can resign the account, ask for a higher price or perhaps implement a new “fee” to cause your customer to behave in a way that supports your P&L. More likely, you will continue to service the account in the manner they have been accustomed while you “eat the difference.”

Could you turn a negative into a positive? Let’s say you have a loyal customer that orders frequently but in small quantities. Your margin on the account is low due to the high cost of fulfillment. Of course, you should examine why your fulfillment cost is too high but that is a topic for another column. How would your customer react if you provided an incentive to order in higher quantities? We recognize that the customer may not need more of the product normally purchased and no company wants excess inventory. However, would this not be a great opportunity for cross-marketing other products to create the larger order?

Aligning the marketing process with fulfillment objectives can create a powerful outcome resulting in more business from low-profit customers. Had your company simply decided on a fee for smaller orders (read punishment); the buyer would have gone elsewhere and with them, your opportunity to build sales with an existing customer.

1. The hot supply chain buzzword is collaboration. In laymen’s terms, this means that supply chain excellence and innovation may be had by all if each party is willing to open the kimono and share strategy, resources and data or some combination thereof. I concur that collaborative supply chain technique is a worthy goal.

2. Your supply chain must link directly to your business objectives. The Home Depot recognizes that its supply chain must tie directly to its business objectives. Over a three-year period, The Home Depot simultaneously built and opened 19 regional distribution centers (crossdock operations) to replace a system where 80% of the volume was shipped directly to 2,000 stores from a traditional D/C model. By doing this, The Home Depot increased the velocity of in-stock performance and inventory productivity while increasing customer service levels dramatically. No small feat when you consider the mix of 35,000 SKU’s, 4,500 suppliers and 9,000 purchase orders per week.

3. Supply chain challenges abound in the poor economy. Despite the highest unemployment rate in years, supply chain executives bemoan the fact that talent is seemingly in short supply. Other challenges discussed were pricing pressure, volatility in the cost of fuel and the general uncertainty of the economy causing companies to be sluggish in committing to growth initiatives.

4. True Cost-To-Ship modeling can drive profitability. Manhattan Associates demonstrated why true cost-to-ship modeling will work to capture and allocate direct costs across all internal departments, reflect variability in sourcing, fulfillment, ordering patterns, accurate upstream and downstream costs and will also predict future costs. 60% of manufacturers employ only rudimentary models ignoring cost components that can add up to 20% of total cost.

To compete effectively in a dynamic business environment, continuous evaluation of the marketplace is a critical success factor. Once knowledge is in-hand, your supply chain must be built in an agile manner allowing for efficient shifts to accommodate expected and unexpected change.

I recently spoke to the owner of a U.S. manufacturing company that dates back to the early 20^th century. He was explaining how he was in the final stages of divesting the company of all its hard assets. They had long ago moved manufacturing offshore. They had evolved into a substantial importer managing a series of company-owned distribution centers. Today, all of the distribution is outsourced and the old company headquarters building is up for sale. The shift to a virtual company is near complete. The executives are now free to work on product innovation and the related sales and marketing. They still compete effectively but with higher margins and more agility. This old line company has adapted and overcome, multiple times, aligning and realigning supply chain process with strategic business objectives and changing marketplace conditions. The results are higher profits, supply chain flexibility and happier customers.

Establishing and using key performance indicators will serve as confirmation of effective supply chain process or as a red flag requiring attention. Aligning supply chain with strategic business objectives and keeping your finger on the pulse of the customer will propel you forward on the road to prosperity.