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Baselining Your Realized Value and Learning From Other Companies

By Richard Sharpe | 07/25/2017 | 5:44 AM | Categories: Web/Tech

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Gartner estimates that companies will spend $18.3 Billion on analytics and big data initiatives in 2017, an increase of 7% over 2016.  That number is expected to grow to $22.8 Billion by 2020 as executives are becoming more cognizant of the importance of gaining sustainable value from big data analytical capabilities.  Earlier this year Dun & Bradstreet and Forbes Insights explored this question through a survey of over 300 executives across multiple industries and regions.  Here is a link to a recently released report sponsored by Dun & Bradstreet summarizing the results that is well worth the read.    

How much has your company spent (internally and externally) over the last 18 months on analytics and big data initiatives?  What are your Executive Team’s expectations of ROI?  Have you come anywhere near meeting these expectations?

As I mentioned in my last posting, we hear two very different responses when talking with companies about their success in mastering growing volumes of supply chain data and gaining sustainable value from business user analytics. The first is a public ally declared answer of success and progress while the second one, once the door is shut, typically offers various degrees of frustration and minimal progress. To understand the real progress of other companies’ big data analytical efforts, you need a non-speculative way to measure your progress versus your peer companies.  You need the ability to have a better understanding of peer companies’ challenges, the benefits they have realized, and their focus for future analytics and big data investments.

I am pleased to announce that the global survey conducted by  a team comprised of CSCMP’s Supply Chain Quarterly, Arizona State University, Colorado State University, Competitive Insights LLC, and lharrington group LLC has successfully captured the information required to establish this supply chain industry baseline for big data analytics.  The outcome of this survey supports the identification of  true challenges and benefits that companies have experienced as well as what they expect to gain from future big data analytics investments.  These results serve as a starting point to measure and track each year the progress that companies have made in realizing the value from big data analytics. This year’s survey results will  be presented at the annual Council of Supply Chain Management Professionals (CSCMP) Conference and published in various articles in both the CSCMP’s Supply Chain Quarterly and DC Velocity.

So when the door is shut and you are having internal discussions on your successes and frustrations in deriving value from your big data analytics investments, you now have a way to move from speculation to fact. 

Where are other companies breaking through the challenges ot rapidly accessing the right data, in solving quality and timing issues and their ability to continually gain meaningful analytical answers to prioritized business problems?

What are their next set of prioritized areas of focus?

One interesting early discovery from the survey results is that some technologies used for big data analytics do offer limited benefits but fall short in providing the true overall business value that can be gained from successful analytical efforts.

Naturally, this surveying effort will only get stronger as we learn from you what is beneficial and what is needed to get more insightful information. If you did not participate this year, please take the time to complete next year’s survey.  It will only take a few minutes but the impact can be significant. Participants of this year’s survey represent over 20 industries around the world.

This year’s results are clearly statistically sound.  Lets make next years participation a blowout!

All the best,

Richard

Where Are You “Really” In Taming The Big Data and Analytics Monster?

By Richard Sharpe | 05/30/2017 | 5:59 AM | Categories: Web/Tech

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There are often two answers that I hear when talking to companies about where they are in mastering growing volumes of supply chain data and gaining sustainable value using various forms of business user analytics.

The first response is the one publically offered – “We have made substantial investments in technology and expertise and are well on our way in harnessing real value from our data.”

The second “real” answer, once the door has been shut and confidentiallty agreements have been signed, is one of frustration and disappointment.  “Our progress has been extremely slow.  Yes, we are doing the traditional project exercises like various forms of modeling.  However, it is still difficult to get to the value-added information directly into the hands of the decision makers quickly and consistently for ongoing strategic and tactical needs. Even if they do get this information, there is often an underlying doubt about the quality of the data used in generating the required information.”

Companies need to have a measure of how they stack up against other organizations in their journey to master big data and analytics. To address this need, a survey has been created by a team from Arizona State University, Colorado State University, Competitive Insights, CSCMP’s Supply Chain Quarterly and the lharrington group LLC.  The purpose of the survey is to capture meaningful  answers regarding the progress that companies are making in mastering data and the application of meaningful business analytics. The result will be used to create a Supply Chain Industry Baseline that reflects meaningful responses from a multitude of companies, different industry segments and regions of the world.

