A few months ago I wrote a piece of research that broached the after market supply chain. Click here for link. This topic continues to grow in importance, especially for retailers. Why? Primarily due to the continued growth of the consumer’s voice within the retail supply chain. The saying “the customer is always right” has taken on a whole new degree of importance. Whereas this statement was limited to a finite number of interactions between consumer and retailer, today this saying carries much more gravitas. Consumer’s have a greater awareness to a larger portion of the retailer supply chain, and with that awareness comes greater expectations. One area where retailers are starting to feel this impact is in the after sales supply chain. Consumers want choice not only prior to the moment of truth, at the point of making a purchase, but also expect it post sales. The notion of “all sales are final” is rapidly becoming a dated concept. So what are retailers to do?
- Make sure you have a strategy…okay this might seem too simple, but there are number of retailers ranging from Nordstrom to Target that offer free returns. In 2015, close to 50% of retailers offered these services, placing a massive strain on their cash flow statements. So have a plan. Providing free returns, just because the likes of Amazon and Zappos are doing it, does not necessarily make business sense for your business. Consider creating a tiered returns policies. Big spenders or loyal customers can qualify for free returns, other customers fall into different levels. Perform some ABC cost analysis on the entire supply chain – figure out the true costs. Because nothing is truly “free.” Then create a logical strategy strategy of how to deal with the reverse supply chain.
- Can you turn the after sales into a strategic advantage? The after sales supply chain should be seen as an extension of your relationship with your customer. Returns are not a negative – the customer is not saying they don’t like your product – rather it is part of the customer journey. Can you learn from why the customer returned the item? Is there something that you could alter to the process? How far back in the supply chain can you change procedures to ensure returns are lowered? And you can make returns another revenue opportunity? There are some retailers that seek to incentive customers to return in store, knowing that over 50% of these will convert on another purchase. Could retailers drive those numbers higher? Viewing after sales supply chain as part of your customers’ journey is crucial to unlocking some strategic opportunities with post sales supply chains.
- Another data source – mine it! Why are consumers returning the product? Wrong size, color, style…the number of reasons is endless. Retailers need to embrace this level of data that could be ingested back into the supply chain. Can the product be redesigned? Is the marketing of the product not appropriate? Was there a better way to promote the item? Was the style just wrong? Retailers must embrace the data and information that the after sales supply chain can render. The ability to take the information, processes it quickly and render better decisions based on this information could prove to be a data lake worth swimming in.
- Don’t hesitate to lean on your solution providers to offer solutions. One theme I saw at NRF was some innovative thinking about how to handle the after sales supply chain. From software players such as JDA and IBM to service providers such as Wipro. Retailers shouldn’t hesitate to look their existing service and solution providers to assist with this journey. Don’t be shy about expecting your software and service providers to become a true partner when it comes to handling the post sales supply chain.
The after sales supply chain is evolving beyond being a cost center and a “nuisance” to retailers. It is part of the consumer journey and consumer expectations. Retailers, service providers and software vendors all have an opportunity in the after sales supply chain. Consumers are already there expecting better post sales service, it is up to the savvy retailers to meet those expectations.
Another cold January in New York City and another NRF Retail Big Show survived! As I have found with the countless times I have attended NRF the event is a whirlwind of insanity, but it is over before you know it. The insights, meetings and seeing old friends makes the entire adventure well worth it. So here are the take aways from the NRF16:
- The STORE IS BACK – okay maybe that is a tad dramatic, the store never went away, but the store in recent years has been down played. No longer is that the case. Many vendors and retailers I met with made a point of discussing their plans and initiatives for transforming their stores. The store is no longer viewed, by most, as simply the physical location that I want to go to in order to transact for an item. It is taking on a host of new responsibilities in the new commerce environment. At the crux of these new characteristics is the focus on the customer experience. Salesforce took us on a two site visit at Design Within Reach and Suitsupply, both in the Soho part of New York City. Other than the “cool” factor of the stores, what was discussed was how each store had meticulously thought of how to maximize the real estate they had and more importantly how they could leverage technology to better address their customers’ needs and experience once in the store. That experience has to go beyond offering you free cappuccinos or coupons, but how to ensure that the customer needs and untapped wants are addressed at the right time and with the right product. Other examples were of how True Religion is working with Aptos to empower the store associates to provide consumers with better experiences when it comes to finding that right pair of jeans. Putting the entire inventory catalog on the wrist of the store associate (via an Apple Watch) allows True Religion to be able to meet that customers’ demand, literally at the touch of
Weather cooperated…albeit cold!
