What’s good for the goose is good for the gander – Popular Idiom
Thinking in retail supply chain management is still evolving.
Which is a nicer way of saying that it’s not very evolved.
Don’t get me wrong here. It wasn’t that long ago that virtually no retailer even had a Supply Chain function. When I first started my career, retailers were just beginning to use the word “logistics” – a military term, fancy that! – in their job descriptions and org charts. At the time it was an acknowledgement that sourcing, inbound transportation, distribution and outbound transportation were all interrelated activities, not stand alone functions.
A positive development, but “logistics” was really all about shipping containers, warehouses and trucks – the mission ended at the store receiving bay.
Time passed and barcode scanning at the checkouts became ubiquitous.
More time passed and many (but by no means a large majority) of medium to large sized retailers implemented scan based receiving and perpetual inventory balances at stores in a centralized system. This was followed quickly by computer assisted store ordering and with that came the notion that store replenishment could be a highly automated, centralized function.
Shortly thereafter, retailers began to recognize that they needed more than just operational logistics, but true supply chain management – covering all of the planning and execution processes that move product from the point of manufacture to the retail shelf.
In theory, at least.
I say that, because even though most retailers of size have adopted the supply chain management vernacular and have added Supply Chain VP roles to their org structures, over the years I’ve heard some dubious “supply chain” discussions that tend to suggest that thinking hasn’t fully evolved past “trucks and warehouses”. Some of you reading this now my find yourselves falling into this train of thought without even realizing it.
So how do you know if your thinking is drifting away from holistic supply chain thinking toward myopic logistics centric thinking?
An approach that we use is to apply the Goose and Gander Rule to these situations. If you find yourself advocating behaviour in the middle of the supply chain that seems nonsensical if applied upstream or downstream, then you’re not thinking holistically.
Here are a few examples:
The warehouse is overstocked. We can’t sell it from there, so let’s push it out to the stores.
At a very superficial level, this argument makes some sense. It is true that product can’t sell if it’s sitting in the warehouse (setting aside the fact that using this approach to transfer overstock from warehouses to stores generally doesn’t make it sell any faster).
Now suppose that a supplier unexpectedly shipped a truckload of product that you didn’t need to your distribution centre because they were overstocked. Would you just receive it and scramble to find a place to store it? Because that’s what happens when you push product to stores.
Or how would you feel if you were out shopping and as you were approaching the checkout, a member of the store staff started filling your cart with items that the store didn’t want to stock any more? Would you just pay for it with a shrug and leave?
I hate to break the news, but there is no such thing as “push” when you’re thinking of the retail supply chain holistically. The only way to liquidate excess inventory is to encourage a “pull” by dropping the price or negotiating a return. All pushing does is add more cost to the product and transfer the operational issues downstream.
If we increase DC to store lead times, we can have store orders locked in further in advance and optimize our operations.
Planning with certainty is definitely easier than planning with uncertainty, but where does it end? Do you increase store lead times by 2 days? 2 weeks? 2 months? Why not lock in store orders for the next full year?
Increasing lead times does nothing but make the supply chain less responsive and that helps precisely no one. And, like the “push” scenario described above, stores are forced to hold more inventory, so you’re improving efficiency at one DC, but degrading it in dozens of stores served by that DC.
Again, would you be okay with suppliers arbitrarily increasing order lead times to improve their operational efficiency at your expense?
Would you shop at a store that only allows customers in the door who placed their orders two days in advance?
Customers buy what they want when they want. There are things that can be done to influence their behaviour, but it can’t be fully controlled in such a way that you can schedule your supply chain flow to be a flat line, day in and day out.
We sell a lot of slow moving dogs. We should segregate those items in the DC and just pick and deliver them to the stores once a month.
The first problem with this line of thinking is that “slow moving” doesn’t necessarily mean “not important to the assortment”.
Also, aren’t you sending 1 or 2 (or more) shipments a week to the same stores from the same building anyhow?
When’s the last time you went shopping for groceries and were told by store staff that, even though you need mushroom soup today, they only sell mushroom soup on alternate Thursdays?
Listen, I’m not arguing that retailers’ logistics operations shouldn’t be run as efficiently as possible. You just need to do it without cheating.
We need to remember that the SKU count, inventory and staff levels across the store network is many times greater than the logistics operations. Employing tactics that hurt the stores in order to improve KPIs in the DCs or Transport operations is tantamount to cutting of your nose to spite your face.