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Getting the most out of optimization technologies

By Chris Jones | 09/03/2014 | 6:04 AM

Optimization technologies are powerful tools for improving supply chain performance. However, most companies leave lots of money on the table when they deploy them. Getting the most from them requires that companies spend time thinking about how they are going to be applied, how they will measure the results and the definition of success. The following points hold true whether you are optimizing inventory, transportation, labor, etc. in our supply chain.

Don’t just optimize what you do today. The typical question I hear when discussion optimization technology “How much will it save me?” In all cases, the answer I give is a range of costs (say 5% - 15%). The biggest reason for the range is the degree of change associated with use of optimization technology. The low side comes from optimizing the current processes and taking into account the current supply chain restrictions. The high side of the range is based upon looking at the business processes and restrictions and asking what could be done differently to take best advantage of the optimization technology. Deploying optimization technology provides an excellent opportunity to reexamine your supply strategies, tactics, etc. If you haven’t had a refresh of your supply chain in the last 5 years, there is a good chance that what you are doing today could be improved and many of the decisions that are being made are suboptimal or simplified because you didn’t have the tools to look either more broadly or deeply at the business.

Fix the overall definition of success with key metrics prior to deployment. When this doesn’t happen, deploying these tools becomes a subjective and painful journey. For example, in the world of route optimization it is not uncommon to hear from the existing planners that they don’t like the way the optimized routes “look”. What does “look” mean? If the goal was reducing total miles and vehicles, then they may not look like the nice “petal” routes that the planner put together in the past. However they may have taken out 15% of the miles driven and 10% of the fleet that used to make the same number of deliveries. That’s the definition of success. If you get that definition up front, you will be amazed how quickly you can get the value you are expecting from optimization technologies.

The more variables and fewer restrictions the better the results. Optimization technologies work best when they have more flexibility to make as many trade-offs as possible. It’s why they can produce results that cannot be achieved by the human mind. In the world of logistics, there are lots of variables that can be traded off. For example, in a VMI environment, delivery quantity and frequency can be traded off to reduce transportation costs. As long as the end customer doesn’t run out of your goods, you can make all the transportation decisions you want and there is no reason to fix a transportation delivery schedule.  Another extremely simple example of this came from a company that want to save money by consolidating its inbound transportation, but wasn’t hitting their savings targets because they had arbitrarily restricted the number of stops in a multi-stop run and weren’t eliminating as many LTL charges as they could.

Use optimization technology to help determine improvement opportunities. They really can be continuous improvement tools. It’s amazing how many opinions there are in an organization when it comes to where there may be savings. One of the ways to move from opinion to fact is to use optimization technologies to show the value of making changes to the business. If your optimization technology was “base-lined” to model your operational performance, then evaluating changes to its configuration can help identify where the big opportunities exist. Don’t underestimate this approach as optimization technologies are very good at finding counterintuitive answers. With all the “urban legend” in supply operations, sometimes the only way to make significant change that challenges the norm is to be able to compare the “what if” to the current performance. The great part of this approach is that you have a “sand box” that allow you to be creative without touching the actual operations. From there, all the doubters can dig into the results and verify the validity of the proposed solution.

Supply chain optimization technologies provide tremendous opportunities to improve productivity and customer service. However, their effectiveness can be severely limited by the deployment and success measurement strategies. How are you getting the most out of your optimization technology investments? Let me know.

Is Your Company’s IT Strategy Stuck in the 90s?

By Chris Jones | 06/01/2014 | 12:57 PM

Does your company suffer from an outdated understanding of the role and value of information technology (IT)? Today, IT is pervasive in the modern corporation and, if any part of your business or supply chain is “online”, IT is the infrastructure of the business. Yet, too many companies still treat IT as a standalone entity and cost structure.

Two events came to my attention that hit home on these points. The first was a recent blog post by my friend Vinnie Mirchandani called “The back office [is] crowding out the front office”. In the post, Vinnie points to the suffocation of IT value-added investments because large-scale back-office systems such as ERP are disproportionally consuming the allocated funds, but more importantly the IT resources. The second event was a conversation with a leading global company whose IT organization stated that they were mandated by the executive team to cut IT expenses to 2% of revenue. This insidious thinking came from a company benchmarking exercise.