a finger. There was also Avanade that had a smart grocery store shelf on display. Customers could simply pick up items and the smart displays would provide a host of information from nutritional content to where the food was sourced from. These were some intriguing examples of how retailers were working with service providers to bring exciting new technologies into the store – allowing the store to find its voice in the new commerce landscape.
- What is more important – perfect view of the order or the client? When we say perfect view of the order it really entails having a better understanding of your inventory levels across all channels. When it comes to the client is about truly understanding the context for the customer, what is driving their current, past and future demands. Having that 360 degree view of the customer has been all the rage recently, but are we missing the key element – the view of the order and of the inventory? This question kept ringing in my head as I went from meeting to meeting. What resonated with me was the need to address both, that the success of each was inevitably tied to the other. Service providers ranging from IBM to IFS are challenging the market on how to approach the need to have greater inventory and order visibility. It is not simply about the creative understanding of the customer, but also the ability to truly understand what products where and when that are available within the supply chain to fulfill the customers’ demands. Bottom line – regardless of how sophisticated and creative a retailer is in getting the customer to engage, if the product is not there at the moment of truth, then all those efforts are in vain.
- Smarter and dynamic fulfillment is the key – A major component of modern retail, driven by the consumer, is the push towards accessing orders wherever and whenever they desire. We already see the variety of methods we can access our orders – order on line delivery in store, order on line deliver to home, buy in store deliver to home, browse on line ship to store to name a few. As these forms of delivery continue to take on new dimensions, the business processes and technologies that support these new forms of last mile fulfillment will have to keep pace. This is continuing to place a strain on retail supply chains to meet these demands. Companies like 1800Flower are looking at all the nodes in their supply chain to assist in fulfilling their customer needs, in particular how their warehouses can play a more active role in the customer journey. We are seeing a growing number of retailers looking to redefine how they can meet the last mile in the retail supply chain. 2016 will continue to see these parts of the supply chain being leaned on to meet growing customer demands.
- Cool technologies are the future: smart displays, IoT, virtual reality and robots – Last year
Great catching up with old friends – Netsuite dinner.
there were lots of 3D printers on the floor, they seemed to have disappeared this year. Which I found surprising since in 2015 we have seen tangible examples of how retailers are leveraging 3D printers. For example Lowe’s is using the technology to offer customers the ability to procure items, such as door knobs and fixtures, that are no longer being produced. A great example of how retailers can expand their product offerings for their customers. Of course there remained plenty of examples of disruptive technologies on display on the floor of the Javits Center. Vendors such as Zebra Technologies, IFS, Avanade, Aptos to name a few were showcasing smart displays and how their customers were leveraging the technology. From greater view into their inventory to displaying information or being able to transact view the monitors – these smart displays are only beginning to find an important role within the store. Robotics were on display from the likes of Wipro – assisting with store navigation and shelf maintenance. IoT also was a theme that ran throughout the meetings I attended – companies like Checkpoint are continuing to add increased sensors and beacons within the store. They highlighted a timely use case in leveraging RFID and readers within a meat department of a grocer to allow greater and more efficient monitoring of the high margin but perishable product. In light of the recent news with Chipotle the use case is addressing headline news. Look towards 2016 as a continuation of disruptive technology growth within the retail landscape.