This survey will be issued on an annual basis to serve as a means to track the progress that companies are making year over year. The comparisons will show where and how companies have been successful. Finally, it will be a resource to understand the actual challenges and frustrations being experienced by companies in their pursuit to master their data and meaningful business analytics. Therefore, the survey findings will be a resource for companies to determine how their efforts measure up to other companies and to serve as input for internal discussion on big data and analytical priorities.

A preview of this year’s findings will be issued, prior to general release, to all of those that respond to the survey. Highlights of the findings will be presented and discussed at the annual Council of Supply Chain Management Professionals (CSCMP) Conference in September. More detailed results as well as other relevant research will also be published in the Supply Chain Quarterly and DC Velocity.

Over the next following weeks, recipients of Supply Chain Quarterly, DC Velocity and Competitive Insights‘ monthly newsletter will be receiving this electronic survey that has been carefully designed to create this industry Baseline.  Responses will only be used to create the Baseline and the associated correlations and findings.  No individual response will be published or referenced in the results or used for any company solicitation. 

The more companies that respond and the more honest their responses, the stronger the results will be for EVERYONE in the Supply Chain Industry. Please take the survey HERE or at colostate.az1.qualtrics.com/jfe/form/SV_bO98R0OrXZTnxYN 

All the best,

Richard

The Ultimate Value from Supply Chain Visibility

By Richard Sharpe | 02/21/2017 | 3:21 PM | Categories: Weblogs

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Ask any supply chain executive if they would like to have better, more insightful, supply chain visibility and I can guarantee the answer will be YES.  Visibility initiatives can be focused on any aspect of the supply chain from supplier compliance to customer demand sensing.  Many companies are investing in “end to end” supply chain visibility capabilities using Control Tower applications to monitor and control specific operational movements and activities.  Clearly, these investments can yield huge benefits in increasing efficiencies, reducing costs, mitigating risks and ultimately ensuring the ability to fulfill customer orders.

However, there is another form of visibility that can add “disruptive” competitive advantage.  This visibility is associated with the performance of every supply chain asset in contributing to the generation of profit. Naturally, the goal of any visibility investment is to ultimately support improvements measured on a P&L statement. But how many companies do not recognize that there are deeper layers of visibility that can provide far more detailed insights with regard to profit performance contributions?   

Let me give you an example.  A specific company has 110,000 customer delivery locations selling through wholesalers, distributors and directly to the customer.  Historically, the company has managed customer product offerings using standard cost and revenue calculations.  However, they found it difficult to get to actionable insights that could improve on the “one size fits all” order fulfillment strategy by channel.  The company undertook an initiative to gain accurate profit performance information for every product sold to every customer.  The end result, just under 3,000 customer locations provided over 80% of their operating profit.  Empowered with this type of clear, strategic and actionable visibility, the executives immediately pursued answers regarding the root cause for such a dramatic performance variance.  Once the drivers for poor profit performance were understood, smart segmentation strategies were developed and implemented to significantly improve margin contributions.

Bottom line, supply chain operating visibility is a game changer. More insightful, actionable and timely information on supplier performance, movements of containers, multiple postions of inventory, etc. allow for a more proactive management of all supply chain operations. However, operating visibility can drive competitive and “disruptive” improvements in profit at a level that creates actionable insights answering the profit performance questions of “how, what, when, where and why”.

I would love to hear your comments.

All the best,

Richard

Hanjin: Why are today’s supply chains more at risk? Part 2

By Richard Sharpe | 11/07/2016 | 1:51 PM | Categories: Web/Tech

My last posting focused on the potential use of analytics and big data to protect an enterprise’s ability to generate profits and offered the following definition for Supply Chain Risk Management (SCRM);

the development of strategies to minimize or eliminate the financial impact of supply chain disruptions through the identification and prioritization of possible disruptors at all points in the supply chain, from sources of raw materials to the final delivery to customers”.