At best, both instances represent laggard thinking. However, I believe it is even worse when you consider global supply chain leaders. To understand how absurd this kind of traditional thinking is, take the extreme case of a pure-play on-line retailer or distributor. Would they ever consider limiting their IT spend to 2%? Absolutely not, because they could never get their businesses up and running with such paltry and unrealistic funding. Instead of viewing IT as an expense “line item” global supply chain leaders view IT as a utility – like electricity and an essential part of supply chain operations or enabling business capability such as a manufacturing plant or distribution center.

The challenge to breaking this broken paradigm is get executives and finance to think differently about IT and for IT to think differently about how it is organized. Some of the challenge is perception and some of it is outdated organization models. It’s hard for most senior executives to understand the value of IT if all they are really looking at is a cost line item on the P&L. Those “dog and pony” shows that IT organizations put on to demonstrate to management that they are worth the money don’t actually work. Just look at the number of companies that are still constantly looking to cut their IT costs. From an organizational perspective, IT has put itself in cost-rationalization situation under the banners of centralization, standardization and synergy. What ends up happening, is that monolithic organizations and cost lines are created with little support from the business units.

Most IT costs and resources need to be shifted to the operating budgets and organizations. There, IT becomes an investment or variable expense where the business unit (BU) or supply chain can make its own decisions on equal footing such as building a new warehouse, expanding the fleet or using a 3PL. At the BU or operating level, a dollar invested or spent shouldn’t be constrained to some arbitrary corporate objective if the value is there. This is why I am a big proponent of IT becoming an operating expense item.

Today’s technology landscape is much better situation to support this “utility” strategy.  One of the biggest reasons cloud-based supply chain technology is becoming so prevalent is that it can easily be incorporated as an operating expense and isn’t necessarily IT resource constrained (See my previous post on cloud technology). You would be amazed how many companies I know that say they have been adopting cloud-based logistics systems because they were constrained by the lack of tradition IT funds and resources. With the highly evolving nature of supply chains and competitive capabilities of today’s supply chain technology, time-to-value is today’s most important metric. Waiting in line behind the back office ERP upgrade doesn’t cut it for leading companies that want their supply chains to deliver differentiated customer value. The good news is that the breadth supply chain capabilities that can be delivered via cloud technology is rapidly expanding and giving supply chain organizations more options to address their challenges and opportunities on their own terms.

This isn’t an IT versus the business/supply chain discussion, but a better way to recognize today’s role and value of IT and how it needs to fit into the enterprise. It may sound counter-intuitive, but to purely centralize and cost-line focus IT is actually diminishing its real value to the enterprise. If you needed more electricity to ship more product and make more money, you wouldn’t think twice about it. The same goes for IT and why adopting cloud-based solutions make more sense. Do you agree? Let me know.

3 Rs of Supply Chain Competitiveness

By Chris Jones | 05/05/2014 | 7:57 AM

With the advent of big data and a myriad of web-based customer interaction tools, establishing relationships with customers has a higher focus than ever. However, there is a supply chain path to establishing strong customer relationships and one that cannot be ignored or all of the effort on the “front end” of the business will be wasted. Almost 20 years ago, I heard about the 3Rs of supply chain competitiveness developed by Donald Bowersox, then a professor at Michigan State University. Here’s my short take on them.

The 3 Rs are responsiveness, reliability and relationship and in that order.

Responsiveness is the foundation. From a supply chain perspective, it’s what you do to capture the customer. This is where I see a lot of companies spend a considerable amount of their energy. When that new opportunity exists, sales wants operations to go through supply chain “gymnastics” to get the customer what they need and when they need it. Supply chain agility is at the core of responsiveness. If every time this exercise crushes your margins or impacts other customers you are serving, you need to reassess your supply chain’s agility.