Once again I survived NRF and the cold New York City weather…it was actually a great trip…albeit I am still fighting some germs I picked up from the trip. I am very excited with the prospects for 2016 in the retail and supply chain space. Evolution is continuing to emerge at a rapid pace. Retailers cannot afford to take their eyes off the ball, they have to look internally to ensure they have the right business processes and mentality to keep pace. Service providers and vendors must also strive to act as true partners for this journey.
It is not going to be any easier in 2016, but it will continue to be exciting times.
You can also view my video from the show – click here.
Every January for the past few years I have made the trek to the Big Apple and spent the better part of the week at the cavernous Javits Center for the National Retail Federations Big Show. The event feels like the official kick off for the year. While I know many who grudgingly make their way to NRF, I have always enjoyed my time at the event. So what about this year? What will I be looking for from the show?
- The continued evolution towards the endless aisle – Matrix Commerce, is all about the merging of physical retail with eCommerce in all its forms. Where commerce is thought of without the distinction between what happens in a store or in cyberspace – it is just commerce. Obviously this is not a new concept, more an evolution of omni channel retail. One key need for Matrix Commerce is to be able to meet customer demands anywhere those demands emerge from – understanding inventory availability is the key. However, this remains a major challenge for retailers and holds back Matrix Commerce to take full flight. Too often retailers are still struggling to merge multiple systems, those that serve physical stores and those that may serve eCommerce, catalog driven sales and other channels. Often times these issues stem from past decisions made to treat eCommerce as separate from their traditional business – brick and mortar. Today more retailers are struggling to find ways to consolidate these systems and begin to gain greater visibility into their overall inventory positions. I will be interested to see what are the solutions and processes being offered for retailers. Without the ability to gain this visibility, the ability to achieve the endless aisle retailers are looking for will remain a major hurdle. Retailers cannot expect to be flexible and capable of meeting customer demands, regardless of which channel generates that demand, if they do not have true view into their inventory positions. This is not simply where inventory is, but what inventory has been promised and how to match order priority with accessible inventories. I am curious to see how the likes of Infor, Software AG, IBM, Aptos, Oracle and others are tackling this challenge.
- Workforce empowerment picks up momentum – An area that has picked up in intensity over the past year is the ability to bring smarter solutions, information and insights down to the store associate and even distribution center employee. How to bring more insights and tools to the store associates runs in parallel with the redefinition of the store itself. Stores are being asked to do more – become destinations through hosted contextual experiences within the stores, leveraging store inventory to fulfill orders, act as return depots and embrace show rooming. A key aspect of these new store uses will also change the store associate role within this infrastructure. In order to maximize both the store as well as the associate, retailers are looking for solution providers to offer ways in which technology and other solutions can be integrated with the store associate daily activities. Think mobile tools, wearables, greater system integration and better business processes all being put on the floor of retail brick and mortar locations – right in the hands of store associates and managers. This is also true for distribution center labor. With continued rise of eCommerce, fulfillment takes on a new dimension where distribution center labor is asked to not only package inventory to be delivered to stores but to provide direct to consumer fulfillment as retail supply chains are more flexible with regards to where they service demand. Look for more discussion, from such players as Salesforce, Netsuite, Kronos, and others, around new solutions and efforts made by those attending NRF on how they can empower retailers’ workforces with enhanced tools and insights.
- Tackling last mile logistics – All one has to do is look back a few weeks and realize that the crush on logistics, especially the last mile portion, continues to be a strain on the retail supply chain. Stories such as the one from the University of Connecticut’s mail room that is overwhelmed by package delivery, that Jet.com had to apologize to some of their customers for not being able to meet holiday order deadlines and real estate management firms such as Camden Property putting in policies that restrict and even prohibit package delivery to their properties, are all examples of the last mile retail crush. As we see more retailers offering free shipping and returns or the likes of Amazon and Jet.com incentivizing customers to look to receiving a wider array of products delivered to home – this issue will not go away. I am looking to NRF to learning of new and innovate manners vendors are looking to address this issue with their customers. How are traditional logistic solution providers such as JDA, Manhattan Associates, Oracle to name few are tackling this issue and what innovate strategies are they helping their customers implement?
