The Renaissance of Available-to-Promise Capability to Support Retail and Online Omni-Channel Fulfillment
Supply Chin Matters has featured prior commentaries exploring the supply chain impacts of Omni-channel and online customer fulfillment for retail supply chains. Such impacts are many, but one of the more important relates to the needs for efficient overall inventory management while exceeding more demanding customer fulfillment and satisfaction needs.
In B2C retail, and in online B2B, inventory investment has a major impact on margin and profitability, and Omni-channel strategies that allow customers different fulfillment options can cause havoc with the proper balance of inventory.
Consumers increasingly prefer to buy online, and at the same time, seek flexibility to either have their orders ship direct, or pick-up or return in a local retail store or outlet. This new paradigm is why so many Omni-channel retailers are seriously re-visiting inventory management strategies. Some are building dedicated online customer fulfillment centers to directly support online order volumes while allocating separate inventory to support brick and mortar retail needs. Other Omni-channel retailers have rightfully determined that the same inventory has to be efficiently managed to support fulfillment needs across all channels. This changes the role of the brick and mortar store to be an added node within the fulfillment network with the ability to support in-store pick and pack.
Within this increased retail business challenge, available-to-promise capability (ATP) has taken on a new significance as a key capability to assist in more efficient and responsive inventory management. As Supply Chain Matters sponsor JDA Software describes it, ATP is experiencing a new renaissance.
Last week, The Wall Street Journal provided further evidence of the business importance of efficient inventory management. In the article, Retailers See Gains in Serving E-Commerce Supply Chains (Paid subscription or free metered view), the WSJ reports that while retailers view online shopping as a boon to sales, it can provide a drag on profits especially in the light of parallel delivery networks. Some retailers, however, may be on the way toward figuring out the logistics and profitability potential of Omni-channel. Examples cited was that Home Depot which grew online sales 25 percent in the second quarter while improving overall logistics, including higher efficiencies in its distribution network. Target, grew online sales 30 percent and reported a small increase in margins.
Last week, Supply Chain Matters contrasted the financial results and supply chain strategies of Wal-Mart and Target. Wal-Mart’s financial results were perceived by Wall Street as disappointing. To address Omni-channel, the global retailer is currently implementing a new inventory management system. That strategy includes shifting inventory to regional and dedicated customer fulfillment centers, rather than from the retail store backrooms. That would allow the flexibility to meet both online and in-store demand from a distribution center centric inventory strategy. The downside is a de-emphasis of the retail store as a fulfillment node and a greater potential for stock-outs at retail store locations as online orders consume available inventory.
Target on the other hand, has recently demonstrated improving financial results, but at the same time has been candid to Wall Street that balancing inventory across its network and leveraging resources at store level are an integral part of strategy. Senior management candidly admitted that in-stocks within physical stores have been unacceptable so far this year, but a newly appointed role of Chief Operations Officer will have as an initial priority, beefing up the capabilities and responsiveness of the supply chain. Target’s strategy includes the retail store as a direct fulfillment node. Thus far the retailer’s is shipping online orders direct from 140 stores with plans to enable 450 ship-from locations by the end of this year. Target senior management further noted that an important enablement of ship-from-store will be will be testing and deployment of a new ATP system that provides specific online customer delivery commitments.
On JDA Software’s Supply Chain Nation blog, Kelly Thomas writes on the renaissance of: Order Promising and Demand Shaping in a Segmented, Omni-Channel World. Thomas observes that ATP married with demand shaping provides an increasing number of fulfillment options as well a means to determine profitability profiles for fulfillment channels. It provides a basis in making the most informed decision on the source of inventory for a given customer order line and the pick-up or delivery location of the online customer.
Rightfully noted is that nearly 20 years ago, elements of what is today JDA Software (i2 Technologies) pioneered and patented allocated-driven ATP functionality for discrete manufacturing and other industry supply chain environments. Today’s JDA Order Promiser application is now being applied to the evolving needs of Omni-channel retailers for facilitating more responsive online fulfillment as well as improved inventory investment and bottom-line profitability.
The technology has come a long way and has found new meaning in more efficiently managing inventory in a B2C and B2B Omni-channel world.
Disclosure: JDA Software is one of other current sponsors of the Supply Chain Matters blog.
