It's funny how you sometimes recall something from years ago, often triggered by a recent event, and it helps to cement or solidify your thinking.
Flashback to 1992 and, after working for a prestigious Canadian Management Consultancy since my 1986 graduation, I decide it's time to leave consulting and get an industry job. I'd land at National Grocers (NG), at the time the distribution and logistics division of Loblaw Companies Limited. My job, along with the newly minted Director (who was a colleague from consulting), would be to establish the logistics function in the company – taking an end-to-end view of the entire supply chain, both from a technology and physical flow perspective.
NG, at the time, had retained Jim Woods, the former VP of distribution for Kroger – the massive US based grocer – in an advisory role. He was full of stories, ideas, insights and on some days, other stuff as well. On most Friday's we'd head to a restaurant called The Greek to listen to Jim's Jenius, so to speak. One thing he said to me that I'll never forget went something like this…
“Mike, I'm not sure what the future of supply chain will be but the best advice I can give you is never slow the product down”.
I was intrigued and have subconsciously been pondering that ever since.
I recently read an awesome book, Arriving Today, chronicling the global journey of a single USB charger, from factory to front door. A couple of chapters highlighted and not only solidified the advice Jim gave me thirty years ago, but likely outlines the fundamental paradigm shift of retail supply chain management.
As the USB chargers make their way to an ultra-modern amazon fulfillment centre, what blew me away is what happens next, architected on Amazonian principles. The inbound shipment of USB chargers is de-palletized, and each individual USB charger is stored, in single units, in a random bin that the system had moved to the receiver.
So, a receiver would store a shipment of 48 chargers, randomly in 48 different bins amongst several shelving units. Storing items randomly mimics the basic architecture of computers and the process is called “random stow” – the idea that the best way to get products in and out of shelves in a warehouse is to put them anywhere they'll fit, rather than trying to design some sort of system to organize them.
In addition to the significant improvement in storage capacity, the individuating of products facilitates something even more profound – optimizing for and enabling the each-supply-chain. Amazon has architected its supply chain for the consumer, rather than distribution – recognizing that most customer orders are in units of one (i.e., each-es), rather than cases or pallets. When a customer orders one of these USB chargers, then a bin is selected that contains only one charger and is moved to an order filler to select this single unit and get the order on its way.
Most retail supply chains are distribution-centric, rather than consumer-centric.
But could Amazon be onto something here? What if we applied the same thinking to a modern omni-channel retailer, complete with a network of distribution centres and stores?
Surely, I'm not saying to ship in each-es, both to the consumer and to replenish the stores. Um, er,…, that's exactly what I'm saying.
Most retail supply chains don't heed Jimmy's advice. They slow the product down by shipping in cases and pallets. The conventional wisdom says that you need density to fill up trucks to go to the stores and most supply chain folks have ingrained the paradigm that larger shipments, by product, saves considerable handling costs.
All true, to a certain extent, but have you considered the other costs and benefits of architecting flows to the consumer?
First, outbound trucks from DC's to stores could still be filled – it's just the composition would be smaller, individual product shipments. The ability to stay in stock would be improved, since the inventory at each DC would only be shipped in units of one (or smaller shipments), rather than cases. In addition, in virtually all situations, product could flow directly to the shelf.
In two recent retail clients, both demonstrated that inventory accuracy improved significantly for products where the required inventory fits on the shelf selling location – rather than having top stock, overstock, or backroom stock. For these types of products, the inventory accuracy was 85%+, a significant improvement from the retail average of 50-60%.
This would be true for all stores and would also be an important benefit for consumers – since they are asking retailers to display their inventory availability, as evidenced by this recent Forrester research of US consumer expectations:
• 65% say it's important for retailers/brands to show in-store product availability on the website
• 68% think it's important to know when items will arrive, before placing orders online
• 30% checked for a product online before purchasing it in a store
• 33% are less likely to go into a store if inventory is not available online
In addition, replenishing in each-es could have a very significant impact on store inventories and space. I recently took a random store from a recent client and compared the inventory and space requirements from their current distribution-centric replenishment philosophy (i.e., replenishing in cases) to a consumer-centric philosophy (i.e., replenishing in each-es) and the impact was significant. Both overall inventory and space requirements were 40-50% less.
Now, of course, I realize that costs in the distribution centre will increase and the flows and operations inside these facilities would need a complete re-think and potentially a new operating model. However, if you step back and think about the retail supply chain, and include the consumer in it, it changes your perspective.
Online demand is usually in each-es. For most retailers, a significant percentage of item/store sales are less than one per week. Thus, I'd argue that we're largely operating in an each-supply-chain today and that will likely proliferate in the years ahead. The issue is that we're still burdened with distribution-centric thinking, slowing the product down and altering product flow as a result.
“Never slow the product down”.
It was great advice in 1992 and even better advice today.
Jimmy really was a Jenius.