This author penned a guest commentary on the Chainalytics blog in late January indicating that the implications of Omni-channel commerce are more profound for supply chain leaders.
In that commentary, I amplified that the implications of Omni-channel commerce are becoming much more profound for B2C focused supply chain leaders. The commentary was purposely blunt because the trends and implications of consumers who have become much more accustomed to online buying will reverberate across supply chain organizations with strategies anchored in former brick-and-mortar store-based distribution and customer fulfillment strategies. It was meant to be a wake-up call.
Our takeaway from the posting was that consumer-facing industry supply chain leaders need to quickly internalize the reality that permanent changes in shopping behavior are underway and that education for the broader business and internal supply chain team needs to proactively begin as to the implications of these fast-moving trends. The “Amazon effect” is very real and profound.
Another proof-point stems from significant news this week. For the past two days, media has been echoing an announcement from one of the largest office supplies retailers in the United States.
Staples is closing a significant amount of its North American based stores and at the same time, rightsizing surviving brisk-and-mortar retail outlets to reflect a far different merchandising model. According to published reports, Staples CEO Ron Sargent has been very clear that the retailer is not getting out of the retail business but rather shifting business strategies to reflect that nearly half of these retailers’ annual revenues were consummated on Staples.com and its online fulfillment channels. The further reality was that same-store sales have declined for six of the last seven years.
Surviving brick-and-mortar stores will be evaluated on location and profitability, with stocking strategies that reinforce high selling products with healthy margins. Slower selling items will revert to online availability. We assume the retailer will further continue to feature physical stores as adjuncts to online services, such as customer pick-up or merchandise return outlets. This significantly changed strategy will more than likely affect the current Staples logistics and distribution network as online fulfillment centers becomes the primary emphasis.
As the Wall Street Journal pointed out, retailers of electronics, appliances and office suppliers have been hit the hardest because these merchandise items were the first to move online. Radio Shack announced this week that it would close upwards of 1200 retail stores. Other product areas are sure to follow.
Insure that your strategic and operating plans factor these new realities and that you have the talent, process and systems capabilities to Assure a positive transition to the new realities of Omni-channel commerce.
Last week, Home Depot named Craig Menear to be its new president of U.S. retail operations, assuming leadership of this retailer’s over 2200 retail outlets.
The Wall Street Journal characterized this appointment as a “transfer of power” and marked the end of the previous rebuilding era for Home Depot, including investment in a more streamlined and responsive supply chain capability which Supply Chain Matters has praised.
This appointment is part of the home improvement retailer’s succession planning, paving the way for the eventual retirement of current CEO Frank Blake whose leadership has done wonders for the retailer’s current stock performance. The WSJ, cites in-part, Blake’s achievements as the following: “He ushered in a huge overhaul of the company’s supply chain and technology systems, spending billions of dollars to make its operations more efficient and move more workers out of the back rooms and onto its sales floor.”
Menear previous role was head of merchandising, responsible not only for the assortment and pricing of all Home Depot products but also its suppliers, supply chain and online operations. In essence, if this succession plan comes to pass, we will have another CEO with operations, supply chain and procurement leadership as a part of their resume.
What makes this development more interesting to our community is that Blake’s leadership efforts included the hiring of a new cadre of supply chain management leaders. That included the hiring of Mark Holifield, a highly experienced retail and consumer products supply chain leader. The new appointment of Menear as president of retail operations includes the elevation of Holifield to the role of executive vice president supply chain and product development, reporting to Menear. Another executive brought in to transform U.S. distribution was Charles Armstrong, vice-president of distribution, who has outlined the transformation of Home Depot’s distribution networks at prior CSCMP annual conferences.
It has long been the contention of Supply Chain Matters that companies with critical value-chain dependencies are increasingly seeking senior management teams with solid grounding and understanding in principles of operations and supply chain management. These firms often desire that the supply chain continues to serve as a competitive differentiator for business outcomes. There are many industry examples. We can reflect on the CEO’s if firms such as Apple, McCormack Foods, and global apparel retailer Zara, part of Spain’s Inditex Group. Each came to their role with solid supply chain wide leadership experience and grounding. There are others as well.
The takeaway for those future leaders aspiring for a path to the top leadership role within an industry with critical value-chain dependencies is that focusing your career in cross-functional supply chain leadership can indeed be favored over backgrounds in solely financial management or sales, marketing or merchandising. Responsive product lifecycle management is an added experience differentiator, especially when coupled to integration to value-chain needs.
These trends continue to reinforce how important responsive and resilient supply chain business processes, supported by differentiated enabling information technology capabilities, are becoming paths to the top. While some in supply chain leadership may feel, at-time, unappreciated, your experience and insights really do matter.
In B2C supply chain environments, the term “Amazon Effect” has particular meaning, mostly all of which revolves around how to best compete against this online juggernaut. Sometimes, tactics can get a bit nasty, with strong gestures sent, even if it involves one of the most prominent collections of global brands. The field of competition has become much more acute.
Readers can recall that back in October, news leaked out that Amazon is partnering with global consumer product goods producer Procter & Gamble in an ambitious pilot program termed Vendor Flex that involved Amazon co-locating its online pick and pack customer fulfillment of bulk consumer goods such as diapers or household staples directly within a P&G distribution center. Goods literally move across the aisle from P&G to Amazon fulfillment.
