It’s said that companies don’t compete; supply chains do. How should this vital cog function in retail operations? To answer that critical question, Canadian Retailer spoke with two of the most astute observers serving the Canadian supply chain industry: Roger Sharpe and Rick Cleveland. Sharpe is a Director of Business Development, Omni-Channel Retail at SCI, which manages over $1 billion in inventory daily for retail, technology and healthcare customers. Cleveland is VP, Policy and Professional Development at Canada’s Supply Chain Management Association, which represents 7,500 members. The two weighed in concerning ways retailers should re-think their supply chain strategies to capture new opportunities.
ROGER SHARPE Director of Business Development, Omni-Channel Retail SCI
RICK CLEVELAND VP, Policy and Professional Development Canada’s Supply Chain Management Association
Canadian Retailer: Rick, you started your career in purchasing and were among Canada’s first designated professional logisticians back in 1995. Has the essence of supply management changed?
Rick Cleveland: Yes and no. The supply chain is always about meeting consumer demands. When you only focus on the supply side, you start thinking about what you can do to get the stuff here faster and cheaper. It should be about what your consumers need. What the supply chain is really about is aligning the supplier’s capabilities with what the consumer’s demands will become. How things have changed in retail is the expectation to satisfy a demand without leaving the house.
CR: Is the Amazon effect more than just another challenge? Roger, as someone with 20-plus years of experience in logistics, consulting and business development, is this a transformative time for retail supply chains?
Roger Sharpe: Challenges in retail are more pronounced now than ever. The retail industry is faced with daunting issues, like how do you effectively service and balance the direct-to-consumer model with the business-to-business model. That’s a paradigm shift. Part of the challenge is also understanding consumer purchasing. The risk is becoming irrelevant because you lose touch with that behaviour. Amazon is a distributor, and there’s a chance they’ll introduce their own labels and be the manufacturer too. That’s what I’d be scared of. They’re in better touch with what their consumers want.
CR: This summer, SCI published a piece on the top trends affecting the supply chain investment strategies of Canadian retailers, from now into 2018. The piece said that retailers need the infrastructure to react quickly, and that “there is a short window for businesses to either innovate or evaporate.” It sounds ominous
Sharpe: Most retailers have a supply chain designed to manage a store network, with pallets going through. If you want to respond to the e-commerce opportunities your supply chain will be dramatically different. The business of picking items instead of pallets is different. You have to have the ability to scale up and down very efficiently.
Cleveland: A physical supply chain is about moving as many things as you can in and out of a space as quickly as you can. With online, you’re focused on an individual person’s needs as opposed to the market’s needs.
CR: So, the big challenge?
Cleveland: How do you get to the point where you can pick one item efficiently?
Sharpe: And it’s not a matter of just devoting a portion of your warehouse to e-commerce.
CR: Scalability was raised. Busy periods can strain order fulfillment and distribution channels. So how quickly can you scale up the key areas of your supply chain?
Sharpe: We get into discussions with people who don’t think they’ll be able to do e-commerce effectively. Some of the things that 3PL [third-party logistics] does extremely well is staffing up and staffing down, and investing in automation.
CR: How should retailers work with partners to enhance supply chain performance?
Cleveland: That’s a critical element. Your delivery partners need to be more than a transportation outfit. They need to understand what you stand for as a brand.
CR: So, to consumers, the product and the supply chain can be intertwined?
Cleveland: If you can’t deliver, you hurt your brand. What’s different is the frequency with which consumers make up and change their minds. Retailers need to partner with people who aren’t going to break their promise.
Sharpe: The concept is to maintain the full integrity of the product throughout the supply chain. We’re also in an era where products that haven’t been designed to be shipped direct-to consumer are being shipped, like things that are expensive and fragile and difficult to move. You need to have trust built into the supply chain to ensure that the product gets to the customer in a way that’s reflective of your brand.
CR: How might retailers work together to improve their supply management?
Sharpe: I used to work in healthcare. A consortium of pharmaceutical manufacturers acted as wholesaler for hospitals. You could order different products on the same bill, rather than pay for products and transportation separately. Think about it, that’s the Amazon advantage. That’s where we can see more collaboration.
CR: What are some other ways to save costs in the system?
Sharpe: Be smart about where you set up your warehouse locations. For instance, it doesn’t make sense to ship products from Asia to Toronto and then ship to stores in Vancouver. So, where is that first stop? You end up seeing a two-node supply chain, like a main distribution centre in Toronto and a secondary centre in B.C. close to the port.
CR: Ideally, how should the supply chain areas work with other areas in retail in the most strategic ways?
Cleveland: Quite often, the marketing plan changed or you got sales feedback and nobody told the supply chain. I’m a strong proponent of sales and operations planning. The supply chain needs to tie into finance, marketing and sales, to be able to identify the risks in delivering, and the things that can be done to overcome them.
CR: What can retailers learn from some best practices in supply chain operations in other industries?
Cleveland: In the automotive world, companies figure out how many cars they expect to sell and how many they need to build. You try to arrange your supply chain to deliver what you need when you need it. In retail, you have to ramp up the supply chain, incur extra costs and deplete inventories. What most don’t do well in retail is focus on how much advance notice you need to give the manufacturer.
CR: Looking ahead a few years, how should retailers be positioned with respect to their supply chain management? What’s the big catalyst for progress?
Sharpe: The ability to digest and react quickly to data, like what you’re gleaning from product purchases to design the supply chain more nimbly. In the same way organizations have a chief marketing officer, they’ll have a chief supply chain officer
Cleveland: Automate systems as much as possible. The main reason isn’t efficiency but accuracy. You want to make sure you have the ability for computers to pick the items and manage expectations of demand, and for moving things through your facility at the lowest possible cost. That means automated handling.
Sharpe: There’s a high-end golf club company that does customized clubs. They do manufacturing in the warehouse, based on orders. It’s almost like a manufacturing and distribution centre consolidated. That’s an example of how you can become agile in a tailored approach to your customer base. How can you get it to the customer faster?
CR: It seems like the bar keeps getting raised.
Sharpe: A few years ago, I would have been perfectly happy to purchase a sweater from an apparel retailer, spend $15 on shipping and handling and wait three weeks for it to get to me. Now, I expect it the next day with no shipping and handling. The concept of Moore’s Law will now become applicable to the supply chain. In computers, storage doubles every year and price halves. The same thing will happen in the supply chain. Time is the commodity. The expectation is that wait times continue decreasing.
CR: The goals are to deliver for consumers and the bottom line. Do the best supply chain practices achieve both?
Cleveland: If you satisfy the consumer’s needs the bottom line will fall into place.
BY STUART FOXMAN, Foxman Communications
Originally published in the Canadian Retailer Supply Chain Issue 2017