Unsexy, but Essential: The New Supply Chain
Image from SupplyChainBeyond.com
This is the final article in a series on the essential issues that brands and retailers must address in a post-pandemic world. Much of what has been discussed in the first two articles continues to bear out: consumers are shopping more online, retailers are leveraging new ways of connecting and retail as we knew it, is forever changed. This article discusses what is likely the most critical step: reinventing your supply chain.
I am a brand person. I love the challenge of building relationships with consumers, unlocking the keys to motivate and move them. Unraveling the mysteries of how to get them to love a brand and become a loyal follower, and ultimately, a consumer. However, one thing that I know for sure is that you can have the most impactful ad campaign, you can have the most exciting brand events and award-winning, highly engaging social media, but if a consumer walks into a store or shops online and can’t find the product you have promised them, then you have failed. Essential to the consumer relationship is your ability to deliver on your promise, to close the gap in what is often known as “the last mile”. Without a resilient and flexible supply chain, the lesson from the pandemic is this:
No brand, no matter how sexy, can win if they can't deliver.
If you’re an Amazon Prime member, you know what I’m talking about. Quick delivery seemed to evaporate in the early days of shelter-in-place orders. Systems were strained, carriers were overloaded and panic buying turned two-day delivery into I-hope-some-day delivery. Was that you I spied wandering through aisle after aisle of empty grocery store shelves as early buyers hoarded toilet paper, disinfecting wipes and hand sanitizer? You might have been wondering, “Didn’t anyone see this coming?” and the answer is, “They should have.” But who is “they”? Your supply chain guru.
So, how did we get here?
One word: China. As manufacturers looked to drive down costs in the past decade, many of them, especially retailers, became overly dependent upon China. When the coronavirus hit there first, the ripple effect was massive and nearly everyone was caught unprepared. Weaknesses at every tier of supply and across all types of industries were exposed. As consumer demand shifted away from discretionary spending on items such as clothing and shoes and moved swiftly to the essentials of groceries and home improvement, the unwieldy and inflexible supply chain ground to a near halt. It was too big, too entrenched and too dependent upon one country to be able to make like Gumby and flex.
Now, where do we go?
According to Christiana Smith Shi, former President of Nike Retail and current corporate director for large multi-nationals such as UPS, “some retailers saw this issue early because of the imposition of tariffs and began to diversify supply to Vietnam and other southeast Asian countries.”
[Image from the Williams-Sonoma website.]
Williams-Sonoma is an example of a company that into their supply chain in 2018 as a direct result of rising tariffs on goods from China. The company streamlined suppliers, examined every cost and even opened an upholstery factory in Tupelo, Mississippi with the goal of cutting its China sourcing in half by 2020. That prescient move put them in a better position to respond to a 30% increase in their online sales during their fiscal 1st quarter which coincided with store closures as the pandemic spread. Their earnings announcement was a primer for The New Retail pointing out that “this crisis has accelerated our industry’s shift to e-commerce, and given rise to a newfound appreciation for the home.” It detailed support for associates, customers and communities, three key components of an effective post COVID19 strategy.
Of course, in addition to hard and soft goods, Williams-Sonoma is also a purveyor of consumable foods. This gives them great insight into the benefits of local sourcing. Smith Shi points out that because food tends to be more locally sourced, it has had less disruption to the supply chain. “Food doesn’t travel well for freshness and fragility reasons, so [food suppliers] were more insulated during the pandemic.” The lesson for other retailers: diversify through more manufacturing closer to home. The benefits are not just in shorter lead times, but also, as Smith Shi elaborates, “having them closer will make monitoring easier” which has larger implications as calls for “ethical and sustainable manufacturing will pressure companies to know what is actually happening in factories and with their suppliers”.
And this is not just a US problem. In a recent Bloomberg News article, both Taiwan and Japan are cited as countries whose governments are incentivizing companies to pull back production in China and invest in domestic sources. Over-reliance on a single location for manufacturing with no redundancy is a matter of national importance, especially for smaller economies.
This underscores the need for corporate leadership to become part of the dialog at senior government and trade group levels. “Post COVID policy is being shaped right now and if your company isn’t in the loop, you may find the decision you’ve made were under-informed,” adds Smith Shi.
Diversifying supply chains is important, but so is transparency.
“Brands and retailers will need to evolve supply chains quickly, take risks and make bold moves to survive and thrive,” proclaims Donna Morrow, Strategist and Co-creator with Inspired Companies as well as a former Nike Vice-President. “Precise analytics are essential to survival”.
Yet, according to Nicole DeHoratius, an expert in the management of retail operations and a faculty member of the University of Chicago's Booth School of Business, “not all supply chains are digital. There are still orders being faxed.” She goes on to point out that “typically, 60% of inventory records at retail are inaccurate.” For a retailer who may have been trying to shift from warehouse fulfillment to ship from store during the pandemic, these inaccuracies translate to poor customer service and a hit to brand loyalty.
So what’s the solution? Morrow points out, “direct-to-consumer becomes more important for brands to truly understand what demand looks like and to leverage that information back into the system.” In fact, retail should be the gold standard in data investment for companies especially as more demand continues to shift online. Morrow suggests that companies should “start with key cities and understand demand at the micro level to improve systems.”
Enter The Strategic Partnership
As DeHoratius from the University of Chicago observes, successful companies are looking at other countries in Southeast Asia for supply, in particular Bangladesh and Vietnam, and others are looking to Africa as well. The difference for many of these moves is not just finding a supplier, but making strategic investmentsto develop the supply chain. As Smith Shi called out: “smart companies are co-investing with their suppliers to move manufacturing closer to the end user or to new locations for flexibility. Companies will need to invest more vertically; not as operators, but as equity partners.” These partnerships should translate to better visibility within suppliers and therefore, greater adaptability. Morrow concurs, “When you think about the carbon footprint of offshore manufacturing, local or domestic capabilities, at least for the highest demand products, is more appealing. The world needs more purpose-driven companies who would have seen the need to diversify supply [earlier].”
The Last Mile
Based on their survey of over 2,000 US adults, Fortune Magazine and Civis Analytics report that 48% increased their e-commerce spending since the start of the pandemic. A whopping 93% of US adults shop online and 65% of adults say they have ordered from Amazon since the start of the pandemic. So, dear retailers, it’s not just about getting the goods to your warehouses, you’ve got to get the goods directly into the hands of consumers in order to win. That puts pressure on not just your systems, but also on delivery companies like UPS and FedEx. Although by last December, Amazon was delivering 50% of its own packages, Smith Shi points out, “Amazon, cannot do it all themselves.” In fact, Amazon has been one of the companies hiring the most during the pandemic. Their strategy of augmenting delivery with independent drivers, honed during the holiday rush, has been leveraged heavily during the pandemic. For everyone else, your relationship with UPS and FedEx will remain critical, but heavily dependent upon innovation. It’s less cost effective for carriers to deliver directly to consumers, so expect to see wider use of drones, drop boxes and alternative delivery methods, especially to reach more rural areas.
The Real Bottom Line
Without the ability to satisfy consumer demand by delivering what consumers want, when consumers want it, brands are at risk. The final link in the relationship is a robust, flexible and transparent supply chain that is as innovative as the rest of your business. As a marketer, you may have napped through your operations class in college, but now is the time when you need to be wide awake, with eyes wide open, to ensure from first step to last mile, your brand wins.
Need help designing the future of your retail space and consumer journey? Direct message me to find out how you can solve the sticky issues we are all facing.