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In this posting we will address the following questions:

  • Why are today’s global supply chains more susceptible to significant disruptions?

The success of adopting Lean practices. Yes, the widespread adoption of Lean has provided for reduction of waste, increases in efficiencies and lower operating costs.  However, it has also eliminated the access to alternative choices, if the primary resource of an operation is no longer available. 

Expansion into new operating regions while also shifting production to lower cost operating areas. Today's supply chains simply have more moving parts that go beyond the direct span of control of one company; more moving  parts, more risk. 

The volatility of operating in today’s world. Political uncertainties, currency fluctuations, shifts in market demands and social unrest are further factors that can throw a curve ball to any global supply chain operation.  Think about how the Arab Spring impacted business throughout the region.

  • Who needs to be involved in creating, implementing and maintaining an effective SCRM program and What can you do that goes beyond Crisis Management?

Supply Chain Risk Mitigation strategies should always be based on three basic principals; redundancy, contingency and policy mitigation strategies. Each can involve elements of adding costs, making specific operational changes or simply changing an operational policy. 

To be effective, the identification, selection, justification and internal socialization of the mitigation strategy must be cross-functional and this often means involving Sales, Marketing, Finance, Supply Chain as well as other appropriate functions.  If these types of decisions are made in a vacuum (siloed) they will never survive the organization resistance to change or the next set of budget cuts.

  • How do you determine that your SCRM strategies are working?

Your company must have a consensus based “measuring stick” that is cross-functionally agreed upon.  An agreed upon set of measurements that are aligned with the organization’s priorities and that allows for an organizational consensus on how to identify, measure and prioritize significant, potentially disruptive risks. 

There is no better way to do this than to understand the specific financial impact of each potential disruption, e.g. how much it would hurt the bottom line.  Once created, the same set of measurements should be used to monitor the mitigation impact of each implemented strategy.

I would love to hear your comments.

All the best,

 

Hanjin: A Wake-Up Call

By Richard Sharpe | 09/07/2016 | 12:35 PM | Categories: Web/Tech

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Is this affecting your operation?

From the Wall Street Journal Logistics Report, September 8, 2016:

“The owners of some $14 billion in cargo stranded on Hanjin Shipping Co. vessels are considering desperate measures to recover their goods. Courts in Korea and the U.S. have said the company’s ships can enter ports without being seized by creditors, but it’s unclear who will pay to unload them if they dock, the WSJ’s Erica E. Phillips and Costas Paris write. Some shippers aren’t waiting to find out. Samsung Electronics, which has $38 million in cargo on Hanjin ships, is considering chartering 16 cargo planes. Others say they don’t even know where their freight is, let alone have a plan to rescue it. Trans-Pacific shipping rates have spiked as much as 50% amid the uncertainty, with brokers describing the situation as 'a total mess.' ”

Too busy to read this blog trying to find a fix? Then this blog is for you!

The majority of my postings have centered on the use of analytics on big data to directly increase profitable performance.  However, the smart use of analytics goes beyond the need to find opportunities to generate more profit. It should also include the capability to support the mitigation of significant supply chain disruptions. The ROI for using analytics on big data to enhance profits is more than enough to justify the investment. The ROI is multiple times larger when you leverage the same data with additional analytics to protect profits. Therefore, the next four postings will now focus on the protection of an enterprise’s ability to generate profits.

Today’s supply chain executives are constantly dealing with disruptions to their supply chain operations. According to British Standards Institute, in 2015 global supply chains incurred a combined $56 billion in extra costs due to crime, extreme weather, terrorist threats and the migrant crisis that swept across Europe. One of the most insightful research efforts was done by Vinod Singhal from Georgia Institute of Technology and Kevin Hendricks from University of Western Ontario with the following results:

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As depicted in the top section of the visual below, most disruptions are managed through a Supply Chain Crisis Management process.  This often involves activating a “Situation War Room”, gathering the right people and beginning to process information about the situation in order to determine how to get the operation back up and running.  This is a reactionary approach to handle supply chain disruptions. This approach uses valuable time in putting a game plan together while being unable to meet specific customer orders.