Reliability is the next step. It is about the consistency that you need to exhibit in your supply chain operations to keep the customer. Despite spending all of that energy to capture the customer, you can lose them if you are not reliable. Of the 3 Rs, it gets the least credit, but is the “marathon” of supply chain performance. You can serve a customer well 1,000 times, but if you screw up the 1,001st time, you can lose them. Culturally, there has been a shift away from loyalty to more of a “what have you done for me lately” mentality, which makes reliability more important than ever. Sadly, reliability doesn’t get a lot of “air time” until you are not reliable and start losing customers. Another challenge is that the definition of reliability continues to go up. Now it is defined by compete and on-time deliveries with shorter lead times, and a greater mix of products and value-added services. When was the last time you evaluated your reliability metrics or rewarded the organization for setting new records for customer reliability?

Relationship is the “holy grail” because you “own” the customer. It’s about achieving the unique position where the customer starts with you, because they perceive your unique differentiation or understanding and ability to deliver to their needs. It’s not until you achieve the relationship level that you move from supplier to collaborator. Now, even if you are highly reliable, you may never get to establishing a relationship. Relationships are not about delivering products, they are about delivering all of the elements that the customer needs to get the value they want from the products they are buying. For example, I have seen several retailers start selling a lot more appliances because of the installation services they bundled as part of their selling process. These retailers took one of the greatest blocking points for consumers buying appliances right off the table. In this example, the challenge for the supply chain organizations was to go beyond the ability to just deliver an appliance, but offer the complete set of services to deliver a working appliance for each customer. If there was ever a place for the sales and supply chain sides of the business to come together, “relationship” is it.

With so much energy being put building strong customer relationships, it’s time to pull out the supply chain basics so we don’t lose perspective. The 3R story is pretty simple, it’s all about “get’em”, “keep’em” and “own’em” in that order. How agile, how comprehensively consistent and how customer unique is your supply chain? Let me know.

A Tsunami Running Through the US Home Delivery Industry?

By Chris Jones | 03/18/2014 | 7:52 AM

You need to read the recent DC Velocity Article “Amazon plans revamp of U.S. shipping with mix of private fleet, regional carriers, USPS” by Mark Solomon. If this scenario plays out, the relatively stable home delivery industry is in for a big change over the next several years. We are going to see a challenge to the traditional norms and a lot of logistics delivery strategy segmentation for home delivery in an effort to drive service levels up while maintaining cost levels. Interestingly, the UK is undergoing a similar transition. Now is the time to take a good look at your delivery strategies for the next 5 years because the home delivery game is changing.

Here are some of the takeaways you need to keep in mind.

Micro versus macro economy of scale. The macro economy of scale view is that UPS and Fedex have breadth and depth in their networks that make them the natural choices for nationwide distribution. What is being proposed by Amazon is essentially a micro economy of scale perspective. They see the opportunity to operate as their own delivery service in the top 40 markets where they believe their delivery “scale” is competitive with the big players. The rest of the country gets handled by commercial carriers.

Omni-modal distribution. I wrote about this in my “Logistics Excellence Predictions in 2014” post in December. The whole idea of Omni-modal distribution is that the traditional product/delivery segmentation mode segmentation approaches will give way to planning and execution ACROSS the modes to drive up service levels and drive down costs. Amazon will leverage its food delivery network for delivery of non-food items. This creates further economy of scale as is tough for commercial carriers to emulate.

Rebirth of the regional courier. Traditionally, the regional courier market has been littered with poorly run and under-capitalized companies. This is changing as venture capital firms have been rolling up this market. Online sales continues to grow aggressively and there is a general belief that home delivery will grow at an aggressive rate, providing opportunities for reinvented regional couriers to also grow quickly and capture market share. Other leading retailers besides Amazon are considering taking advantage of this market change.

Different markets, different service levels. Don’t believe all of the hype around same-day/next-day - at least not on a nationwide basis. It doesn’t make good business sense and is fairly easy to deduce from the DC Velocity article that Amazon will have different delivery strategies and service levels based upon population density.

Private/dedicated fleet is back. After years of shedding of fleets because of costs and balance sheet issues, it’s time to rethink fleet. High levels of logistics service come with a high degree of integration and control. For those markets that have extremely tight time windows, dynamic delivery and same/next day delivery expectations, commercial carriers are not as good of a fit.

