Supply Chain Matters was invited to attend Oracle’s Industry Connect Conference held in Boston at the latter part of March. The conference drew a large compliment of attendees, featured three industry tracts, along with a focus on program management. We enjoy attending industry focused events because they provide a keener sense of industry-specific challenges, viewpoints and perspectives. We encourage technology and services providers to host more such events.
Due to a commitment to attend another event, we devoted the majority of our limited time focused on the Retail industry tract of speakers, but did manage to catch a cross-industry panel discussion featuring the theme of the Customer Experience. One clear theme brought out by this panel was that nearly every industry sector is adjusting to more demanding and more personalized experience factors concerning customers. Healthcare consumers now have many more choices for an healthcare provider and with a new emphasis on wellness, consumers have higher expectations as to the healthcare experience. Retailers are of course, continuing to deal with the shift of information power to the side of online and mobile-based consumers. Fellow blogger and panelist Vinnie Mirchandani pointed to the trend of mass customization of products as the antidote to commoditization.
We attended a Retail focused panel discussion of executives representing Deckers Outdoors and Scheels moderated by Susan Reda, Editor-In-Chief of Retail Stores Magazine. One statistic shared was that 73 percent of shoppers want an empowered shopping experience. A retail presence provides the opportunity to connect the passion of consumers with the passion for brands. Both retail executives provided clear examples of how their retail brands concentrate on the consumer experience, community outreach and provide a focused destination for consumers. As an example, Scheel’s is a sporting goods chain that features a ferris wheel, deli restaurant or fudge in any one of its 25 retail outlets. Community outreach includes sponsorship of local athletic or recreation events. A further common theme was a recognized need for the creation of a singular leader for Omni-Channel operations that span both brick and mortar and the online customer fulfillment experience.
Another insightful session titled How to Counterbalance Instinct with Data-Driven Insights, delivered by John Bible, Senior Director of Retail Data Sciences at Oracle, contrasted two distinctly different approaches to retail. Bible contrasted Amazon’s retail strategy initiatives as those posed as a software engineering problem contrasted to brick and mortar retail brands whose retail strategy focuses on the retail experience and destination. We found that comparison rather insightful. Consumers have tendencies toward cognitive biases and have tendencies shop based on existing beliefs and group dynamics such as consumer feedback on products. The notion of the “wisdom of crowds” is a rather real consideration. An important conclusion was that decisions supported by time-series forecasting and planning can no longer keep-up with constantly changing buying trends. Instead, decisions need to be supported by more-informed insights
Supply Chain Matters provides our readers periodic updates to current examples of how supply chain snafus can impact business performance.
We specifically have provided ongoing commentaries related to Lululemon Athletica and its prior sourcing and production snafus of its most popular line of yoga pants for women. Readers will recall that in March of 2013 this global B2C online and brick and mortar specialty retailer was forced to both recall and stop selling its most popular line of women’s summer yoga pants after discovering that the “sheerness” of the fabric allowed too much to be seen underneath. The CEO was compelled to publically apologize to customers for the problem and a short time later, announced her desire to step down from her CEO role due to personal reasons. Later in 2013, both a new CEO and Chief Products Officer was brought on-board, unfortunately too late to make any influential impact regarding the 2013 holiday buying period.
This week the specialty retailer reported financial results for its quarter that ended February 2. Revenues were up 7.3 percent but sales excluding newly opened stores dropped by 2 percent. Profitability was nearly flat with the earnings reported in year earlier quarter. Lululemon management again indicated on the conference call with equity analysts that forecasted revenues in the first half of this year will be constrained because the retailer did not order enough seasonal merchandise to accommodate demand for its products. Orders for seasonal merchandise were placed 6 to 9 months prior. The company’s stock was down over 13 percent this year but has rallied on the latest earnings news.
A summary of reported earnings reported by the Wall Street Journal noted: “Lululemon changed its CEO and chief merchant, beefed up its supply chain staff and implemented new controls, but suffered weaker sales over the past year after a long run of fast growth.” The publication further quoted the new CEO of Lululemon as indicating; “We are chasing some product… We can’t move as much product as we’d like on such a short lead time.”
While Lululemon is making its much needed investments in its supply chain capabilities, our general and specialty apparel supply chain readers are fully aware that 6 to 9 month lead times in today’s dynamic world of fashion and online commerce occurs at a far faster clock speed. Retailer Zara, a division on Inditex as long has been the benchmark in supplier responsiveness and apparel supply chain agility, moving from new product design to in-store inventory in a matter of a few weeks.
From our lens, it would seem that Lululemon has further work to do around supplier responsiveness with a far tighter connection of product design, consumer and supply chain response.
A lot has been written and spoken by general media regarding the massive credit card data breach that occurred within retailer Target’s IT systems. Many have labeled this incident as one of the largest retail data breaches in history as personal information concerning upwards of 40 million shoppers was breached by hackers. Would such a massive breach cause consumers real concerns in their online buying patterns?
We urge our Supply Chain Matters readership to take the time to read the published Bloomberg Businessweek artcle: Missed Alarms and 40 Million Stolen Credit Card Numbers: How Target Blew It.
By our lens, the article is a superior example of journalism directed at seeking out what might have occurred, especially since this incident is one that many of the impacted parties are reluctant to publicly speak about. The authors spoke to more than 10 former Target employees and outline a set of events leading-up to the breach, and shortly after this breach. Upon reading the article, one can get the impression that incident appears to have been very preventable. It reports that while the data breach occurred around the November 30th timeframe, the data did not actually move out of Target’s network until two days later, instead being stored on an internal server. Once more, security systems alerted to a potential data breach.