This week, two major U.S. based retailers, Target and Wal-Mart, each reported financial results that presented different perspectives on the importance of integrated brick and mortar and online merchandising strategies and strong, collaborative supplier relationships. Both of these retailer’s performance numbers point to an industry that continues to struggle with balancing investments in both online and in-store operations and a realization that significant change has impacted retail supply chains. The approaches, however, are different.
Wal-Mart’s second quarter net income declined 15 percent as a result of increased competition and added costs. The retailer has been forced to add staffing and has increased wages to improve customer service and overall merchandising. The retailer further pointed to currency fluctuations, lower than expected reimbursements for its pharmacy business and an increase in goods stolen or lost as weighing on profit performance. The latter related to “shrink” of inventory has to be especially troubling. The retailer is currently implementing a new inventory management system.
If our readers have had the opportunity to visit a U.S. based Wal-Mart store over the past 3-6 months, you would have witnessed the results of prior cutbacks in staffing and an ill-planned merchandizing strategy. Stores appeared messy, shelves were not stocked adequately and store and checkout clerks seemed to be in short supply.
On a positive note, Wal-Mart has finally been able to stem the lack of sales growth among its U.S. stores. Same stores sales across the U.S. actually increased 1.5 percent within the latest quarter, the fourth quarterly increase after rather long multi-quarter declines. Online sales rose 16 percent in the second quarter.
Wal-Mart has been heavily investing in its online and Omni-channel customer fulfillment capabilities which have obviously impacted profits in the short-term. In this week’s financial performance announcements, the retailer actually lowered its profitability targets for the current quarter and the remainder of its current fiscal year. The notion of Wal-Mart has been one of supply chain scale in distribution, warehousing and dedicated fulfillment.
In prior commentaries, Supply Chain Matters has highlighted reports indicating that Wal-Mart again focused on its suppliers for sharing the burden of needed higher margins. In April a front page published article by The Wall Street Journal reported on Wal-Mart’s increased pressures on North America based suppliers to squeeze costs. The retailer informed suppliers involved in a wide range of purchased categories to forgo any additional investments in joint marketing and focus the savings on lower prices to Wal-Mart. In July, Reuters reported efforts to impose added fees affecting upwards of 10,000 U.S. suppliers. Contract renegotiation letters were mailed to respective suppliers that included amended contract terms along with added fees to warehouse products at Wal-Mart DC’s. A Wal-Mart spokesperson indicated to Reuters that these fees were a means for sharing costs of growth and keeping consumer prices low.
In its reporting of Wal-Mart’s results, the WSJ noted Wal-Mart’s CEO Doug McMillon acknowledgement that the company was in a period of change. He further cited a 1996 magazine article hanging on the wall in his office titled: “Can Wal-Mart Get Back the Magic”, while quipping that the retailer has rebounded before.
In contrast, we reflect on Target.
For its second quarter, the retailer reported a 2.4 percent increase in same-store sales and elected to raise its outlook for the second time. A concerted strategy on improved in-store and online merchandising has caught the positive attention of Wall Street, especially in light of the prior 2013 massive credit-card breach that significantly impacted sales growth.
Sales of termed signature merchandise categories were reported as growing at 7 percent, three times faster. Online sales increased 30 percent contributing .6 percentage points to comparable sales growth while more than 80 percent of online sales growth was driven by Home and Apparel categories. Overall net income nearly doubled in the second quarter.
In its earnings briefing, Target CEO Brain Cornell specifically addressed five strategic priorities, many of which have supply chain connotations. The first is to become a leader in digital, including direct from store capabilities. Thus far the retailer’s is shipping direct from 140 stores with plans to enable 450 ship-from locations by the end of this year. Target’s current online fulfillment is supported by six dedicated fulfillment centers, regional distribution centers and direct ship from store.
Most important from this author’s lens, was Cornell’s acknowledgement that balancing inventory across the network and leveraging resources at store level are an integral part of strategy. Target will be testing a new available-to-promise system that provides specific customer delivery commitments, later this year.