Home delivery capacity finally “hit the wall” last year and will be stretched for the next 5 years. I believe that Amazon has come to a similar conclusion and is taking some bold steps to change the home delivery game. From conversations with other large online retailers, they are drawing the same conclusions. Challenges always present opportunities. How is your home delivery strategy changing? Let me know.

Did Amazon Just Blink?

By Chris Jones | 02/05/2014 | 8:32 AM

In the game of delivery chicken, it appears that Amazon is considering raising the price of one of its cornerstone delivery strategies, Amazon Prime from $79 to as high as $119 per year (see Amazon Considers Prime Price Hike). Prime has been a success for Amazon as it certainly helped drive product sales. However, the current price and relatively unrestricted delivery constraints also appear to have impacted margins. The lesson for all logistics-intensive companies is that, sooner or later, free or highly subsidized delivery-based growth strategies give way to the most fundamental economic theory – profit matters.

As much as anyone in the retail market, Amazon has been sacrificing margin for growth and achieved impressive numbers. I’m sure we all know people who are Prime members and buy “everything” they can on Amazon, knowing that they delivery charge is “free” once they paid their yearly Prime fee. And that success is now a problem for Amazon.

Many retail and distribution companies have been closely following Amazon’s and others’ rise and their forays into new supply chain and pricing models over the last 5+ years such as Prime. Here’s my take on what we could see in the next 5 years in delivery.

Is “free” dead? Free really isn’t the right term, it should be called “highly subsidized”. Supply chain leaders at major retailers I know have long wondered how long this level of delivery subsidy could go on. Amazon, Google, Walmart and others have been chasing this paradigm heavily for the last several years. I believe we are at an inflection point and can expect less “free” and more delivery segmentation pricing and service levels to help maintain or grow margins. FYI, increased delivery service segmentation pricing is also taking place in the B2B markets as they face similar delivery and profitability pressures.

Are burying delivery costs a good thing? Delivery is as much a value proposition for customers as the products that are getting delivered. Amazon simplified, but may have actually over-simplified, delivery pricing. When you read the reports of Amazon customers on the proposed Amazon Prime price increase, some say they don’t care if it goes up because they know that this is a ridiculous deal and others say they will leave because they think it is unfair. What is really at issue is that neither of them respects the value of delivery because it has been bundled away. Standalone delivery pricing and service levels will become more prominent again.

What do customers really want? It’s simple -  pricing and service choice. As I mentioned a year ago (Amazon Home Delivery: Its’ About Choice, not Same Day Delivery), when Amazon shared the results in a limited trial of same-day delivery they sold a lot more goods, but hardly anyone took the same-day option. Customers accept a simple and logical view of delivery pricing. During the buying cycle, customers need a simple way to understand their delivery options and the prices associated with them and then make their own choice. I believe that based upon the experience of other retail markets around the world, that there is way too much hype in the retail market over same-/next-day delivery versus choice. Retailers are in danger of blindly chasing an expensive delivery scenario that may or may not be true. The focus in Omni-channel will shift from selling to delivery to provide customers with more choices that are also profitable for retailers.

Amazon’s statements about changing Prime pricing presents retail- and distribution-intensive companies with an opportunity to step back on their own strategies. I believe that we will see folks like Amazon continue to be innovative with new delivery models that improve service, but keep a closer eye on their impact on bottom line performance. What is your company doing to provide greater delivery choice, but keep the profits? Let me know.

The 2-2-2 Syndrome

By Chris Jones | 01/20/2014 | 7:04 AM

Recently, I was talking with an associate at a supply chain technology company who had just returned from an unhappy customer. The customer was complaining about the performance of the technology company’s system. Routes were no longer efficient; carrier selection didn’t seem to make sense to the users, etc. During the review, it became apparent that since the original implementation 3+ years ago, no one at the customer was regularly updating carrier contracts or customer data or evaluating any of the configuration parameters to address changes in the company’s operations. The system was making poor decisions based upon stale and inaccurate data.

Worse, no one using the system at this point knew how it was really supposed to work. The team that implemented it originally had left the company and current users were just that, users. They had little training, no knowledge of the configuration or the strategy employed when it was implemented. Manual overrides were now common place and there was little trust in the system’s ability to produce good results. As far as they were concerned, the software was “bad”.

