Over the past year, Auburn University and the Retail Industry Leaders Association have investigated the influence of supply chain management (SCM) on retailer success. The 2009 study focused on the role of SCM, current strategy, performance, and industry challenges. Understanding the distinctive SCM capabilities of best-in-class retail organizations was another key research goal (and one that will be discussed in an upcoming blog).
Fifty retail supply chain (RSC) executives representing 45 retailers participated in the research. They engaged in telephone interviews and/or a four-page survey. A summary of our key findings is presented below. The entire 2009 research report is available at www.retail-scm.com.
Role of Supply Chain Management
RSC executives revealed that SCM’s role is expanding across functional boundaries. SCM is actively engaged in vendor collaboration, demand forecasting, and expanded inventory decision making. By creating stronger in-store logistics and helping merchants negotiate purchase details more effectively, SCM is being leveraged for company-wide benefit.
RSC executives also occupy a strategic position within their organizations. In 64 percent of the participating companies, the top RSC executive reports directly to the owner, CEO, or President. They are also engaged in cross-functional steering committees that break down functional silos. Notes one executive: “Our supply chain steering committee includes SCM leadership, the chief merchant, the CIO, the merchandise planning executive, and the CEO.”
Supply Chain Strategy
The rapid downturn of the economy caused RSC executives to rethink their strategies. With sales dwindling, cost control quickly moved to the forefront in 2009, supplanting the goals of customer service and revenue growth. As Figure 1 indicates, over 75 percent of the survey respondents identified either cost control or a cost-service balance as their focal strategy moving forward.
With store traffic and sales languishing, the ability to control costs is one of the best weapons to preserve profits. RSC supply chain managers are not only looking to manage fuel expenses and inventory costs, they are seeking ways to reduce overall company expenses. One RSC executive summed up the situation, stating: “Sometimes we need to incur costs within the supply chain to deliver a benefit of greater value to the company.”
Supply Chain Performance
These strategies aren’t successful unless they are activated and achieved. The participants closely monitor supply chain service and cost metrics as highlighted in Figure 2.
Percent of Respondents Meeting or Exceeding Goal
On-time store delivery
In stock availability at stores
Order fill rates to store
Inventory turns per year
DC cost as a % of sales
Figure 2 - Supply Chain Performance
While 2008 performance versus goals is excellent, success is a moving target. RSC executives recognize the need to move beyond functional metrics and develop cross-company measures of success. One executive stated: “My experience has taught me that if you just think about supply chain cost, you are not taking advantage of opportunities to optimize the entire end-to-end process.”
By all accounts, RSC executives face a number of unique challenges. Traditional growth related concerns of distribution facility expansion, transportation capacity constraints, and labor turnover have been supplanted by macro-level CEO and CFO issues. RSC executives are now focusing on consumer confidence, global credit, and currency fluctuations and their impact on supply chain planning.
Balancing cost and service in the face of these economic issues is an ongoing battle for RSC executives. When pushing forward with significant reductions in inventory quantity and variety on the cost cutting side, retailers must not forget customer expectations of availability and selection. The risk of driving away buyers must be factored into any inventory cutback plans. One executive summed up this challenge, saying: “The real focus is to lower our net inventory without compromising the in-stock experience for the customer.”
2009 has proven to be an economically challenging year for retailers. Low consumer confidence and credit challenges have led to lower revenues, reduced profits, and a record number of retailer bankruptcies. It would be easy for RSC executives to circle the wagons and wait out the onslaught of bad news. Instead, our research revealed that many retailers are actively pursuing SCM-based initiatives to overcome today’s challenges. Supply chain executives see an opportunity to demonstrate the value of SCM to the organization. As one executive put it, “this is our time to shine.”