RSR has been talking a lot about the omni-channel change that is currently disrupting supply chain in retail. So far much of our focus has been on fulfillment methods and how those are proliferating – and how challenging it can be to yank a supply chain ninety degrees from its intended purpose when it comes to fulfillment. From a supply chain designed to move goods in only one direction – to stores – to a supply chain where every node could be a potential fulfillment point.

But a supply chain has two sides to it: the fulfillment of goods, but also the acquisition of those goods. And if every node in a supply chain has the potential to be a fulfillment point, then that includes nodes at the very beginning of the chain. Even nodes where retailers don’t own the goods quite yet.

Over the last two weeks, Paula and I have worked on two studies that have underscored how much fulfillment disruption is having an impact on the whole supply chain – including the merchandise vendors, distributors, and logistics providers participating in that chain. You can read more about one of those studies in Paula’s article. And you’ll hear more from the other study next month. But both of them underscored something for me. I feel like I’ve said this about three times in my career already, but maybe the fourth time is a charm.

Retailers and their supply chain partners need to collaborate more.

We already have well-identified problems within the supply chain (like the bullwhip effect) and well-established ways of addressing those problems (like Collaborative Planning, Forecasting, and Replenishment, or CPFR). But even with known solutions to known problems, the retail supply chain faces the same challenges over and over again. Somehow, even with proven solutions, we still have the same problems.

And now the stakes are getting higher. Because as much as retailers would like to avoid it, drop ship seems to be an inevitable future: retailers want a larger assortment with less inventory risk, and vendors want to learn how to do consumer fulfillment so that they can make their own direct operations more efficient. And, as retailers seek to differentiate against Amazon, services-laden home delivery becomes a more and more attractive option for delivering speed in fulfillment, covering the last mile from store to home, and matching high-touch services to the products purchased.

But after the last three times I went around saying “The time for collaboration is now! ” I have learned some lessons. So rather than getting all excited about the opportunity, I offer a pre-condition that will need to happen before supply chain collaboration can become the reality that is increasingly needed. And, retailers, I’m afraid that pre-condition is all on you.

Retailers need a new definition for what they mean by “supply
chain visibility. ”

Over here at RSR we’ve been scratching our heads over the fact that since the inception of the company (and earlier), retailers have been telling us that they desperately need more supply chain visibility, and yet inexplicably seem unable to make any progress towards achieving that goal. It’s always top of the list for challenges and bottom of the list for capability.

Why? I have a theory about that. You tell me if I’m completely missing something here. I used to think that maybe it was because supply chain visibility was a moving target. That as retailers made progress in achieving a greater degree of visibility, they were seeing more and more opportunities for more visibility, and thus while it didn’t look like they were making progress, they actually were.

No, I’m afraid that was not what was happening. Whenever we dug into the “amount ” of visibility that retailers had achieved, it was always pretty miserable. Inbound to the DC, and maybe inbound to stores. As much as supply chain leaders expressed frustration over a lack of visibility, no one else in the company apparently cared. Supply chain as an organization within retail is not a very powerful player. Merchandising is the boss – the dog that wags the tail. And the merchandising team is typically not incented in a way that makes them care about inventory accuracy. Without that accuracy, inventory visibility becomes useless pretty quick.

Here’s my new theory. My theory is that retailers are defining supply chain visibility in a way that fundamentally differs from how I, as an observer, might define visibility. So while visibility has historically been “a priority ” and “a challenge “, in reality what retailers meant was better visibility into orders and demand, not inventory. Visibility into the things that help merchandising plan better, rather than visibility to help the enterprise better allocate and fulfill inventory.

An outsider to retail might ask “What’s the difference? ” In retail, there used to be a huge difference, primarily because supply chains only went in one direction – from supplier to store. From a planning perspective, once the plan was set, there wasn’t much you could do to adjust on the fly if something went wrong. This is particularly true for retail verticals where planning cycles are much longer than demand cycles – like fashion. If a retailer makes a bad guess in January about the next year’s fall line, there’s not much you can do to stop that train wreck when you first find out about it in September.

So what’s the point in understanding inventory accuracy to the nth degree, when wherever it’s at is where it’s going to stay, until the product is cleared out one way or another?

But when every point in the supply chain becomes a potential fulfillment mode, that philosophy gets upended. Completely. And the disruption is not over yet.

Consumers want their products fast and they want them delivered to their doorsteps for free. Right now, at this moment, there is a margin-to-weight ratio for retail goods where on one side of the ratio, it is economical for products to be shipped or delivered, and on the other side of the ratio, it is not at all economical.

Big ticket items like refrigerators, couches and TV’s are economical to deliver, and fashion is rapidly discovering that clothing, shoes, and accessories are also economical to ship. Peas, cans of soda, and boxes of cereal, on the other hand, are not currently economical to ship or deliver, though there are plenty of companies out there, Amazon included, who are trying to figure out how to make it economical.

But in order to most effectively meet consumer demand in that kind of world, where the threshold for “economical to ship ” reaches something close to $0, the whole retail ecosystem is going to need to know where every single piece of inventory is within the supply chain. And they’re all going to have to have the ability to grab one piece of one product anywhere within that supply chain and get it to a specific point of demand.

So, yeah, I’ll try this again. Supply chain collaboration is going to have to happen. And not for planning purposes, but in order to make the whole supply chain as lean and yet flexible as possible. But that just is not going to happen until retailers value supply chain visibility. Not visibility into orders. Not visibility to plan. Inventory visibility, in order to meet consumer demand no matter how it may get expressed. No one is going to be able to do that alone.