Accenture Academy Blog


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.

 

 

2008 Results

Average            Range

Percent of Respondents Meeting or Exceeding Goal

On-time store delivery

96.7%

90-99

92.9%

In stock availability at stores

94.3%

80-99

72.0%

Order fill rates to store

95.8%

88-99

78.3%

Inventory turns per year

6.5 turns

2-22

68.0%

DC cost as a % of sales

3.3%

0.5-9

88.5%

 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.”

Industry Challenges

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.”

Summary

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.”

 

 

 

Comments:
  1. What about the 80/20 rule
    By Kress Riley Kress Riley on Thursday, December 17, 2009 at 10:14 AM
    I get the importance of lowering inventory while increasing availability from a customer satisfaction standpoint, but shouldn't we also set different expectations around higher velocity items, as compared to low velocity items. Wouldn't we get a higher level of satisfaction if a higher turning item is always available, compared to a very low moving item that potentially has a stock-out with some type of mechanism to get this for the client in x days? The inventory burden and order variability of a lower velocity product is more burdensome on the two metrics outlined. To address this, wouldn't it be more appropriate to create different metrics based on the demand and velocity associated with a product.
  2. 80/20 Rule Applies
    By Brian Gibson Brian Gibson on Wednesday, February 17, 2010 at 3:27 PM
    I agree with Kress that we can't indiscriminately cut inventory across the board. That will only lead to customer service issues. We must be strategic, cutting inventory where it makes sense - low velocity, easily replenishable items. Don't rush to minimize high velocity item inventory unless you can flow it through the system quickly. Segmented metrics analysis is an effective way to make sure that the inventory reduction remedy doesn't create customer service problems.