Was the software really bad? No. The customer – and it wasn’t a small company, had fallen victim to what I call the “2-2-2” syndrome. The first person gets 2 weeks of training, their replacement gets 2 hours of training and their replacements gets 2 screens of training. The life expectancy in any job is not more than a few years. So without some way to adequately train the users, the use of the system falls to the lowest common denominator – people pushing buttons, but not really understanding what is going on behind the scenes.

The same can be said for key data such as customer and product information, contracts and process configurations. All of this is constantly changing and SOMEONE needs to maintain it. Which gets me to point of this note – you need a competency team to maintain and improve the investments you make in technology. This is a supply chain operations issue, not an IT organization responsibility as we are talking about the potential to negatively impact supply chain performance.

For some of you, the terms competency team or competency organization is not new and there are lots of proven ways to create them. But it appears that cost cutting over the 5 years and the latest wave of technology hype has removed the concept from far too many organizations. Given that the reliance on supply chain technology is heavier than ever, the notion of a competency team needs to be built into the business plan for any major system you have or are contemplating.

There is upside to competency teams as they can help get more from the system than was originally anticipated. No organization ever fully utilizes the supply chain technology they deploy. All organizations go through a learning curve during the implementation and realize that they could do more than they originally envisioned. Any competent technology provider is constantly enhancing their solution’s capabilities. All of this adds up to an opportunity to improve the productivity and performance of the original investment for a fraction of the costs of the original implementation. Without a competency team, no one will know that these opportunities exist or how to execute them.

There are 3 factors that make competency teams a success.

  1. The need to be led by your “best and brightest”. The competency team should not be seen as the last stop in someone’s career. Instead, it should be positioned as a place for up- and-coming talent to show what they can do to advance your supply chain performance. Two years in the lead position is a great way for someone to demonstrate their competence and learn a lot about the business.
  2. There needs to be performance metrics. Using metrics to know the value that is being delivered every day will quickly tell if you are keeping your supply chain systems running their best. Setting yearly improvement targets will keep the focus on getting more from the investment you have made and the incremental business benefits typically outweigh the incremental costs.
  3. There need to be ongoing training programs. It’s one thing to have folks sit in a class room or go on-line for training. It’s another to aggressively test their knowledge and make them accountable for problem solving. Build training programs that make them show what they know or how to find out what they don’t. The most powerful way to make this stick is through the compensation process. Whether it takes money, time off or some other meaningful incentive, if you want to get the best from your people and technology investments, aligning compensation with knowledge and action is critical.

Supply chain systems are not a one-time investment. Instead, they should be viewed as a way to continually improve business performance and need to have a team of knowledgeable people assigned to them to maintain and enhance them. If you do make this continual investment, not only will your supply chain organization deliver results more reliably every day, but you will more easily find new ways to improve your performance. How has your company successfully (or not) implemented competency teams? Let me know

Logistics Excellence Predictions for 2014

By Chris Jones | 12/23/2013 | 11:42 AM

Hopefully, you will get some down time during the holidays to enjoy your family and let your mind ease from what was most likely a busy 2013. It looks like 2014 will be an even more transformative year. What will next year look like and what will the supply chain “winners” be doing to beat their competition? Here are some thoughts to consider when you have some free time over the holidays.

Omni-modal versus multi-modal distribution. The term “Omni” is hot in the retail market as retailers look to optimize and create a unified selling front to consumers whether they are in store, on line, or on their smart phone. The notion of multi-modal distribution – the optimization of deliveries across the delivery modes - has been around for a long time, but for most distribution-intensive companies it has been limited to simple mode selection (e.g. size and weight). Instead, omni-modal takes the process a step deeper looking for the counter-intuitive delivery combinations to squeeze out more efficiency and great customer service. For example, a retailer has a customer who orders a large item for delivery next Wednesday, but the same customer buys smaller items this weekend. The traditional multi-modal approach would have two deliveries, one on the “white glove” service and the other through a small package carrier. Why not merge the 2 together and eliminate the parcel delivery cost? That’s the approach omni-modal distribution takes.

