Saturday, March 10, 2012

Supply Chain Flexibility

Case Study Summary by Jimmy Alyea

Customer expectations in the online retail world are presenting supply chain professionals with a paradox, e.g., “how to do more for less.”  Today’s e-commerce customers are able to access an unlimited number and variety of products that they expect to be shipped quickly and free.  In order to stay relevant and profitable, many online retailers face the complex challenge of having to build or reorganize supply chain infrastructures that are flexible enough to meet the ever-growing expectations of consumers.  This commitment to customer satisfaction is hindered by rapid growth of online retail sales and unpredictable consumer demand due to ongoing financial uncertainty.  The dilemma of retailers is to balance these drivers against a central priority of reducing or controlling supply chain costs.

Keeping the customer happy
Raised consumer expectations of faster, free delivery and increased cross-channel services puts pressure on e-commerce retailers to provide more for less to differentiate a brand and stay competitive.  One low-cost solution is to implement process mapping of the order cycle to look for time inefficiencies in each element of the delivery process.  A more capital-intensive option is to put additional distribution nodes in the network.  Raised customer expectations also present retailers with the challenge of providing seamless cross-channel services.  The key to successfully transferring brand experience between channels is to have the visibility and business intelligence tools necessary to coordinate the interaction in a cost-efficient way.  Failure to implement initiatives to meet customers’ perceived standards can negatively impact sales, but fulfilling them is not without risk.

Negotiating peaks and valleys.   
To successfully meet customer demand, online retailers must be able to negotiate the differences between peak and off-peak demand.   Although many feel competent to handle predictable peaks and dips, they are challenged to handle demand volatility caused by the impact of economic uncertainty.  Rapid shifts in consumer confidence, combined with the lengthy time delay from when forecasts are made, highlight the importance of supply chain agility.  Retailers can either over-stock or under-stock, but they must be adequately prepared to minimize the risks of doing so.  This would include utilizing relevant supply chain metrics, close collaboration between sales and operations planning, and seeking collaborative opportunities with other retailers.  Such collaboration can be facilitated by third-party logistics companies that provide access to shared-use facilities.

Finding a flexible structure
The online retailers interviewed were focused on a long-term growth strategy as part of their supply chain plans.  Redesigning the retail supply chain provides the opportunity to build flexibility into the structures and processes needed to grow, as well as the means to get closer to the customer.  One way to do this is to utilize shared-use facilities which can provide cost efficiency and agility to support peak management and demand fluctuations.  To be viable, providers of shared-used facilities need to offer customizable services to facilitate retailers’ control of order cycle times and the delivery experience.  Online retailers must also have the right systems in place to allocate stock efficiently between channels and to reduce cross-channel conflicts and the impact of sudden demand peaks in one channel.

Expanding a retail business in the growing e-commerce world requires aligning and integrating traditional and e-commerce channels and systems to meet customer expectations.  As customers increasingly expect fast, free delivery and seamless cross-channel services, retailers are striving to meet these demands in order to stay competitive.  Growing retailers without an established network must decide whether to make internal adjustments to their supply chain structure or outsource to a third-party logistics provider.  They must also deal with uncertain economic times and rapidly changing technology.  With a goal of flexibility, outsourcing provides immediate gains in speed, agility, and scalability of facilities and people.  Making the right decisions at the supply chain level helps increase turnaround times, balance seasonal fluctuation, and provide a supply chain infrastructure that facilitates rapid growth.

Copyright 2012 James L. Alyea. All Rights Reserved.

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