There was also refreshing candor. CEO Cornell indicated:
“Retail is changing rapidly today than any time in my career and we need to ensure that core operations keep pace with the new ways we’re serving our guests. Over time, Target has developed an incredibly complex supply chain, built to serve an outdated linear model in which product flows from vendors through distribution centers to stores. To serve guests today, we are becoming much more flexible in the way we fulfill demand for products and services. And this is stretching our supply chain well beyond its core capabilities.”
To add more credence to candor, Cornell acknowledged to Wall Street analysts that in-stocks within physical stores have been unacceptable so far this year. He has tasked a newly appointed Chief Operations Officer, John Mulligan, to have as his initial priority the improvement of overall supply chain capabilities.
As readers may be aware, Target recently had to make a very painful decision to close all of its Canada retail outlets. A part of that problem related to merchandising and significant challenges in maintaining in-stock inventories.
From our lens, such articulation from senior management, reflecting the importance of integrating both merchandising and end-to-end supply chain capabilities is a very important and noteworthy change in retail. Later in follow-on Q&A with analysts, Cornell articulated the value of collaborative efforts among various suppliers to bring more innovative products to market.
Wal-Mart and Target provide different contrasts but yet reflect the common challenges impacting retail industry. Retail supply chains are undergoing significant and groundbreaking change, far different than the last decade. Online and in-store marketing, merchandising, supply chain customer fulfillment and supplier management are all interrelated and must be addressed in a singular umbrella strategy and supporting action plans. Emphasizing one as the expense of the other often leads to sub-optimal business results.
This past weekend’s New York Times published article that reveals the inner workings of Amazon’s corporate culture has lit-up social media. According to the Times, the article itself garnered the most direct feedback responses ever recorded in a published NYT report, now in excess of 5000 direct comments. The newspaper indicated that it had interviewed more than 100 current and former employees to prepare this article.
The article itself, Inside Amazon: Wrestling Big Ideas in a Bruising Workplace, describes a cruel, unforgiving culture where workers are expected to work long hours and weekends. It cites former employees as indicating that 80 hour week work contributions can sometimes be viewed as a weakness. It further describes a literal back-stabbing inner culture where workers are encouraged to brutally tear apart one another’s ideas and where direct feedback on any employee’s behaviors can be submitted anonymously to a person’s direct supervisor, often without the knowledge of the employee in question. A former top human resources executive describes Amazon’s corporate culture as: “Purposeful Darwinism.”
If any of our readers have read either The Everything Store, by Brad Stone, or The Amazon Way, by John Rossman, the culture described in the Times article would not be such a surprise. Both books observe that Amazon’s corporate culture is rooted in the values of its Founder and CEO, Jeff Bezos, whose strong beliefs include an uncompromising attitude and the notion that harmony of the workforce is often overvalued and can stifle honest critique and brutal direct feedback. Both books describe the scariest aspect of Amazon as receiving a direct email or phone call from Bezos himself along with his tendencies to be very direct and unforgiving.
However, the real story this week focuses on the reaction and response from Mr. Bezos to the Times article. He deplored what he termed as the Times profile of: “a soulless, dystopian workplace where no fun is had and no laughter heard” and further stated: “I don’t think any company adopting the approach portrayed could survive, much less thrive, in today’s highly competitive tech hiring market.”
In a direct letter to his employees, he communicated: “I don’t recognize this Amazon and I very much hope you don’t, either.” His letter urges all employees to give the Times article “a careful read” but opines that “it doesn’t describe the Amazon I know or the caring Amazonians I work with every day.” He encourages employees who know of any of the stories reported to escalate such developments directly to HR or email him directly.
Bezos most compelling statement to all Amazon employees was the following:
“I strongly believe that anyone working in a company that is really like the one described in the NYT would be crazy to stay. I know I would leave such a company.”
The irony of that statement is that it describes what the Times article concluded, namely that a culture of “Purposeful Darwinism ” motivates managers to cull out many employees on an annual basis or motivates employees themselves to leave Amazon after relatively short tenures. One wonders if Bezos is insulated from the effects of the culture that he has architected.
From a supply chain and customer fulfilment lens, the Times authors describe how employees at Amazon warehouses are monitored by sophisticated electronic surveillance systems to ensure that productivity is maintained to high standards.
The dialogue and visibility to Amazon’s unique and unforgiving corporate culture will likely continue. Some would argue that Amazon’s culture is no different than other market disruptor’s, especially those rooted in leveraging groundbreaking technology. In fact, many of today’s leading technology innovators demonstrate similar hard-charging business cultures.