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Using the insights gained from supply chain analytics, the right approach is to focus on Supply Chain Risk Mitigation activities that minimize the financial impact of a disruption before it actually occurs. Mission Impossible you say? Not so. The use of analytics to increase the profitable performance of an operation can also be used to create another set of operational lenses. Lenses that offer insights that empower the organization to mitigate the financial impact of prioritized, potential disruptions.

In addition to being a founding member of the American Logistics Aid Network (ALAN) (www.alanaid.org), Competitive Insights has been studying Supply Chain Risk Management best practices for 11 years. During that time, we have participated in creating the first Industry Standard of the subject, ASIS's Supply Chain Risk Management: A Compilation of Best Practices, published numerous industry articles as well as offered executive education in both conference and university settings. 

Therefore, I offer the following definition for Supply Chain Risk Management (SCRM); the development of strategies to minimize or eliminate the financial impact of supply chain disruptions through the identification and prioritization of possible disruptors at all points in the supply chain, from sources of raw materials to the final delivery to customers”.

The continuation of this blog series will address the following SCRM points:

  • Why are today’s global supply chains more susceptible to significant disruptions?
  • Who needs to be involved in creating, implementing and maintaining an effective SCRM program?
  • What can you do that goes beyond Crisis Management activities?
  • How do you determine that your SCRM strategies are working?

Remember, the amount you gain far exceeds the cost of change.

I would love to hear your comments.

All the best,

Richard

Supply Chain Digitization – A Reality Check

By Richard Sharpe | 07/27/2016 | 10:17 AM | Categories: Web/Tech

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Today, I am going to switch gears to focus on the hot industry topic “The Digitization of the Supply Chain”.  This subject is getting a lot of attention in the media especially as it relates to the Internet of Things (IoT).  According to Gartner, by 2020 there will be 21 trillion devices streaming information empowered by the IoT.  Information on everything from the current performance of a part within a machine to the current location of my dog. 

I get the industry buzz about the digitization of the supply chain.  But I have to ask myself the question; “Other than specific performance/event notifications, will companies really gain the true business value that is possible from this exponential growth in data?

Today, corporate enterprises have no shortage of data.  Data from their ERP, supply chain, finance and sales related systems, just to name a few.  Data that is often siloed and often hoarded by functional organizations.  Even with the ongoing investments that companies have made to access, visualize and manipulate their data, I often hear the statement “we still cannot get the insights we need from the information in our systems.  We aren’t realizing the return on investment we had hoped for and expected”.

In June of this year I ran the Analytics and Big Data Track for the Chief Supply Chain Officer Forum hosted by EyeForTransport.  It was a great day and a half spanning subjects from Data Governance, supporting enhanced S&OP processes and strategic initiatives all through the proper use of analytics and data.  The consensus from the discussions was clear.  To get real value from data you must have VACA:

  • Having processes in place to ensure the VALIDATION and quality of the data
  • Being able to have timely ACCESS to the data
  • Gaining CONCENSUS that the right data that is being used to solve a problem
  • Applying the appropriate ANALYTICS on the data to drive actionable insights that improve the performance of the business

Sounds pretty obvious, right?

However, if we are being honest, how many companies can say they have mastered VACA for the enterprise data they have today?  If not, then how is adding additional finite pieces of data that comes with the digitization of their supply chain going to help? 

I think a reality check is required.  Clearly, nothing is going to slow down the exponential growth of data and the digitization of supply chains.  There will be a continuation of great success stories such as the ability to catch the failure of a critical component of a machine before it actually fails.  However, to gain maximum value, companies need to prioritize and act on their VACA capabilities. 

The smart place to begin is with the data that already exists within the enterprise.  The smart money is to extract the value from this information before starting to add significant volumes of IoT data.

Without effectively addressing VACA requirements, the digitization of the supply chain will increase the data related headaches that most companies are wrestling with today.  With VACA proven and in place, the lessons and experience gained can then be applied to the new data that will come from future supply chain digitization investments. 