Execution, execution, execution. The push for next and same day delivery will drive many markets in 2014. This pressure will dictate that supply chains be much more streamlined and responsive. Hence the focus will be on execution-based processes and technologies that reduce supply chain cycle times. The real innovators in 2014 will drag their supply chain partners into this exercise as much of the critical path for increased supply chain speed and responsiveness is related to partner performance and integration. That brings me to the next point.


Supply chain injection. In the quest for greater speed and responsiveness, tiers in the supply chain will be skipped in 2014. The challenge for many distribution-intensive companies is that their supply chains were optimized for lower cost and not necessarily responsiveness. Leading supply chain operators will fully engage their supply chain partners, evaluate more dynamic transportation strategies, information sharing and labeling that makes suppliers REALLY look as if they are a natural part of the supply chain, not a “bolt on”. LSPs offering related services will have to up their integration competency with their shippers in 2014 to meet this challenge.


Fleet is back. After years of eliminating them, shippers will turn to fleets (private or dedicated) in 2014 to improve their customer service performance and as a hedge against the increasing commercial driver shortage. Supply chain innovators will take this a step further, focusing on driver training and delivery service competency. Don’t be surprised to see these innovators pay their drivers MORE and use routing and mobile technology to get the level of service and competency that they need to compete. Similarly, leading specialist carriers will adopt many of the same tactics to improve their service levels and productivity in an effort to differentiate.


Android apps with smart real-time back-end systems. Sorry promoters of iOS and Microsoft, the debate is over. While 2013 was a tipping point for the use of consumer grade devices, 2014 will see many more commercial grade solutions appear. Consumer devices proved that as an operating system, Android could handle logistics problems, but not necessarily provide the reliability and battery life. Android device pricing will continue to decline, spurring greater adoption. While mobile devices will be more prevalent, there will also be an increase in sophisticated “back end” applications that create real-time closed loop control systems for mobile workers. Same-day delivery will be a great example of where there will be an explosion of smart applications to maximize driver productivity and customer service.


Data Security. The increasing adoption of cloud-based solutions, the NSA surveillance and now Target’s highly publicized breach will accelerate the focus on securing the supply chain data in 2104. Data is the life blood of modern supply chains and ensuring that it cannot be compromised is critical business operations. However, data security will be a balancing act for enterprises as they continue the trend to integrate supply chain partners. The knee-jerk reaction will be to severely restrict access, but leading supply chains operators and related cloud solution providers will focus on technologies that drive deeper levels of security (e.g. encryption), but still facilitate collaboration.

The trend in supply chain for reinvention and reassessment of traditional practices accelerates in 2014. Not since the late 1990s has supply chain performance as a competitive weapon been addressed at the board level in so many companies. What important or break-through trends do you see for 2014? Let me know.

Happy Holidays

Turds of Wisdom

By Chris Jones | 12/05/2013 | 3:45 PM

Recently, I was reading a blog post that sent my blood pressure skyrocketing and reminded me that “best practices” are like bananas – they ripen and then stink in short order. What bothered me most was that the “expert” advice in the post was dated and anyone who heeded it would end up being just slightly better than today’s average fool. My conclusion is that best practices should be thought of as temporal. New business processes and technological changes are continually obsoleting what was once considered “best”. The lesson for supply chain and logistics professionals is that resting on the merits of your last “best practice” success may have already or shortly put you behind the competition.

Let me explain. In the case of the blog post I mentioned above, the “expert” was proposing that a best practice was making sure that trucks are sent out fully loaded with as little empty space as possible. When logistics technology was simple, this was as good advice as any. The problem with this “best practice” is that it is focused on a single metric, capacity utilization which is an indirect measure of business performance. If you focus on utilization, you could end up spending all of your full truck load savings and then some, driving all over the place to unload that full truck. Today’s better practice is lowest total delivered cost which is based upon the direct business metric. Lowest total delivered cost balances utilization with the cost to deliver all of the deliveries that could go in the truck. A lowest total delivered cost focus can be counter intuitive. For example, in the case of a fleet owner, it may be more cost effective to park a truck and use a contract carrier than incur high costs to drive to some remote customer location.

