More On ‘The New Abnormal’: Imperatives For The Supply Chain
This morning the RSR partners joined in on the first all-digital user conference in our experience, the Blue Yonder (formerly JDA) Icon 2020 event. It’s an interesting, if somewhat jarring, change. It’s interesting because very clearly CEO Girish Rishi and his team see the current crisis as an accelerator to the changes that most in the industry (including RSR) have been talking about for several years: the need for a responsive and agile supply chain. It’s jarring for the same reasons that video conferences are always jarring – the technology isn’t as good as it should be (as all the novices who have tried video conferencing for the first time during the quarantine period will attest).
As Sheryl Crow said in a song: “A change – would do you good”.
Aside from reinforcing the fact that video conferencing is still a crapshoot, what the COVID-19 crisis has laid bare is the realization that “fast” and “agile” supply chains aren’t the same things. Consumer products-oriented (including fast-moving-consumer-goods) supply chains have been targets of hyper-optimization for decades, but they are predicated on an assumption which has been proven faulty: that demand is based on repeated patterns (for example, the situation with yeast that I wrote about last week).
According to Blue Yonder’s CEO, a more agile “synchronous supply chain” requires visibility, planning based on scenario modeling, and automated decisioning. There are a lot of widgets required to make those capabilities a reality, and as the ICON event unfolds we’ll all get to hear how Blue Yonder is making them happen. But the important point to me at least is that the themes aren’t new – in fact, they are “in play” now across the entire global supply chain and a whole host of technology providers. And underpinning them all is an acceptance that consumers now operate almost exclusively in a blended digital/physical shopping environment, and that is how it will remain going forward. There’s no more talk about things “getting back to normal”!
We were asked by one of our technology partners to outline some the things that retailers and suppliers must do once the current crisis has passed. It turns out that several of the recommendations that we came up with are in-sync with the themes being discussed at the Blue Yonder digital event, so I’ll share them briefly, below:
First and foremost, use “modeling” to drive planning processes. This isn’t a new idea; a great book on the subject, The Art Of The Long View: Planning For The Future In An Uncertain World by Peter Schwartz, was first published in 1991, long before AI/ML-enabled analytics were available. But AI/ML enabled modeling is available now, and it’s critical for scenario planning not only for the consumer goods industries, but for any organization that delivers a product or service to a population.For example, in the United States, state officials use modeling to understand the potential impact of decisions to “bend the curve” of the spread of the coronavirus. The same modeling techniques are being used by forward thinking retailers to better understand how the virus is affecting everything from traffic patterns in micro-markets to how localized consumer demand affects replenishment.
Embrace the concept of “the digital twin”. The digital twin is essentially a digital representation of the physical supply chain, where every asset can be “seen” and therefore analyzed in real time to determine the next best action when exception conditions are detected. With the combination of AI/ML techniques and digital twin technologies, retailers and their supply chain partners will be able to evaluate tradeoffs between sourcing, transportation, network design, inventory and service in a holistic fashion.
Transparency is essential. Consumers want to know if the products they are buying are healthy, ethically sourced, and recyclable. But a product’s “pedigree” is important for retailers and their supply chain partners as well. This for example is the driving force behind blockchain technologies.
Within the company, eliminate organizational silos. Retail companies need to fully embrace their “digital transformation” and develop the internal analytics capabilities that will help the company respond more quickly to real-time conditions. These organizational changes include elimination of siloed planning and operational processes, to better enable retailers to develop and implement flexible sourcing strategies and to manage risks in a comprehensive way.
Model alternative scenarios for the transportation network to find the best strategies to meet consumers’ needs and maximize per-order profitability.
A Wake-Up Call For The Retail Industry
While the worldwide COVID-19 crisis has brought many supply chain challenges that were percolating to a full boil, the shock to the system that the pandemic has created is already creating a new baseline that will determine tomorrow’s retail winners.
We tend to think of supply chain disruptions as the result of ecological and weather events, geopolitical events, human disasters near the point of manufacture, or fear of pandemics. But disruptions can occur on the demand side as well – product recalls, sudden shifts in consumer behaviors and preferences, etc. Risks on either side must be balanced against each other. New and sophisticated analytical capabilities make it possible for retailers to plan for alternative scenarios and in turn respond more quickly and with less risk when disruptions inevitably occur
Enabling an agile response to sudden changes in the marketplace is critical to future success, but the basics still apply. For example, the less a finished product is handled, the lower the total cost to serve the customer is. Retailers need to position product closest to the point where the consumer will take possession of it. That could mean more localized DC’s, or in some cases, it could mean the lowest cost direct-to-consumer fulfillment location. This also implies localized assortment strategies for the stores.
In the final analysis, changes on both the demand and the supply side of the retail business model are being driven primarily by consumers. In today’s information-driven shopping environment, consumers want more from retailers and their suppliers. Not only are they more demanding about which products they want and what price they are willing to pay; they also want to know more about where the product was made, how it was manufactured and what the ecological impact of that process was. “Agility” is now defined now not only based on how well retailers and their partners respond to sudden changes on the supply side, but in how adept they are at shifting strategies in response to sudden changes in demand.