3 Key Complexities You Must Address in Your Supply Chain in 2014 – Part I

As part of our Expert Insight series, Supply Chain Nation recently sat down with Gordon Wade, chief executive officer and director of best practices for the Category Management Association. In Part I of our conversation with Gordon, he discuss the key markets shifts that are increasing complexity in the supply chain – and that retailers and manufacturers must address in 2014.

SCN: As one of the pioneers of category management, you’ve witnessed and been a part of some of the drastic changes in category management, and more broadly in the increased complexity of the supply chain market. What do you see happening in the marketplace today?

Wade: One of the major things happening in the world is individualization. You see it in young people getting tattoos. That’s simply a way of saying, “I’m different from everybody else,” and that individualization also manifests itself in them wanting “just the right” product.

We have loyalty cards and cell phone data that’s just raining down on us and people are really struggling trying to mix and match that data. The capability to match cell phone data, loyalty card data, magazine subscriptions and television watching habits, are a more serious data problem than we think it is.

We have exploding assortments in many stores, primarily because the stores are trying to keep up with this individualization trend, and they’re trying to customize stores by single location. This leads to complex retail clustering, with which many of you are familiar.

Amazon is a metaphor for getting whatever I want, for creating the so-called long tail. As some of you know, Amazon now sells 25 percent, (yes 25 percent) of all the disposable diapers in the U.S. Not Kroger, not Walmart — they’re sold by Amazon. They sell about 12 percent of all the health and beauty aid/cosmetic and toiletry products in the United States right now, and one of the principal advantages that they have is the capability to provide an endless aisle, so to speak.

SCN: How does this pressure of individualization affect the supply chain?

Wade: This puts the supply chain under an enormous amount of stress, and perhaps even more importantly, puts the people under stress. There is kind of a dirty little secret that’s going on in the U.S. right now, that retail margins are really being compressed. So you have a situation where you have more SKUs in more places, with changing demand patterns.  You have channel blurring. Channels really don’t mean much of anything anymore.

SCN: What about the idea of the “endless aisle? How are brick-and-mortar companies competing and what complications is this creating?

Wade: The brick-and-mortar retailer is now putting little signs on the aisles or on their website saying, “If you don’t find this at the store, let us know and we’ll find it for you or we’ll get it for you.” In Denver, Walmart is doing same-day delivery direct to home. So you can go up on the Walmart site, you can buy it, and it will be delivered to your home — not to the store, the same day if you order before 10:00 a.m.

All this gets you more returns, primarily because people want exactly what they want, and if they’re not satisfied with exactly what they want, they return it, which is a problem. We have many more data sources, and of course we have some longer lead times and shorter windows. All of that is causing a problem for everyone.

SCN: Thank you, Gordon. Managing complexity is certainly going to be a concern for retailers and manufacturers, and really all stakeholders in the supply chain in 2014. In Part II of this blog post launching on January 23, Gordon will talk about the challenges of finding and keeping the right people to keep your supply chain running smoothly, and how retailers and manufacturers can solve those challenges.

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