I would love to hear your thoughts.

P.S. - get this right and you can take a VACAtion! 

All the best,

Richard

Are Your Omni-Channel / E-Commerce Sales Really Profitable? Part 4

By Richard Sharpe | 06/28/2016 | 7:38 AM | Categories: Web/Tech

This is the final posting of this series focused on Omni-Channel / E-Commerce profitability.  The focus of this posting is on the impact of product returns. 

We have defined the four components of the Total Cost To Serve (TCTS) for Omni-Channel / E-Commerce orders to be:

  1. The cost to purchase or manufacture the products, often referred to as the product’s Standard cost
  2. The costs to position inventory to be ready for order fulfillment activities
  3. The costs to actually fulfill the Omni-Channel consumer order, and
  4. The cost of product returns

After defining these costs, we offered the straight forward profitability equation of: 

Omni-Channel Order Profit = Net Revenue – (A+B+C+D)

Today, we are going to specifically focus on the cost category D above.

The problem

When consumers buy a product sight unseen, there is often a level of uncertainty about whether the product will be what they actually want. Retailers often offer free returns for customer satisfaction, an offer that consumers use to their fullest advantage. But how does that affect the overall profitability for the retailer?  Seem simple?  The answer is often not so obvious.

Let’s start with the revenue part of the equation.  A returned product turns a positive into a negative because the actual revenue received for the transaction has been returned to the consumer.  The loss associated with the order also has to account for all of the costs associated with the returns process.  These returned product costs can be more significant than most people realize.  Let’s break down product return costs in more detail.

Original Order Fulfillment Costs (sunk costs) – since the product(s) are being returned, the original order fulfillment costs are now not being covered by the revenues associated with the order.  Therefore, these are now sunk costs that need to be absorbed.

Inventory Carrying Costs – the length of time that a consumers holds the product can have a significant impact on inventory carrying costs.  When an initial order is filled, the typical inventory replenishment process applies which can mean that new replacement inventories have been ordered.  Therefore, in reality the seller of the product now has working capital tied up in inventory sitting at the consumer’s location, inventory in-transit as it is being shipped back to the seller’s receiving locations as well as new replenishment inventory.  This can significantly increase the levels of working capital tied up in product inventories.  Forecasting returns can help but most companies end up replenishing inventory to ensure there are no lost sales, given their lack of confidence in their data.

Return Transportation Costs – this category of cost is dependent upon whether the consumer pays the shipping fee to return the product.  If not, then return transportation costs can add significant increases to profit losses.

Secondary Handling Costs – assuming the returned product is placed back into storage or on the shelf, there are costs associated with the receiving, inspecting and put-a-way activities for the returned product.

Disposal Costs – if the product is not going to be placed back in general inventory and it is to be discarded or destroyed, then there may be a disposition cost associated with the returned product.  

All of these costs are demonstrated in the visual below and can have a significant impact on the profitability of an Omni-Channel / E-Commerce channel.

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The solution

So how do retailers selling in the Omni-Channel / E-Commerce tackle this issue?  The solution starts by again recognizing the wisdom in the adage “one size does not fit all”.  Treating all customer product returns the same way is simply a formula for failure. 

The solution starts by segmenting Omni-Channel / E-Commerce customers by understanding their overall net profit contributions over time.  This requires having specific and accurate facts regarding exact profit performance for Omni-Channel / E-Commerce customers including the frequency and impact of their product returns.   

This form of segmentation enables the creation of tailored product return policies that help manage the negative impact on profitability.  Informed policies regarding how products are returned, if there are shipping fees, if charges apply for returned products or if there are defined time windows for products to be returned. 

Of course this may drive some customers to shop with another retailer.  But that may not be such a bad thing from a competitive advantage perspective!

I would love to hear your thoughts.

