As Retailers contemplate the HOW on their journey to enterprise process improvement the following is a conversation on what could be an appropriate strategy and where there would be potential immediate business case as well as a roadmap to success that enables the end state without redundancy and possible expensive rework. The approach will be from a people/process/ technology/ roadmap perspective as well as offer a value driven roadmap to support.
THE most difficult part of business transformation is moving the people from the “now” state to the “to be” state. This isn’t new, it’s been stated before and but it’s impossible to overestimate the challenges that organizational changes bring.
One very specific area of transformation is in the supply chain. The move from a vendor centric buying process to a customer centric or demand driven process is a very complex and arduous transformation, and some issues lie in areas that may or may not be obvious.
Traditional supply chain organizations in Food and Drug grow up from the more traditional supply chain or logistics organizations. They understand traditional supply chain. They know how to make the warehouse and transportation processes very efficient and cost effective. They are VERY good at labor standards and pushing harder and harder to ensure that the budgets given to them by the retail leadership teams are met and in most cases exceeded. What they’ve never had to do is manage inventory from a buying perspective. They manage inventory but it’s more of a “deal with what I have” and not a “how much do I need” conversation. Maybe better said, they have never needed to interact with the ultimate consumer of inventory….the end customer.
Traditional supply chain leadership (or as a former colleague would say “supply chain geeks”) spend their time being efficient but yet find themselves slave to an inventory that is always focused on sales and profits as a merchant would define them. Never, ok well almost never, on bringing efficiencies to the work that they are charged with. At the end of the day, unless the merchants take on reducing inventory and providing visibility into what their plans are (retail strategy and promotional planning) the ONLY way the supply chain geeks can provide value to the company is improve efficiencies. By running their warehouse and transportation departments with the least amount of labor and expenses possible.
But the real money / business case lies in running with less inventory. Demand driven, customer centric, whatever the label it’s all about living with less inventory and the subsequent benefits that brings, less money invested in inventory, more efficiencies across those same warehouses and trucks.
So the key to success in this process lies not in traditional supply chain but in merchandising. The merchants hold the key to all factors that influence inventory; Assortment, pricing, promotion, markdowns, vendor relations, etc..Without their input and ownership any effort to “control” inventory levels will always be less than optimal and less profitable.
Traditional organizations build business processes in a vacuum. They create tasks and work that may bring efficiencies to their process but actually create issues upstream and downstream. The merchants get a great process for promotion that helps them figure out their needs but it’s completely invisible to the supply chain and brings additional costs to the process that were not considered when the promotional planning process was trying to make decisions on which promotion would drive the company profitability and sales metrics the best.
To achieve the greatest success the “to be” process must be end to end. It must focus on the entire process inclusive of supply chain, merchandising and store operations. It must create clear cross process accountability. It must provide the process and metrics to ensure that corporate strategies around inventory are not only defined and utilized but are a part of the measurement of success. The merchant must provide visibility into the plan for sales, profit, and inventory. The supply chain must produce a plan to execute that sales strategy in the most efficient way. Store operations must provide the plan to ensure the customer gets every chance to partake in the product.
In order to facilitate the new world the technology must support the end to end process. It must understand and provide visibility into each step in the process and provide information at each key step. It must not allow “integration blocks” or places in the process where the information flow stops or becomes invisible. It must be open and scalable and be able to allow the process to flow efficiently and cost effectively.
So how would a Food and Drug retailer pull this off? It will be tempting to chunk this up into more bit size portions, to fall back into the old point solution process. Process change like this will take significant time and effort. Real business case comes at the end of the process CHANGE, not simply improving existing processes. Any delay in the change simply pushes the real business case out. There is great business benefit in developing a road map process that would identify a value based strategy. Focus on the end state, providing a sequence that would facilitate delivering value to the customer in the most efficient and profitable way. The most business case resides in transforming the merchandising processes; develop an end to end process that is focused on the customer.
At the end of the day this approach delivers efficiencies that enable increased customer satisfaction and loyalty while beginning to operate with less cost and inventory. Knowing where to go, understanding the path to get there, and the resulting business case is almost as important as getting there itself. It keeps organizations grounded and enables them to overcome the temptation to abandon the process when things get rough and don’t go as planned (and that WILL happen).