- The revolution in customer relationships, beyond CRM – I hesitate to call this CRM…reason is that I believe that the connotation associated with CRM is limiting to what is really being offered to retailers. What is key in today’s retail world is getting a rich view of the customer, and not only at those customers’ interactions with the brand. Retailers, just like they do with their inventory, must approach customers across all channels that they touch the brand through. Similar to understanding your inventory position, knowing all the touch points and the context of those interactions are not easy to achieve. As retailers must pull from multiple and often time isolated systems, it is a daunting task to create a clear picture of consumers. Understanding goes beyond creating the 360 view of the customer but also how to apply this within the context of the store and even beyond. What are the technologies that can be leveraged within the store to build on this customer knowledge and help convert and build deeper relationships between the customer and the brand. Looking at NRF16, I am interested in seeing how the likes of Salesforce, Oracle, Engage.cx, SAP Hybris, Zebra Technologies to name a few are taking on this challenge.
I am bracing myself for busy and hectic 4 days in New York, but I am also looking forward to absorbing a lot of great information, seeing old friends and meeting new ones. Will I see you there? I hope so! What are you hoping to see at NRF this year?
Happy New Year to all, I hope that your 2016 is already off to a great start. Looking forward to this year there are some exiting changes as well and continued progress in other areas. Here are some trends we are focusing on for 2016:
- Retailers will continue to seek new solutions and services to empower their stores: in 2015 we started seeing greater efforts and emphasis on the role of brick and mortar stores. Written off as irrelevant, even a burden a few years ago, retailers’ views of their real estate assets has taken a turn. Brick and mortar stores’ role in the retail supply chain will continue to grow in importance. This momentum is due to the evolution of how stores are being leveraged by retailers. Embracing show rooming, leveraging stores as distribution centers, creating contextual experiences within the store to drive traffic to name a few trends, are all making stores matter again. Most significantly the redefinition of the store’s role allows traditional retail to tackle the pure eCommerce players. 2016 will continue to see this evolution of the store. Gaining improved inventory visibility, empowering store associates with greater information, enhanced operational data to allow more business processes to be tested and adopted are all areas where retailers will be seeking appropriate solutions. Look for retailers to lean on their solution and service providers to bring them the necessary technology and business processes that can allow retailers to continue to transform their physical assets. Solution and service providers must work with their retail clients to not only provide technology or business process solutions, but to also offer strategic insights and ideas. Technology is not the panacea but the enabler for new ideas and processes.
- Logistics continues to feel the strain: Your supply chain is only as strong as your ability to minimize the friction associated with moving inventory and products throughout your supply chain. This burden falls on logistics – rail, ocean, air, trucks even bicycles and donkeys are all part of our logistical network. This past holiday season witnessed another situation where the strain on the logistics network can rear its ugly head. eCommerce retailer Jet.com had to apologize to some of their clients for falling short on being able to deliver products in time for Christmas. Logistic giants FedEx and UPS had to jump through some hoops to meet the delivery crush. Coincidentally, over the holidays, eCommerce giant Amazon announced it is exploring adding an air cargo arm to their distribution assets. While eCommerce is growing at a steady 1o-15% year over year since 2012, the strain it is placing on logistics is disproportionate – due in large part to seasonal aspect of certain package delivery. The strain is also starting to pop up in places such as college campus mail rooms where they are being overwhelmed by services such as Amazon Prime. This trend is not going to disappear once the calendar flips to 2016. Transportation and warehousing will continue to feel the strain of keeping up with the accelerated evolution of supply chain in 2016. Look for continued efforts from service and solution providers to work with their customers to continue to find innovate manners to handle the crush of logistics.
