Supply Chain Matters has always been of the belief that history provides valuable learning, especially when business process improvement and technology deployment are being considered. Thus, we wanted to call attention to a commentary featured on Strategy + Business, Navigating Retail’s Last Mile, that reflects on important learning related to online fulfillment. (Complimentary account sign-up required)
The authors revisit the past 16 years of last mile retail efforts of the late 1990’s and early 2000s, when most online start-ups struggled with the trade-off between speed and consumer choice. The commentary argues that early start-ups such as HomeGrocer, Kozmo and Webvan focused on speed at the expense of variety.
The premise is that many of the same challenges persist today, often with added Omni-channel complexities. In essence, the argument is:
“the fundamental economics of the last mile haven’t changed. Companies have to offer a solution with costs equal to or lower than the customer’s willingness to pay (the “cost to serve’)”
In its analysis, the authors conducted research on the “cost to serve” for an array of retail models including traditional physical store, curbside pickup, crowdsourced shoppers, white glove delivery and pure-play e-commerce. This was supported by a survey of 2000 online U.S. shoppers regarding shopping preferences.
Our readers are welcomed to explore the specific examples, which from our perspective, provide excellent examples of what’s involved in an effective “cost-to-serve” tradeoff analysis.
Supply Chain Matters advises readers to focus on the two key takeaways that were provided over the Strategy+Business two decade timeline. The first was clearly summarized: “The pursuit of speed without an understanding of cost led to the demise of many of the early last-mile players” Many of us in the industry analyst community have observed this lesson being replayed again over the last 2-3 years, as online retailers discovered the hard way, the unexpected hidden expenses of fulfilling online consumer demand where consumers ordered more frequently but with lower average order sizes. Often, this reflects the dynamic tension among sales and marketing and supply chain as dynamic online programs are deployed without accurate awareness or knowledge of the associated cost factors.
We would like to offer another supplemental important takeaway based on our observations of online fulfillment history. That would be that technology has also come a long way, particularly in the ability to analyze and predict cost-to-serve across various customer fulfillment channels. Technology providers have leveraged in-memory and other information management technologies that can span supply chain and customer management applications towards needs for more informed and contextual based decision-making. Teams should therefore be focusing technology strategy toward supporting more intelligent fulfillment capabilities that can provide various cost-to-serve decision-making contexts as was described in the article’s examples.
The final takeaway was that consumer behaviors will continue to change and evolve. Rather than constantly reacting to such changes, instead lead customers to online fulfillment that makes the most economic sense. The authors point to determining the most appropriate model for last-mile delivery of their goods and create a value-proposition that builds on inherent strengths. If you think about it, that is exactly what retailers such as Alibaba, Amazon, Best Buy, Restoration Hardware and Wal-Mart are currently deploying. Build on the inherent strengths that you have and lead consumers to attractive fulfillment options.
In prior Supply Chain Matters postings, we have commented on how retailers are actively positioning online fulfillment practices for the current holiday fulfillment period and how industry watchers anticipate that shoppers will likely initiate purchases earlier in the holiday period. We further believe that technology and informed decision-making will play an important role in which retailers successfully navigate their Omni-channel strategies and achieve or exceed their profitability goals.
JDA Software recently sponsored and released a new 2015 Consumer Survey consisting of a polling of more than 1000 likely online consumers. An important finding was that 50 percent of the respondents indicate that they will be unforgiving of retailers who provide less than satisfactory online home delivery experiences. Once more, nearly one-third of these consumers reinforced that convenience is a major factor when placing an online order with nearly one in four of the survey respondents indicating a preference for “Buy Online, Pick Up in Store” as being more convenient than direct to home delivery. General news media adds to concerns by reporting on the so-called “porch thieves” who shadow parcel delivery vans and steal delivered merchandise from doorways. Other survey data from previous years generated by independent market research firms consistently reinforce that higher Free Shipping threshold policies sponsored by online retailers also have a strong influence for consumers opting for “Buy Online, Pick Up in Store.”
The latest JDA survey data is an indication that online retailers who cannot meet expectations risk losing a considerable percentage of customers to a competitive retailer that can offer a more seamless online shopping experience. According to the JDA release: “While shoppers expect convenience throughout the retail experience, most are outright not willing to pay for it, leaving retailers searching for ways to respond to consumer demand and still remain profitable.” Amazon’s Prime fulfillment program is the best example of how an online retailer can buffer consumer perceptions for having to pay for convenience by spreading such costs across an entire year..
In a JDA survey of retailers released last December, only 16 percent of retailers indicated that they can make a profit on online demand. That report concluded that: “Profitability is the biggest challenge because costs are rising faster than revenue.” The holiday surge period is the make or break quarter for many retailer’s financial performance.