All the best,

Richard

Are Your Omni-Channel / E-Commerce Sales Really Profitable? Part 3

By Richard Sharpe | 05/18/2016 | 12:57 PM | Categories: Web/Tech

If you have been following this blog series, you know that we are focused on how to determine if your Omni-Channel / E-Commerce orders are really profitable. Multiple industries are struggling with this question, none more than the Retail industry, which is being turned upside down by virtual retailers. A recent Wall Street Journal article noted that consumer online purchasing has soared 10.2% over the past year, while department-store sales have declined 1.7%.

This posting is the third in the series on managing Omni-Channel / E-Commerce profitability.   We started by defining the four components of the Total Cost To Serve (TCTS) for Omni-Channel / E-Commerce orders:

  1. The cost to purchase or manufacture the products, often referred to as the product’s Standard cost
  2. The costs to position inventory to be ready for order fulfillment activities
  3. The costs to actually fulfill the Omni-Channel consumer order, and
  4. The cost of product returns

After defining these costs, we offered the straight forward profitability equation of: 

Omni-Channel Order Profit = Net Revenue – (A+B+C+D)

Today, we are going to specifically focus on the cost category C above.

 

The problem

Consumer expectations are moving more and more in the direction of rapid gratification. Consumers expect to find the exact product they are looking for at the best price and to quickly have it in their possession, often at no additional cost. So what is wrong with that? Well, absolutely everything if you are the company trying to get that consumer’s business. 

E-Commerce order fulfillment activities simply do not have the economies of scale of traditional supply chain operations. Generally speaking, E-Commerce orders require the picking and packaging of much smaller quantities of product and they have to be delivered to a much larger number of destination points, often for free. Adding to this perfect storm is the fact that “comparative shopping” often reduces the actual revenue derived from the sale. 

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It is no wonder that many companies are asking the question: 
“Are we making money on our Omni-Channel / E-Commerce orders?”

 

As noted in an earlier posting, up until now the focus for many companies has been to create an Omni-Channel / E-Commerce presence in order to hold on to market share. But losing money on orders in this channel is often the result of imprecisely measuring the cost to fill the order. The shift must now be to manage the profitability of Omni-Channel / E-Commerce orders by having fact-based financial performance insights. 

The solution

The solution starts by recognizing the wisdom in the adage “one size does not fit all.” Customer buying patterns, order mix, discounts, promotions, and expedited deliveries all contribute to whether an E-Commerce sale is profitable or not. Therefore, in addition to the net revenue gained from Omni-Channel / E-Commerce orders, it is imperative to understand the true costs of each customer order-fulfillment activity. Knowing the exact profitability gained through these financial insights positions a company to change future online ordering offerings to insure profitability targets are met. 

How do you do that?  It starts with having specific and accurate facts regarding each part of the profit equation defined above. Using this information to segment consumer patterns and order related characteristics (quantities, mix, applied promotions and discounts, selling price, and applied delivery fees) is critical to clearly understand different profit contribution patterns. 

This profit intelligence can then be used to create informed strategies on how to influence the profitability of specific customer orders while continuing to build market share. Strategies such as restricting free shipping to consistently unprofitable customers or potentially providing different forms of order promotions to different segments of profitable customers can have an immediate impact on the bottom line. Yes, you may lose some customer orders, but most likely your competitor has just lost additional profits.

I would love to hear your thoughts.

All the best,

Richard

Are Your Omni-Channel / E-Commerce Sales Really Profitable? Part 2

By Richard Sharpe | 04/28/2016 | 1:29 PM | Categories: Web/Tech

Determining if you are making money through your Omni-Channel / E-Commerce sales is a complicated issue.  Today, the Consumer is clearly in control and many companies are actively seeking solutions which go beyond having an online presence and are focused on supporting smart strategies that create sustainable Omni-Channel / E-Commerce profits.

This posting is the second part of a multi-series blog focusing on Omni-Channel / E-Commerce profitability.   We started the series by defining the four components of the Total Cost To Serve (TCTS) for Omni-Channel / E-Commerce orders:

  1. The cost to purchase or manufacture the products, often referred to as the product’s Standard cost
  2. The costs to position inventory to be ready for order fulfillment activities
  3. The costs to actually fulfill the Omni-Channel consumer order, and
  4. The cost of product returns

After defining these costs we offered the straight forward profitability equation of:  Omni-Channel Order Profit = Net Revenue – (A+B+C+D)

Today, we are going to specifically focus on the cost category B above.