Geoffrey Moore, the technology marketing guru wrote a book called “Living On the Fault Line” that does a great job of summing up the challenge for supply chain and technology professionals. The basic context behind the book is the advances in technology diminish capabilities that were previously considered differentiating. You need to understand this march and continually obsolete what you have done before someone else does. The same can be said for supply chain or logistics business processes. Look at what happened to Dell. It dominated the PC market with its superior build-to-order supply chain model. Eventually, the competition found other ways to compete, while Dell largely stood pat. Over the last number of years, Dell has struggled and recently went private for a fraction of the value it had during its hay days.

So what is your “second act”? How are you continually challenging the best practices of your organization? Do you know if any of your best practices are in fact leading edge or current? Here are a couple of examples of ways to know where you stand. First, how many of the operational metrics you use to make decisions are indirect indicators of business performance? Second, what do your customers say about your supply chain or logistics performance? Is it the reason they buy or buy more from your company?  Third, how long have you been operating the way you are today? If your business practices are based on decisions made in the 1990s or earlier you stand a good chance of being a supply chain laggard.

The term “best practice” can be like the siren song, an alluring qualifier that is as likely not be true and certainly not permanent. What are you doing to better your current best practices? How do you know if you have achieved “best” status? Let me know.

Don’t Wait for the Inevitable in Omni-Channel Retailing

By Chris Jones | 10/21/2013 | 6:43 AM

It’s amazing how many macro trends such as changes in demographics shape and impact the future of supply chains and supply chain performance. Equally amazing is that many of these macro trends are right in front of us. But, we don’t respond to them until the pain from these shifts is woefully obvious and there is less ability to make a difference. Omni-channel retailing is one of those macro trends.

Last week we hosted a conference in London on Omni-channel retailing where LCP Consulting presented some of the findings of a study of over 150 retail executives in the US and UK. One of the most poignant points was that, as more retailers adopt Omni-channel retailing and move to a greater percentage of online business, their margins will actually decline. At the same time, they also stated that “bricks and clicks” retailers really had no choice. It’s the proverbial “in between a rock and hard place”.

LCP: Omni-channel Margin Analysis Example:


LCP Chart

Source: LCP Consulting (www.lcpconsulting.com)

The implicit implication behind this analysis is that retail supply chains are optimized for the store and out of balance driving costs. They must dramatically change to protect operating margins and help avoid the commoditization that on-line shopping can bring. This “perfect storm” in retailing is an excellent opportunity to raise the level of discussion to the C-level of the importance of the supply chain to a retailer’s overall health and success. Most importantly, it points to the sense of urgency that must be put into investing in supply chain capability now, not when the balance of revenue has shifted. Let’s face it, most retail executives don’t come out of the supply chain world and struggle with understanding supply chain investment, costs and complexities. However, they do get margin erosion and especially that the inevitable shift to more on-line sales that they are pushing will drive lower margins. Here’s the chance to tie the supply chain cause to one of the most important macro level issues facing retailers.

The challenge in having the Omni-channel and margin discussion is not to turn it into cost reduction only exercise. Yes, you need to get your supply chain costs down, but you cannot forget the need to improve service and more importantly use service to drive product sales and generate incremental services-based revenues. The supply chain is one of the few places in an online business where you can make a measurable difference to the customer. There are enough examples now to show that purchase price has become “table stakes” and customers will pay for additional value-added services and increase their loyalty to those retailers that deliver with excellence.

For the manufacturers and distributors that supply retailers, the Omni-channel phenomena should also be a wake-up call. The pressure on retailer margins will get more intense as they sell more on-line. The goal is not to get in the same cost reduction trap (e.g. product pricing).  Instead the opportunity is to look at your own supply chain to see how you can lower the cost of the retailer’s supply chain, improve their service and help value-added services.

Supply chain flexibility, speed, retail ready product and information visibility are key enablers for retailers as less of their sales will be delivered through traditional store channels. The ability to inject your product further into the retailers supply chain and directly to the customer will help retailers cut out network costs and delivery times. For example, next day and same day will put tremendous pressure on retailers to be more reactive, but carry as little inventory as possible. Retail ready labeling will be critical to streamline goods through the network at any point and information visibility critical to ensuring reliable operations and greater flexibility.

