It’s an understatement to say technology has changed the way we live.
The phones in our pockets are powerful computers, cars can park themselves, and we can reset the thermostats in our homes from thousands of miles away.
Nowhere are these changes more apparent than in the retail and supply chain sectors – each of which underpins the other.
You can order cars, fast food, and mattresses online. Ten years ago, that wasn’t the case. Soon, nearly every business will be an eCommerce business.
Supply Chain – the last dinosaur
Technology has always been a driver of business change. The internet is but the latest of many examples. But, what’s different this time is the unprecedented rate of change and access to the troves of information that seemed unimaginable not that long ago.
We all can see this every day when we shop for goods and services. We can use our smartphones to have groceries delivered to our door or push a button on our washing machine to reorder laundry detergent. Many retailers have made strides to innovate, evolving to meet the demands of customers in the digital age.
The supply chain has been slower to evolve – which isn’t necessarily noticeable to everyday consumers, but it certainly is to us in the industry. Once valued for its linearity and consistency, the supply chain needs to do much more today. It’s overly aligned with the original retail format it was built to support, and misaligned with the new retail formats that continue to be invented. Decentralized and increasing consumer demands are forcing the supply chain to become nimbler – smarter.
There are three pillars that define the expanding supply chain in our increasingly technology-dominated and connected world:
Embracing the on-demand economy
We’re now living in the on-demand economy. eCommerce sales will only continue to grow and merchants must be able to serve online shoppers who could be anywhere from down the block to a remote area of Montana. With more sales channels and locations to meet demand, forecasting and inventory planning become significantly more complex.
To succeed, retailers need a scalable distribution network that’s less linear and more dynamic. And they’ll need to modernize their inventory management and allocation methods – leveraging data and analytics to implement logic and algorithms that automate optimal shipping decisions.
For example, a customer orders groceries online for same-day delivery to their house. Automated order routing would enable the system to identify the store closest to their house that has all the correct inventory to send in the most efficient package. Perhaps the closest store doesn’t have all the items, but a store that’s slightly further away does. Despite having a longer “last mile,” this could be the optimal location to fulfill the order to avoid costly order splitting.
Turning your supply chain into a strategic engine
As businesses invest in their supply chain technology, they are discovering a strategic engine that has long been disguised as a cost center. Supply chain operations and inventory levels provide a massive amount of data about customers, consumption levels, and order profiles. With that data, it’s now possible to create customer segmentation and build a strategy around how to customize delivery experiences and promises to specific types of shoppers.
For example, data can help you determine which customer segments are most viable for your business model and what kind of delivery promise and returns program you can, and/or should offer to each customer segment. Not everyone wants to buy a car or a wedding ring online, but what if your customers do? Is that something you should offer, and if so what delivery promise and distribution channel is the best fit for each segment?
Similarly, retailers can use buying behavior and customer data to choose the best promotions to increase customer retention. Do your shoppers respond to price promotions, free or faster shipping, or loyalty programs? Access to this level of data makes it possible for retailers to create richer customer experiences.
Leveraging people to make your business smarter
Data and sophisticated models can enable smarter decisions, but even with these a company still needs to make judgment calls. Is it worse to run out of stock in a given location or risk carrying too much inventory, which then has to be sold at big discounts?
Answering questions like this in a highly dynamic ecommerce environment requires smart people with specialized skills. Supply chain specialists also need to help their companies stay nimble and adapt to continuous changes. Many businesses launch and then quickly evolve, almost in real-time, adding customer services like free delivery and returns of bulky items like mattresses. A business with an ecommerce focus needs different logistics capabilities than a department store or specialty retailer serving customers from a chain of locations. Naturally, this impacts the skills and qualifications required of a workforce.
For example, many companies today have a chief supply chain officer – a job title that didn’t exist 10 years ago. The logistics industry will always need talented employees that can build and implement the systems to help businesses work smarter and be more agile.
The road ahead
Many of the basic functional areas in today’s corporations – finance, sales, marketing, human resources, and product development – were disrupted by technology years ago. But when it comes to logistics, we’re still on the front edge of the adoption curve. There’s a huge opportunity to take advantage of new technologies and practices that will leave the industry looking very different in just a few years’ time.
Consider Tesla. You can build your car online – just how you want it – while avoiding the legacy process of hoping to find the car you want with the right features and color. Ultimately, innovations like this will change how all car manufacturers build cars: The consumer will do the building.
Or look at the partnership between McDonald’s and UberEATS, which lets customers order online for delivery by an Uber driver. This introduces a new customer segment that will affect McDonald’s inventory levels, requiring the restaurant chain to monitor and accommodate changes in customer demands.
There’s a lot of chaos, uncertainty, and angst for companies facing transformation in the supply chain. It’s not clear exactly what’s around the corner, but it’s safe to say that successful companies will focus on innovating their supply chains and identifying how to elevate logistics to a central, strategic role. Successful companies will adopt an aggressive stance towards innovation and will begin to feel more in control, because they will be shaping the future instead of feeling like they are the victims of it.
Each business will have to decide for itself whether to make the investments that bring their supply chain closer to end customers, or to engage with partners to do it for them. Customers today have a taste for fast, low-cost delivery and there’s no going back. It’s no longer optional, but essential, to cater to the on-demand expectations of the modern economy.
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