 

The problem

The cost to position inventory to be ready to fulfill orders is made up of three main categories; the transportation costs to get the products to the order fulfillment facility (both inbound and inter-facility related), the inventory carrying costs associated with the products (both in-transit and stationary inventories), and the storage and handling costs associated with the facility.  What is different about Omni-Channel / E-Commerce inventory positioning activities?  Simply said, it is the sheer number of configurations of inventory positioning that can be used to support Omni-Channel E-Commerce activity coupled with the need to be positioned closer to an exponential number of delivery locations.

Consumers have a growing expectation that ordered products should be delivered quickly and often at no cost. Since you can’t just “teleport” products from one place to another, the laws of physics kickin.

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Supply chain translation - what should our order fulfillment network look like to serve a growing Omni-Channel / E-Commerce business?  What makes the most sense regarding the number and combination of roles for the facilities that are required to support this channel (centralized distribution, local area fulfillment, sortation to support the “last mile” delivery, additional “click & collect” options)?  In addition, how do we justify the additional investments in the people, processes and technology needed to operate these facilities?  All very good questions.  Each of these considerations can have significant impact on the ongoing cost to position inventory to be used for Omni-Channel / E-Commerce orders and the profitability of this channel.

Unfortunately, for many companies the focus has been to create an Omni-Channel / E-Commerce consumer interface with not as much attention being given to effective ways to fulfill these orders profitability.  We often hear the question “Are we really making money with our Omni-Channel / E-Commerce sales?” 

 

The solution

Yes, determining the right answer is not easy and the answer will change over time.  However, it boils down to the same old adage “One size does not fit all”! 

There will always be good arguments that certain investments have to be made to gain (or to not loose) market share.  However, it is a fact that not all of your Omni-Channel / E-Commerce consumers are the same as it relates to their contribution to your operating profits.  Patterns in order mix, quantities, discounts and the expected delivery timeframe can all create large swings in realized profits.  Segmenting consumer patterns to clearly understand different profit contributions is one step in tackling this problem.  This of course requires having accurate cost information for all four of the TCTS categories noted above. 

Having these financial performance insights can then support the use of effective analytics to explore the best network configuration(s) and inventory positioning strategies to manage profitable Omni-Channel / E-Commerce orders.  One caution, this evaluation process should be treated as being very dynamic.  As your Omni-Channel / E-Commerce business grows, scalability considerations can significantly change the answer.

Gaining and maintaining Omni-Channel / E-Commerce profitability is a complicated issue.  Having fact based insights regarding the actual true Total Cost To Serve (TCTS) and the Omni-Channel / E-Commerce order profit must be considered table stakes!

I would love to hear your thoughts.

All the best,

Richard

Are Your Omni-Channel / E-Commerce Sales Really Profitable? Part 1

By Richard Sharpe | 03/10/2016 | 10:57 AM | Categories: Weblogs

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The shift of power to the consumer is turning much of the E-Commerce world upside down.  Consumers expect to be able to easily access specific product details, including product reviews, comparative pricing and multiple options for how to obtain the product and the speed with which they can have it delivered. 

Consumer expectations are rapidly driving Omni-Channels supply chains to become “pull” systems on steroids.  For many industries, it is changing the dynamics between manufacturers and retailers with many manufacturers and distributors building an E-Commerce presence. 

Everyone is trying to figure out the Omni-Channel puzzle.  The overarching question is how to satisfy rapidly growing Omni-Channel demands in a way that generates sustainable profits?   My conversations with supply chain leaders on this topic always lead to the same question:

“Are we really making money with our Omni-Channel / E-Commerce sales?”

This question naturally needs to address the revenue and cost considerations for Omni-Channel sales.  A future blog series will address the revenue considerations.  This posting is the first of a four part series on Omni-Channel / E-Commerce costs specifically focusing on the Total Cost To Serve consumer demands. 