- Explosion of disruptive technologies continue to grow: Whether it is IoT (internet of things), robotics, drones, 3d printing or virtual reality to name a few, these disruptive technologies will continue to grow in importance within supply chains. IoT is already well entrenched within manufacturing and logistics, in 2016 look for this technology to grow in importance with regards to the retail supply chain. Robotics are also well know within manufacturing, but look for this technology to play a greater role in places such as customer service and inventory management in retail. Drones are getting much attention, somewhat negative, post holidays as those who unwrapped them as gifts are wondering if they need to register with the FAA, there was even a near disaster during a World Cup skiing race when a drone literally fell from the sky, click here for video. Reality is drones have a role to play in our supply chains – the genie is out of the bottle and properly leveraged they can reduce friction from our supply chains. As technology giants Amazon and Google continue to push on how to leverage these machines to address last mile delivery. Additive manufacturing will continue to play a role in the manufacturing process, but will also create new business models. Companies such as Lowes are already experimenting with 3D printers in their stores, allowing customers to have custom products manufactured on site. 3D printing is already playing a significant role with manufacturers such as Airbus and Boeing, but we are only at the cusp of how this disruptive technology will play in our supply chains. Finally virtual reality will continue to play a role in places such as retail – allowing customers to experience product as well as in supply chain design and CAD software. As mentioned above, we see warehousing and other logistics being strained as more companies look to add more of these assets, leveraging virtual reality allows for better testing and understanding of how these capex projects will turn out. Imagine being able to test and try out a full scaled model of a plant or warehouse via virtual reality. Look for these technologies and others continue to grow in importance within our supply chains.
Every year at this time it is always interesting to look back and see what the prior year held for us and more fun to look forward to the coming year. As I have become more of an optimist as I have grown older (is that normal?) I am looking forward to 2016 and some of continued evolution of these technologies and trends.
Happy New Year to you and your loved ones!
Last month, SAP Hybris hosted a number of analysts, clients and prospects in Forth Worth Texas for their North American Customer Days event. The major discussion point for the event was the impact digital has had on the relationship with the customer. How does the continued disruption created by the digitization of our economy impact the manner in which retailers and brands interact with their customers? SAP Hybris emphasized that due to this digital revolution, retailers and brands that employ a “one size fits all” viewpoint is passé. We at Constellation Research couldn’t agree more. On the contrary, retailers and brands in their continued efforts to tailor experiences to the customer of one – lean on the technology and business processes that will permit these contextual experiences for the customer.
There were two points of emphasis at the event that reinforce the evolution of the retail – customer relations:
- CRM is dead, long live CRM. CRM as we knew it, is most definitely gone. The days of the CRM systems we saw arise in the late 1990s, such as Seibel and Onyx, addressed a very specific need – a linear repository for organizing customer touch points. Originally these systems were created to organize and keep track of a limited number of touch points between a sales force and a prospect or client. This sufficed when most of those interactions were in person, over the phone or via email. A finite number of touch points. Increased digital growth has given rise to an ever growing number of dynamic communication points between customer and brand. This evolution requires the systems being employed to keep pace. Traditional CRM systems and the mind set behind them are dated. Of course the notion of customer relationship management remains important, maybe more so than ever. Maybe not the term “management” since the customer has more influence in the relationship. Retailers are no longer driving the relationship, but working to understand and anticipate customer needs. In this light, the solutions are truly dated. As the number of communications points between customers and brands is ever shifting, growing and constantly evolving the necessary systems are asked to do more and do so faster and more efficiently. Brands and retailers, more than ever, must have systems in place that properly track, store and provide inputs into customer relationships. Legacy CRM systems are dead; the goals of CRM are more than ever vital for brands.