Then there is the reality of Amazon, a company that has literally re-written the norms of retail and online fulfillment as well as supply chain management.
The New York Times is no stranger to exposing the inner corporate culture of iconic companies. Readers may recall the 2012 Times expose of the internal culture of Apple and its biases for sourcing the majority of production within Asia which prompted a direct response from the Apple’s CEO.
Amazon continues to be a juggernaut of ongoing disruption of traditional markets whether one agrees or disagrees with its approach to culture and human relations norms. Perhaps the real question focuses on who is reaping the financial benefits.
Counterfeit Apparel and Other Unauthorized Products in China Draws Added Actions: Welcome Taylor Swift
After years of what is described as unproductive conversations, The American Apparel & Footwear Association recently publically called for major changes to Alibaba Group’s anti-counterfeiting procedures. AAFA represents more than 1,000 clothing, shoe, and lifestyle brands, and over the last four years, has been engaged in on-going conversations with Alibaba representatives on the problem of counterfeits on Alibaba’s Taobao online shopping site. According to the trade association, counterfeits across China cost clothing and shoe brands millions in lost sales, cause damage to reputation, and incur legal costs and an immense toll on internal resources.
In an open letter to Alibaba Executive Chairman Jack Ma, AAFA President and CEO Juanita Duggan called for a plan to address counterfeits that is more transparent and driven by certified brand owners. The proposed AAFA plan outlines four elements:
- Easy brand certification
- Brand-controlled “take-downs”
- Brand approved sales
- A transparent verification process
To add even more emphasis and probably more attention to ongoing apparel counterfeiting, singer Taylor Swift has taken up the cause. Readers will likely recall that Ms. Swift recently successfully confronted Apple with the issue of proper royalties within Apple’s new music streaming service during a subscribers free three-month trial.
According to a published report by The Wall Street Journal, the American pop star’s popularity in China has exploded and so has the availability of unauthorized products of all dimensions. In an attempt to control this surge of counterfeits, Ms. Swift is launching her own branded clothing line in early August among China’s two largest online players, JD.com and Alibaba. According to the report, the strategy is to leverage Swift’s star status to stem the selling of products that do not have proper rights to utilize the Taylor Swift name.
The availability of unauthorized counterfeit goods across China obviously continues. While industry associations such as the AAFA, along with respective brand owners themselves provide due-diligence, continued visibility and calls for action, the efforts of Taylor Swift might prove to be more meaningful. Alibaba, with enormous online fulfillment influence, perhaps now has an added incentive to stem the availability of unauthorized products.
Industry supply chain teams should applaud and support Taylor Swift’s entrance and response to this challenge.
Last Wednesday, in a noteworthy effort to spur widespread additional interest and new subscribers within its Prime buying program, Amazon declared its inaugural Prime Day, offering its online Prime program customers Black Friday like pricing deals in the middle of July.
The date was chosen because it represented the 20th anniversary of Amazon. The significance of a compelling holiday like online buying event in July was more important. Amid a flurry of anticipation as well as competitor response, Prime Day ended up having a mixed online fulfillment response. From our Supply Chain Matters lens, in spite of large-scale marketing driven promotional efforts, the event looked to be more of an inventory clearance event than one that would add a new dimension to Christmas in July in online fulfillment.
Online consumers did respond but had mostly a mixed reaction with the #PrimeDay hashtag garnering mostly disappointment or cynical commentary regarding the lack of compelling product offerings and/or deals. Some noted slower web site response time. Bargains on high-profile items such as Amazon’s Fire TV stick or the Amazon Kindle HD sold-out rather quickly, reverting to an unspecified wait list. The hashtag of #HappyPrimeDay turned instead to #CrappyPrimeDay for some. Product selection turned out to be more generalized and included apparel, household and other every-day type items. That prompted our declaration that from our supply chain lens, the reality of Prime Day looked more to be one of a July inventory clearance event.
Online sales tracker ChannelAdvisor reported that by Noon, Amazon’s U.S. same-store sales were about 80 percent ahead of volumes the prior July 15th. During the day, Amazon’s marketing types were hyping numbers to business channel CNBC regarding one-day sales records. However, the network could not avoid overlooking the mixed reviews streaming across social media. We tested bargains and selection at around 10am Eastern and found few compelling bargains to be garnered but rather pointers to every-day selection categories and pricing.