We will break these costs into four categories:

  1. The cost to purchase or manufacture the product, often referred to as the product’s Standard cost
  2. The costs to position inventory to be ready to be used in order fulfillment activities
  3. The costs to actually fulfill the Omni-Channel consumer order, and
  4. The cost of product returns

So naturally we have the straight forward profitability equation of:

Omni-Channel Order Profit = Net Revenue - (A+B+C+D)

It is a simple equation but not so simple to calculate on a consumer order by order basis. 

There is a lot of attention being given to Cost To Serve models today. The key to success is to capture as much exact and verified data (Big Data) for each cost component and to use an analytical approach (Analytics) to tie these cost components together. Critical to this effort is to ensure that the approach builds organizational confidence and consensus in the cost calculations.

To keep the length of this posting reasonable, I will not devote time on the costs in the “A” bucket since this should be the easiest part of the equation.  Every company should know the cost to purchase and/or to manufacture the products they sell.  In the next three postings, I will devote specific and detailed attention to each of the other cost components and their direct impact on profitability.

The goal is to help answer that puzzling question “Are we really making money with our Omni-Channel / E-Commerce sales?” 

I would love to hear your thoughts.

All the best,

Richard

The problem is the data

By Richard Sharpe | 02/02/2016 | 10:28 AM | Categories: Web/Tech

“Harnessing the true power of data driven insight is the holy grail of future business.  A wealth of this data comes from the supply chain.  But, while the information is there, companies are not yet capitalizing on its real value as a source of insight capable of shaping the future of the enterprise.”

—DHL Supply Chain, Lisa Harrington, Senior Research Fellow – University of Maryland,
"The Predictive Enterprise: Where Data Science Meets Supply Chain"  (January 2016) 

With all of the talk about analytics and big data, why are so many companies still struggling with the adoption of new technologies and methodologies that harness the true power of data-driven insights? 

The reasons can vary, but the common complaint that I hear centers on data: 

Our data still sits in silos and it is difficult to integrate.   

We have pulled all our data together, but people still don’t trust it.  

As a large company, we have a long way to go to be able to support advanced analytics with the current state of our data.

Does this resonate with you for your company? If so, doing nothing to move down the path to gain this Holy Grail is nonsensical.  

This problem has been solved by many forward-thinking companies using advances in cloud computing solutions and focused methodologies. They took on the challenge and solved this “secret” to gain significant operating advantages. 

Take a look at the ROI figures from a recent Gartner research report, “Deconstructing Supply Chain Analytics,” by Noha Tohamy (also referenced in the DHL paper mentioned above).

Blog022_ROIofSupplyChainAnalytics

After reviewing the ROI, make an honest assessment about your organization’s capability to use the power of analytics that exist today. Consider the competitive advantage of having one source of trusted data and the full use of business-focused analytics to transform your enterprise. 

If your problem centers on the state of your data, what is more important than to eliminate that barrier? The task may be significant, but it starts by recognizing that it can be done. Seek the support of your Senior Management to create a cross-functional Team charged with defining a road map that includes an ongoing data-governance process. If needed, seek outside assistance to help with the process. You will discover that it is not so much rocket science as it is perseverance!

I would love to hear your thoughts.

All the best,

Richard

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 Richard Sharpe

Richard Sharpe

Richard Sharpe is CEO of Competitive Insights, LLC (CI), a founding officer of the American Logistics Aid Network (ALAN) and designated by DC Velocity as a Rainmaker in the industry. For the last 25 years, Richard has been passionate about driving business value through the adoption of process and technology innovations. His current focus is to support CI's mission to enable companies to gain maximum value through specific, precise and actionable insights across the organization for smarter growth. CI delivers Enterprise Profit Insights (EPI) solutions that enable cross-functional users to increase and protect profitability. Prior to his current role, Richard was President of CAPS Logistics, the forerunner of supply chain optimization. Richard is a frequent speaker at national conferences and leading academic institutions. His current focus is to challenge executives to improve their company's competitive position by turning enterprise wide data from a liability to an asset through the use of applied business analytics.



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