- Data is the new fuel. Data is the new oil that drives the digital business; those retailers and brands that will strive in this business environment are the ones that turn this oil into fuel. The importance of data is by no means a news bulletin, but it is the importance of transforming this data that remains the challenge. We all know that retailers and brands have an unprecedented access to data. But, as SAP Hybris points out, it is not about extracting the data it is about being able to transform this raw material, in the form of data, into insights. This transformation is multi-faceted. It must be done quickly, efficiently and intelligently. For example, the NHL (the North American professional ice hockey league, National Hockey League) worked with SAP Hybris to determine which data sources to focus on, how to leverage the data sources and what growth plan to adopt with regards to adding new data sources. With a large and various number of data lakes – individual team data, NHL.com assets and even fantasy hockey sites – there was no shortage of information for the NHL to choose from. With SAP Hybris, the NHL took a structured and disciplined approach – always keeping the customer at the center of the efforts. Which data pools were the most applicable to start with, and which could be brought in to build on the insights that were being drawn out? This approach has allowed the NHL to create a more efficient customized customer experience – being more contextually aware of the customer’s needs and possible experience with the NHL.
SAP hybris understands that it’s more than technology that will help your business, on the contrary the technology becomes less important. The need for new business processes, through the usage of the data is what distinguishes the leaders from the laggards. The technology needs to support, not lead these efforts.
At the core the focus continues to be on the customer, but it always has been. The nuance is that the focus is on the contextual customer interaction, which continues to be honed in more and more down to the individual. Retailers and brands need to be more nimble and willing to experiment with new technologies and allow for new applications – all with the changing business processes in mind. As SAP Hybris customer Loblaw stated from main stage – brands and retailers need to own digital, they have to think big, take risks and learn from these efforts. If companies don’t they will be left behind in this ever changing digital economy.
A few weeks ago I spent the majority of my time in Las Vegas with Software AG at their Innovation World summit. Unlike Vegas, what happened at Innovation World isn’t going to stay at Innovation World…okay poor attempt at humor. Software AG should be touting what they spoke about during the 3 days at the Aria Hotel and Casino. The main theme of the event is around the digital platform Software AG is doubling down on. Smart move? Time will tell…but a positive move in light of the digital disruption we are in the midst of and what we all believe will only become greater changes moving forward.
Software AG aggressively pushed their digital platform agenda from day one on main stage as their executives took turns highlighting Software AG’s efforts with creating a digital platform to allow their customers to innovate. Karl-Heinz Streibich, Software AG’s CEO, focused on 7 drivers that is the catalyst for digital disruptions:
- The shared economy, driven in large part by the Internet.
- Standardization, think of the smart phones we all carry.
- Asset lite companies, as digital becomes the main asset companies are shedding traditional assets.
- Transparency brought by greater connectivity, this will only accelerate with the rise of the IoT (Internet of Things).
- Fast sprints of innovation, digital platforms allows for rapid innovation.
- Lower costs, with digitization the costs are reduced.
- Unbridled creativity, once digitization has touched “everything” creativity will only continue to explode.
Such drivers continue to change the way companies and service providers address the market. Of course the undertone from main stage was that the customers know better what their business needs are, while Software AG knows best how to translate this into bites and bytes. This is the nature of the business world we are currently living in – digital has created an acceleration that is unprecedented. Vendors and solution providers cannot predetermine what problems and business use cases their customers will have next quarter let alone in 6-12 months. The idea of providing the platform – truly a Lego set for customers to then go out and create their own solutions. Karl-Heinz was right in saying – you know your business better than anyone, but we know the digital aspects better than you…let us work together.
There is a caveat to this notion – that while digital has greatly disrupted business, there are some truisms that will remain. The majority of business use cases have some basic aspects and needs that are consistent across industry and company. Under this light it is important that companies such as Software AG lean on their industry teams to accelerate focused business processes that are vertically aligned. Verticals such as retail, finance or manufacturing are already looking at how they can bring their industry insights to accelerate the time to productivity with their solution sets. Can Software AG leverages their vertical teams to start creating some standard building blocks that their N+1 customer in that specific vertical take advantage of?
