Gaining Insight

GAINING INSIGHT INTO THE UNCOUPLED SUPPLY CHAIN

Not so long ago, the term supply “chain” seemed a perfect analogy for describing the process of moving products to the final customer: products flowed from origin through manufacturing and distribution steps, and each stop along the way was, well, a link in the chain. Today, though, a dramatic shift is taking place as companies compete for online shoppers. The shape of the supply “chain” is changing. Although functionally the “chain” concept still exists, physical flows have changed. Companies are streamlining and getting faster, eliminating touches, combining functions and even bypassing processes. Today we see linkages that never before existed, such as former B2B suppliers who previously dealt exclusively in truckload supply orders and now deliver small orders directly to consumers. The Uncoupled Chain I’d like to propose a thought that may help in explaining the challenges and opportunities of competing for online customers today: the traditional supply “chain” has come uncoupled. Today it seems shaped more like a “net” than a “chain”. (Diagram on page 2) The first great challenge of this new “net” is that it has lost its structure. An extremely complex question arises - where to place inventory? From a national or regional fulfillment center, an urban warehouse, a store, or direct from the vendor? The process flow has shifted from a serial to a parallel process, meaning that inventory can exist anywhere. The potential to become more responsive with this new shape is awesome – for example, it offers the chance to rush a quick delivery from a local store, or save a sale from another. This also means that optimizing order sourcing is significantly more complex, because we confront other cost, revenue and service issues that we rarely dealt with before. Can we avoid end of season markdowns with store shipping? But are we introducing costly split shipments with multi-line orders? Can we source from least cost fulfillment option and still meet service requirements? Or source from alternative locations during time of peak capacity constraints? Are we cannibalizing higher margin store traffic if shipping from store? Is vendor ship more or less expensive than internally? Does the vendor’s service record uphold our brand image? The need for speed and seamless customer experience are also huge online retail challenges making it harder to compete and even harder to be profitable. Nevertheless, resolving this structural question about inventory placement and order sourcing is a fundamental issue. Our take: we see companies at various stages of moving through this evolution and most have more design work in front of them. This transformation is a long multi-year process. It typically begins with the ability to engage consumers from different fulfillment points, to save a sale, get faster, or reduce markdowns. This first step creates the capability to execute customer orders from practically anywhere. Then comes a greater focus on inventory performance, to eliminate expensive split shipments and improve customer experience. The optimal balance between inventory and speed is a tremendous challenge, which ultimately defines store shipping strategy, inventory structure, and delivery options. Advanced designs employ various segmented flows and node strategies for greater efficiency. This re-structuring effort will ultimately re-couple many of the process links and a new structure created (although it will not resemble a chain).

By Bill Loftis

Senior Director, Integrated Solutions Transportation Insight 2018 Supply & Demand Chain Executive Pro to Know

2018 Food Logistics Rock Star of the Supply Chain

More than 35 years of supply chain experience that includes consulting to some of North America’s largest companies across a wide range of industries Known for his ability to focus on the underlying business problem to help clients integrate supply chain data to better support business processes and improve performance Specialties include strategic network design and flow strategies; transportation cost, practices and systems benchmarking; transportation planning assessments, network modeling and business intelligence; and collaborative distribution solutions

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