Six months prior to the incident, Target installed a $1.6 million malware detection system from FireWire, along with engagement of a security systems monitoring firm out of Bangalore India. The technology reportedly performed the way it was designed to perform, alerting Target’s IT and security staffers of a potential intrusion among the retailer’s systems. According to the authors, nothing happened. The article states: “Target has said that is was only after the U.S. Department of Justice notified the retailer about the breach in mid-December that company investigators went back to figure out what happened.” Once more the article concludes: “Not only should those alarms have been impossible to miss, they went off early enough that the hackers hadn’t begun transmitting the stolen credit card data out of Target’s network.”
Obviously, what actually occurred and why mitigation and response efforts were not initiated after technology alerted to the breach, is a matter that Target and its internal investigation will no doubt uncover. Earlier this month, Target’s Chief Information Officer voluntarily resigned allegedly as a result of this incident.
We wanted to call reader attention to the events outlined in the BusinessWeek article because they are events that retail and manufacturing supply chain operational teams can well relate to. During critical periods of customer fulfillment such as the holiday buying surge when so much of a company’s revenue and profitability results are at-stake, management leaders are often reluctant to be receptive to bad news, especially when such news implies communicating that mission critical systems may need to be temporarily brought to an offline condition to deal with a major problem. Supply chain and B2B/B2C focused IT teams know darn well the adage “if it ain’t broke, don’t’t fix-it” often applies, especially when it implies shutting down customer fulfillment to fix a problem. According to the BusinessWeek article, Target had information security staff numbering 300 people, and that the breach could have been stopped without any human intervention. According to the report, Target staffers had elected to turn-off auto deletion of malware in favor of a human decision. That could be understandable if there were processes in-place to quickly assess, upwardly communicate and deal with such a threat and make the appropriate management decisions for how to both deal with an information security threat while continuing to maintain customer fulfillment. Target’s internal investigation should hone in to this very area,
Reports indicate that Target has already incurred upwards of $60 million in expenses directly related to the retailers response to the credit card information breach. The retailer if now reported to be considering an investment of upwards of $100 million in new point-of-sale and other technology, perhaps RFID enabled, to manage the security of customer credit cards. That is an incredible amount of money coming from an incident that reportedly could well have been avoidable.
There are many lessons to be garnered from the incident at Target, lessons that will reverberate further in the weeks and months to come. We urge supply chain and B2B fulfillment teams to harvest the lessons of the Target incident, especially in the context of management response systems.
Many in our supply chain, B2B and B2C community have no doubt been reflecting on what occurred during the 2013 holiday buying surge. Many lessons and potential improvements can be gained to prepare for future surges in customer fulfillment.
One of the most noteworthy incidents was the blame game surrounding 2013 last-minute holiday shipments that could not be delivered in time for the Christmas holiday. Retailers and all forms of media were quick to primarily cite UPS, and to some extent FedEx, for failure to overcome last-minute network bottlenecks with the consequence for not meeting service delivery requirements. In our Supply Chain Matters commentary in late December of 2013, we opted to provide some caution in citing culprits pending more facts as to what really happened. However, we did state: “…if there is a need to caste blame or point fingers, let them be pointed directly at the online retailers and fulfillment firms that created the marketing expectations that shoppers could wait to the very last minute and get guaranteed delivery by the holiday.”
Yesterday, FedEx reported fiscal third-quarter financials which included the December period. FedEx CEO Fred Smith was quick to point out that online retailers need to shape-up on their sloppy shopping practices or risk losing customers.
Our Supply Chain Matters response- Bravo!
The Wall Street Journal reported (paid subscription or free metered view) that Smith indicated that online retailers claimed that they had tendered shipments to FedEx and UPS for delivery when they, in reality, had not.
B2C focused shippers exactly know that game- it is called gaming the system. Some teams are quite good at these practices. During crunch times when all the pressure is on regarding fulfilling and shipping orders, teams find creative ways to move the surge down to the next tier while gaining revenue recognition for shipment.
FedEx CEO Smith further pointed out that shipping labels were often affixed incorrectly or items were not packaged correctly, prompting the need for FedEx and UPS to tend extra steps to correct non-conforming packages.
That by our view is the added sign that in crunch time, standards were considerably relaxed by online shippers since getting shipments to carriers was a far more weighted metric.
The WSJ attempted its reach out to major online retailers such as Amazon, Overstock, Wal-Mart and others but received a no-comment response. We now know that Amazon had signed up an additional one million members to its Prime Program, which features free shipping, in the week prior to Christmas. Credit to Kohl’s whose executives fess-up to operational challenges at its fulfillment centers during the last-minute holiday surge.
According to the WSJ, Smith further noted that online retailer shortcomings “is a big part of the e-commerce business that really didn’t get enough publicity last year because they were an integral part of the problem even more than the weather and the carrier performance.”
Well Fred, Supply Chain Matters provided that publicity and so did certain other supply chain focused social media outlets. We are pleased to sign up both you and Scott Davis of UPS on our Subscriber listing.
Parody aside, a look back at the facts concerning the 2013 holiday surge is indeed helpful and constructive. UPS delivered a record 31 million packages on December 23 despite having to overcome its network surge bottlenecks that untimely caused the wrath of “the Scrooge that stole Christmas” FedEx experienced at least a 22 million packages surge on at least three days in December, despite extraordinary winter weather disruptions. The WSJ cites Mercent Corp. data indicating that online orders on December 23 among 550 retailers were up 63 percent from the year earlier.
UPS has already signaled that it will charge a premium surcharge for shippers of last minute holiday packages. Perhaps FedEx might opt to do the same. It is time for all of the involved parties to collaborate on adherence to consistent practices and in setting proper expectations for online shoppers.
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.
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?