The challenge for the German software vendor lies in their ability to pivot into verticals, compete with other service providers that have longer histories and track records servicing these verticals. The advantage Software AG brings is they are also not wed to their legacy offerings, which many other vendors are still fighting.
We have all heard the statement – you can’t cost cut your way to profitability. Too often in business, CxOs and others forget the spirit of this saying. Cost cutting, or more precisely, cost management, is vital to running your business. In many businesses and their associated supply chains, however, this is achieved in disjointed and siloed departments. This disjointed approach to cost cutting can achieve the basic goal of saving money and therefore “improving” the bottom line. But it falls short of long-term benefits for the businesses. Savvy CxOs need to look at cost through a different lens.
- Determine the way costs impact the holistic picture of your business. Yes, I know that companies have to produce balance sheets, cash flow and income statements. But these exercises are driven on a quarterly and annual basis. What about the daily activity? When it comes to your supply chain, decisions about cost are made at a much more rapid pace. And their impacts need to be understood at the speed of business, not an accountant’s timetable. CxOs need to strive to get visibility into their costs at this level – not the level that is asked for by their accountants.
- Understand how becoming more cost-efficient creates opportunities for new business models. Oftentimes when we speak with customers about some of their cost-cutting efforts, they emphasize the savings achieved. A worthy goal indeed, however, most CxOs do not promote or focus on the next level – what are the new business opportunities these efforts have created? Where can assets and resources be shifted because of efficiencies gained? If you can be more efficient in one area, where can you reinvest in others?
- Change the mentality of cost cutting to waste management. I realize that this might appear to be one and the same. The distinction exists around the notion that waste management is a mentality that distinguishes between bad costs and good costs. It’s similar to when you go to your annual physical, and your doctor looks at both the good and bad cholesterol. Both numbers must be evaluated together, not in isolation. Adding cost is part of doing business but it must be done efficiently – cut waste not just blindly cutting spending.
What does this change in mentality look like? Take for example the work SCA Technologies is doing with one of its customers, a fast-food giant. The Pittsburgh-based supply chain software firm has worked with this client to implement technology that provides a level of understanding of costs previously not achievable. The outputs have been to understand the nuances in the fluctuations of commodity cost – poultry, eggs, beef, and cheese, to name a few. As a result, the fast-food giant gains a full view of the impact these costs have on their final product – throughout the end-to-end supply chain. Margin impacts, in turn, drive decisions around new product introduction, pricing and promotions. In a business where margins are constantly under pressure, this insight has deep impacts on the day-to-day business.
For example, the fast-food giant was looking to introduce a limited-time offer into its menu, but after assessing cost upticks for specific commodities required for that product, it became apparent that shifting to a more favorable time of year for those commodities would improve profitability. This level of insight into cost structures, and more important, how they impact the entire supply chain, enabled a smarter—and more financially sound—decision to be made.
We have seen the same in the consumer electronics business. For example, Apple understands the strategic advantage inherent in looking at the cost of items such as flash drives and taking a forward position. When Apple looks forward to new product introductions, it also looks to buy future production and inventory of key items – this is a massive cost creation. However, the assurance of being able to capture market share by having the right inventory on hand is vital. The issue of absorbing and adding costs is not the concern – identifying a possible business opportunity is the priority. They can do this because they have a holistic view of how near-term cost can impact long-term market share.
The bottom line for CxOs is that cost isn’t bad! Of course incurring costs for employee sushi lunches and paying for all your employees’ cell phone bills might not lead to the greatest business outcomes. Unless you are Google when you use these “perks” to ensure your minions are kept in the mothership as many hours as possible. But focus on those areas where waste management can open up avenues otherwise neglected. Look to cost as the basis for short-term and long-term innovation and laying the groundwork for new product introduction and new business processes.