As Supply Chain Matters and others in the industry have observed, in-store, local pickup and other shipping strategies will be tested once again during this upcoming holiday season. Target and Best Buy Co. have indicated they would provide Free Shipping on all online orders, while Wal-Mart has thus far opted to continue charging shipping fees on orders under $50, but is promising to make shopping easier every single day.
Online fulfillment costs are exploding and retailers can become more and more blindsided by such costs. Positioning inventory to support multiple fulfillment channels is now a necessity to insure margin goal performance, yet only 40 percent of retailers have network-wide visibility to such inventories. Logistics, transportation and service cost factors are now a critical input toward insuring overall business profitability. As noted in our previous commentaries, this is especially becoming evident with the latest round of expected parcel fuel surcharge, logistics and transportation cost increases.
Augmented technology will certainly play an enabling role in overcoming such challenges. However, technology selection teams will need to assess that such technology has the ability to span supply chain planning, network-wide inventory and Omni-channel fulfillment information streams in supporting more informed decision-making and to contrasting service segment needs with cost and overall profitability impacts. During last year’s holiday surge period, some retailers had the opportunity to test Omni-channel fulfillment processes including pick-up in store, with mixed results. Some were seamless, others experienced problems as noted in the recent survey results. The upcoming Black Friday and Cyber Monday promotional period will provide an added test not only to the ability to manage surge volumes, but in retailer’s abilities to determine expected impacts on costs and profitability.
Inventory, distribution, fulfillment center support and transportation management systems can no longer exist as stand-alone information sources. Root cause analytics that offer recommendations and simulation modeling as to the cost impact of various fulfillment scenarios are now important table-stacks in a constantly dynamic Omni-channel world.
Once again, retail teams need to insure that your organization takes a cross-functional and cross-channel perspective to the overall process, decision-making and technology support implications of Omni-channel fulfillment.
Disclosure: JDA Software is one of other sponsors of Supply Chain Matters.
Hewlett Packard Now Operating as Two Separate Companies: Supply Chain Test Comes in the Coming Weeks
Today marks the official first day of high-tech firm Hewlett Packard operating as two separate and distinct companies. One company, Hewlett Packard Enterprise Company will oversee operations of the former HP Enterprise division, a $55 billion dollar entity. The other, HP Inc., will oversee operations of the former HP Printer and PC divisions, of equivalent revenue size. Supply Chain Matters commented on this proposed split, along with supply chain implications in a July commentary, as we envisioned a very busy summer across the company.
The massive HP split involved separating balance sheets, facilities, IT systems and applications, including those related directly to the support of HP’s end-to-end supply chain. Purchase agreements among various suppliers would have to be recast foe each new company along with various special agreements.
A published article from the San Jose Mercury Times provides perspective on the scope and efforts that went into this split, which overall involved 300,000 employees among 651 global locations. Formal planning began last February and initially involved a flow chart that consumed a 40 foot length, 10 foot high wall. Approximately 60,000 employees had to be moved to separate locations, along with a reported 2700 bank accounts and IT systems.
An interesting perspective brought out in the article was the planning could not be a consensus-driven decision-making process. Instead, a small group of executive decision-makers were supported by a separation project team that grew to about 400 people.
The real-test of this separation comes over the coming weeks as the spilt processes and systems begin efforts as two separate enterprises. From a supply chain and product management perspective, key sensitivities will be seamless uninterrupted operation of both order fulfillment, supply chain planning and execution systems. A further perspective will be how inbound direct material and indirect materials contracts are structured, implemented and managed under the split. The Mercury Times report indicates that HP Labs will remain as a separate research and development center shared by both companies.
Obviously, the good news here was that the November 1st separation milestone was completed as required. The systems shakeout period will hopefully occur without major snafus.
Supply chain technology provider Kinaxis today reported its third-quarter 2015 financial results. Beyond rather positive financial performance numbers, there were two rather significant announcements affecting the company from a longer-term perspective.
Highlights of Q3 financial performance included:
- Total revenues of $23.7 million, an increase of 34 percent
- Nine months YTD revenue performance of $67 million, up 31 percent
- Subscription revenues of $16.5 million, an increase of 24 percent
- Gross profit of $16.8 million, an increase of 31 percent / Net profit of $3.8 million
In conjunction with reporting earnings, Kinaxis senior management shared two strategic noteworthy announcements. The company has appointed long-term executive veteran John Sicard to succeed Douglas Colbeth as CEO, effective January 1, 2015. Sicard, a well-recognized 22 year veteran of the company, was most recently chief product officer, responsible for all activities related to Kinaxis’s product portfolio. He has had previous leadership roles in development, consulting, marketing and customer support.