Omni-channel retailing is a global trend that is changing how retailers and their supply chains operate. Its impact on margins provides an excellent platform for taking the importance of the supply to the highest levels within a retailer and a competitive advantage for the manufacturers and distributors that can help make their retailers perform better.

 

Integration is a Core Competency for High Performing Supply Chains

By Chris Jones | 09/30/2013 | 11:28 AM

We have all heard the saying that it takes people, process and technology to deliver great supply chain results. However, after seeing too many companies have challenges getting their desired results despite having all three elements, I have come to the conclusion that there is a fourth element – integration. Instead of integration being a “necessary evil”, it needs to be viewed as a core competency, especially for companies who compete on supply chain performance.

Here’s the problem with poor integration. It can take a “Ferrari” of a new business process or application and turn it into a “Yugo” because of the lack of timely and accurate data. For example, you attempt to deploy a new event-based solution to improve your supply chain’s real-time visibility, but your batch-based flat file updates from your existing systems turn the new technology into a historical reporting tool.

How many times have you seen integration become the critical path for a supply chain project because the CIO doesn’t have enough skilled people to correctly connect your new solution with the existing ones? So, you compromise on the integration capabilities to speed up the project or decelerate the time-to-value to the business to get what you really need. To make matters worse, integration now spans the bounds of multiple enterprises to trading partners, carriers, etc. It’s no longer a case of connecting one system to another; it could be hundreds of systems. You cannot run away from the integration competency problem.

For supply chain leaders, time-to-value and differentiating capability are paramount. They are constantly executing a portfolio play of solutions AND integration to achieve their results. They know what ERP will and won’t do for them, and that integration tools make the job easier, but don’t eliminate it.

The biggest difference for high performers is that they recognize that integration is a key enabler and a core competency required for each advance in their supply chain capabilities, not a line item cost in the CIO’s budget. Here are 5 important points to consider for integration success.

  1. You need domain expertise and design competency in-house. In many cases, the integration competes with “white spaces” in your business processes and is evolving as business processes evolve. Outsourcing integration strategy and design doesn’t give you the knowledge continuity you need to chart the next wave of changes, because it leaves when the project is done.
  2. Maintain flexible execution capacity. If time-to-value and capability are paramount, it is highly unlikely that your organization will have the right integration resources when needed. Rather than slow or dumb-down projects because of IT budget constraints, partner with systems integrators to be able to flex capacity. The key is to find the right partner and stick with them so they can build expertise in your business and integration technologies.
  3. Get the right integration tools for the right problem. There is no one kind of integration problem, so don’t take the “hammer” approach, especially if it is predicated on a complex integration technology. If the integration is simple, use simple tools to get a faster ROI, even if they are later deemed a throwaway. In addition, what works best within an enterprise doesn’t across multiple enterprises. In this case, integration via networks is a much better fit than point-to-point integration tools.
  4. Design for support. Just because it can be done, doesn’t mean anyone supporting it will understand what has been done. Consider the skills of the people supporting the production environment and design the integration for diagnosis.
  5. Integration is a shared problem. Fix your own issues and don’t put it all on the vendor’s shoulders. For example, if your current capabilities do not properly synchronize data and you leave that up to the vendor to address your “shot gun” approach to data, one of two scenarios will happen. The integration challenge will put the whole project at risk or the vendor will create a solution that clearly violates point #4.

High-performing supply chains view integration as an enabler of more agility and higher levels of business performance, not as a means to an end. Does your IT strategy and skill set support the business value of integration? Let me know.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Chris Jones

Chris Jones

Chris Jones is Executive Vice President of Marketing and Services at Descartes Systems. Jones has spent more than 30 years working with manufacturers, retailers, distributors, and logistics providers to improve their supply chain operations. One of his primary missions is to identify and leverage new and counter intuitive activities that make a difference in the business. Jones has held senior positions at Kraft Foods, Descartes, and Gartner. He has a B.S. degree in Electrical Engineering from Lehigh University.



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