An Amazon press release on Friday declared a headline that the online retailer sold more units on Prime Day than that of Black Friday 2014. Worldwide order growth increased 18 percent more than Black Friday of 2014. Customers reportedly ordered 34.4 million items among Prime eligible countries. Readers should recall, however, that 2014 Black Friday sales were reported by the National Retail Federation as 11 percent below that of 2013 with shoppers spending upwards of 6.4 percent less. In 2014, shoppers opted for last-minute deals.
The Amazon release notes specific item level sales to include, among others:
- 41,000 Bose Headphones, compared to 8 the previous Wednesday
- 28,000 Rubbermaid 42-Piece Easy Find Lid Food Storage Sets, compared to 428 the previous Wednesday
- 24,000 Instant Pot 7-in-1 Programmable Pressure Cookers, compared to 182 the previous Wednesday
- 14,000 iRobot Roomba 595 Pet Vacuum Cleaning Robots, compared to 1 the previous Wednesday
Various sales and operations and supply chain planning teams will appreciate the impact and pain level of such one-day order volume spikes, especially when planning is based on past online order history likely had to scramble to fulfill such demand. It is literally a huge gamble to position such inventory for any single customer, albeit Amazon and Wal-Mart.
Other teams are more likely in the midst of assessing whether Amazon’s demand needs impacted other key customer needs, or whether such spiked July demand will have a substantial impact to the forthcoming three months of B2C channel fulfillment sales.
The build-up to Prime Day definitely caught the attention of other retailers, particularly Wal-Mart, which quickly marshalled a series of product promotions designed to both offer a lower-cost membership program as well as compelling deals on Wal-Mart.com. Reports indicated that Wal-Mart.com encountered greater interruptions and slower response times as online consumers checked for matching or better deals. None the less, Wal-Mart was quick to declare its counter-attack to be an online success, as well as the largest day for same-day pickup at a retail store.
Amazon declares that Prime Day will now be an ongoing annual event.
Like any new online fulfillment program, a lot can be garnered from results of the inaugural event. While Amazon’s line-of-business and marketing teams can declare victory, it is the online consumer that has the ultimate final vote as to the attraction and success of an online event.
Oracle today announced an expansion of the Oracle Supply Chain Management Cloud with the inclusion of two new applications, Oracle Order Management Cloud and Oracle Global Order Promising Cloud. These new applications are part of Release 10 or Oracle SCM Cloud, not to be confused with the predominant on-site Oracle Business Systems (EBS) suite of applications which is currently within Release 12 versions. Eventually, both release nomenclatures will converge and perhaps provide more confusion for customers. The takeaway however is that Oracle remains committed toward a broader development and release plan surrounding broad SCM applications in the Public Cloud platform than perhaps other competitors such as SAP. Both providers claim that they are responding to the stated needs of customers.
Oracle Order Management Cloud is an order capture and fulfillment Cloud application that is includes integration with Oracle Global Order Promising Cloud. The application was designed to improve order handling across the order-to-cash process. Pre-integration, centrally-managed orchestration policies, global availability, and fulfillment monitoring are included.
Supply Chain Matters spoke with Oracle SCM Vice President Jon Chorley, who informed us that these new SCM applications are linked with a dependency on Oracle CPQ (Configure, Price and Quote), the result of a prior Oracle acquisition. According to Oracle, this totally cloud-based application is currently appropriate for small or large-scale firms that have a predominant quote-to-cash customer fulfillment driven process. Down the road, in future Oracle Public Cloud releases, other sales and distribution channel customer fulfillment needs will be targeted and supported.
The pricing model for the cloud-based order-to-cash application is pegged to a combination fee structure associated with internal users supported and with order lines being processed.
Release 10 Cloud further includes Product Lifecycle Management (PLM) support, including a Product Hub, a primary vendor facing, master data management support application and a front-end, product development support application.
In Release 11 of Oracle Cloud SCM, the enterprise technology provider will target additional manufacturing focused support needs, most likely to be announced at the upcoming Oracle Open World conference in the fall.