Colbeth, who has served as CEO of the company since 2003 will continue in his role as Chairman, along with other strategic activities. According to Colbeth, this announcement is a result of the company’s succession planning strategies.
Senior executives further disclosed that Kinaxis has signed a strategic initiative agreement with Accenture for joint customer development and solution development. This formal strategic partnership opens the possibility for Kinaxis’s penetration in larger corporate accounts, global geographies, broader industry verticals and in complimentary managed services related to supply chain response planning. In the earnings briefing, Colbeth noted that Accenture has already had a positive effect in sales pipeline activity, and that in his continued role as Chairman, he will serve as the ongoing executive sponsor to the Accenture relationship.
Technology companies often sustain growth as a result of the combined efforts of solid leadership, dedicated and energized employees and strong strategic partnerships. These latest developments concerning Kinaxis strike many of these facets.
Disclosure: Kinaxis is one of other named sponsors of Supply Chain Matters and the author is a guest blog contributor to the 21st Century Supply Chain blog hosted by Kinaxis.
As we, via Supply Chain Matters, and many others have noted, there is no question that supply chain talent development and retention has become a top of mind multi-industry challenge. Supply chain leaders express frustration in their efforts to find talent with correct skills. Such skills include embracing the flood of new technologies making their way into supply chain business processes, understanding of global business cultures and facilitating organizational change. The reality is that business, technology and supply chain business challenges are out-distancing current skill and talent needs.
There are many facets to this challenge, both organizational and individual in scope.
The debate is often focused on whether strategies should address a perceived “skills gap”, or a “training gap.”
On the 21st Century Supply Chain blog, this author penned a guest posting summarizing my recent talk at the recently held APICS 2015 Annual Conference.
Take a moment out of your busy schedule and consider some of the conclusions and recommendations that I have highlighted. Let us, as a community, tackle the notions of skills preparedness.
Supply Chain Matters at Oracle Open World 2015- Reflection on the Importance of Accurate Information
We continue with our series of Supply Chain Matters commentaries concerning this week’s Oracle Open World Conference being held in San Francisco. Our previous commentaries can be viewed here and here.
While attending enterprise vendor related conferences, I make it a point to attend sessions that provide updates on new functionality and inputs from customer advisory councils. Attending two such sessions at this year’s Open World provide some consistent evidence that technology consumers are becoming far more concerned with ongoing data management, discovery and maintenance. That is clearly good.
While attending a session related to the latest 12.2.5 release of Oracle E-Business Suite Order Management (OM) application, a reflected theme was customer advocating for information discovery tools. A product manager described Oracle’s prior acquisition of Endeca as the “greatest acquisition that Oracle has made” regarding the ability to leverage its information discovery capabilities across order management capabilities. With its latest release, OM includes the ability to perform 360 degree customer views of information related to orders from various channels including online. There is added application in quoting, where users can explore which quotes were the most successful along with product pricing attraction trending.
One of Oracle’s more popular applications in the area of supply chain management is Oracle OTM (transportation management), the result of the prior acquisition of G-Log. The session related to the latest version of Cloud OTM reportedly responded to customer council input related to more simplified, automated tools to update freight rate changes. Rate simplification maintenance includes the ability to easily download rates to a spreadsheet for easier user update. Also included were needs for improved dashboards, data visualization and adoption of Oracle’s standard ADK web user interface that can accommodate a wider variety of computing platforms including tablets and smartphones.
The session related to the current release of Oracle Value Chain Planning (VCP) outlined four development themes in the 12.2.5 release which all touched upon easier data management, update and discovery. VCP has now adopted the Oracle ATK web user interface, while the look and feel among the Oracle Demantra and VCP has been unified. There are now new, user-configurable, Oracle ASCP workbenches including the ability for planners to view key information they need to review on a daily basis. VCP now includes simplified export to spreadsheet capabilities, another customer advisory input. Users further requested workflow enhancements that help enable group workflow collaborations and quickly recover data from a stalled workflow.
With the current clock-speed of business across multiple industries, supply chain teams are managing the realities that planning and execution information synchronization are new table stakes for more responsive Sales and Operations Planning (S&OP). Applied use of more predictive analytics to anticipate events and better respond to events is only effective as the accuracy of the data and information fueling applications. A emphasis on easier and more automated means to insure data is accurate and timely is arguably a wise and prudent investment, and technology vendors such as Oracle are responding to such needs.
Insure that all of your on-premise and Cloud based applications software vendors are similarly sensitized to the reality that the velocity, clarity and accuracy of data and information are now rather important in insuring more contextual, relevant and timely decision-making. Tools that automate-simplify-enhance-alert to information management, discovery and maintenance will pay dividends.