Today’s edition of the Wall Street Journal provides additional information (paid subscription or free metered view) concerning the immediate response from one particular retailer, Target Stores, who happens to be a preferred customer partner to P&G. The WSJ quotes sources familiar with the situation as indicating: “Several months ago, the discount chain started to give some P&G products less-prominent placement in stores, including less space on “end-caps”- the coveted shelves where featured items are highly visible to shoppers and tend to sell quickly ….” Target additionally removed some P&G brands from their “category captain” status, and encouraged P&G competitors to work together on offering promotions on combined purchases.
The WSJ was quick to point out that its sources indicated the dispute among P&G and Target has since de-escalated with P&G products returning to their end-cap status and preferred status.
From our view, the recent credit card security breach that impacted Target removed Target’s clout, and perhaps the tables are turned.
None the less, this report gives us evidence that CPG companies who collaborate closely with Amazon can sometimes bear the chagrin from other influential brick-and-mortar retailers and that ugly tactics exist when it comes to competing with Amazon.
Would your company dare to take on a key partner who collaborates closely with Amazon?
The massive credit card and customer data breach that impacted the second-largest U.S. retailer Target, took on new dimensions this week. Business media is reporting that hackers gained initial access into Target’s internal systems through use of an unnamed vendor’s credentials.
A company statement indicates: “we can confirm that the ongoing forensic investigation has indicated that the intruder stole a vendor’s credentials which were used to access our system.”
The Wall Street Journal reported (paid subscription) that Target clamped down on access to two such vendor systems, a human resources website and a database for suppliers after discovering the attack. Hackers were somehow able to gain access to Target’s point-of-sale (POS) system to plant the suspected malware from these systems even though there was not a direct relationship. The malware further found its way to another system containing email addresses and phone numbers among 70 million customers.
The WSJ went on to report that the Federal Bureau of Investigation (FBI) issued an advisory to security experts and other retailers identifying 20 cyber attacks in the past year similar to the one that hit Target and warned that the threat is likely to grow. It reported that a version close to the one used in the Target breach became known to cybersecurity firms a year ago.
Target, like other retailers, has had a previous history of outsourcing its IT systems and select online commerce applications to third-party outsourcing and service providers firms as well although there is no current available information pointing to these systems as entry points.
The implications for this new awareness is the potential vulnerability of systems to compromised security when third-party IT vendors are part of the systems landscape. There is no doubt that IT organizations will re-visit and strengthen information security protocols and standards. That would include IT employees who walk out the door with systems login knowledge.
There are important ramifications for B2C and B2B customer fulfillment processes that involve third-party IT vendors in that retailers and consumer goods producers must be assured that information security remains a top priority and strict standards are being adhered.
Teams in these process areas should continue to monitor all of the available information stemming from both the Target and other data breach incidents.
Online and traditional brick and mortar customer fulfillment professionals should pay special attention to the recent news that Amazon has obtained a patent for what it describes as “anticipatory shipping”.
A posting on TechCrunch indicates that the patent was filed in August 2012 and granted in last December. Outlined is a process designed to cut delivery times by predicting what buyers are going to buy before that actually hit the buy button. Upon review of the process flow diagram included in the application, one can draw the conclusion that anticipated orders can be picked and packed and shipped to forward pre-staging hubs or continuous transportation resources awaiting the final consumer buy signal. We would speculate that it could even include pre-shipping to Amazon delivery lockers among certain cities, assuring same day or hourly delivery fulfillment.
The process analyzes various “business variables” including a consumer’s prior buying patterns, a highly anticipated product launch or anticipated seasonal or event related consumer consumption patterns. Various other reports indicate that Amazon process planners have incorporated the possibility that the final order from the consumer did not occur but was shipped anyway. In that case, the consumer may be offered a further discount to accept the merchandise.
Obviously, this process will have a high dependency on data-mining capabilities and highly predictive analytics demand prediction algorithms which should not be an obstacle for Amazon. As TechCrunch and business media has further concluded, it could represent the next breakthrough beyond one-button ordering introduced by Amazon in 1999.
Of more importance, a patent attached to this process locks out other online competitors from pursuing similar forms of online fulfillment automation and that should definitely raise eyebrows. Competitors, if they have not already, will have to come up with an alternative fulfillment process based on another patented method.
The shadow of Amazon on retail fulfillment continues to loom very large and all B2C fulfillment teams should continue to take note and plan accordingly.
What’s your view? Do you believe this is a significant development? Will consumers ultimately embrace such a process?
Share your thoughts.
Bob Ferrari, noted supply chain thought leader and Executive Editor of Supply Chain Matters continues with a current series of guest postings on the Chainalytics blog. The latest guest posting, The Implications of Omnichannel Commerce Have Become Profound, cites recent business media and executive viewpoints that now conclude that there has been a permanent shift in consumer buying habits with profound implications.
The important takeaway for retail, CPG and other consumer-facing industry supply chain leaders is to internalize the reality that permanent changes in shopping behavior are underway and to proactively educate the rest of the business to the supply chain strategy and potential re-alignment implications.