Category Archives: Supply Chain

Moneyball and retail: How to play smarter with big data

With the start of another baseball season upon us, I can’t stop thinking about Moneyball—the story of the Oakland A’s General Manager Billy Beane and his revolutionary method for recruiting and evaluating Major League Baseball players.

For those of you who aren’t familiar with the book (or subsequent movie starring none other than Brad Pitt), Michael Lewis’s Moneyball: The Art of Winning an Unfair Game takes a close look at how MLB’s veteran scouts, talent evaluators, team owners, and general managers in the early 2000s relied only on traditional methods and their gut instincts to evaluate and choose players.

Recruits at this time were viewed through a lens that leaned solely on superficial statistics like number of home runs, RBIs, or even a player’s appearance. Players with the “right” attributes commanded large salaries like those of the New York Yankees—money which small-market teams like the Oakland A’s simply could not afford.

To win at this “unfair game,” Billy Beane spearheaded an effort to dive deeper into the player data he already had at his fingertips—thereby uncovering the hidden value of players who were not identified as assets right off the bat. Today, the majority of MLB teams employ some form of deep statistical analysis, and recruiting on gut instinct alone is virtually unheard of.
What does Moneyball have to do with retail?

Much like Billy Beane, today’s retailers may feel they are playing in an “unfair game.” To many, competing with the New York Yankees of retail seems impossible.

Moneyball taught the baseball industry to use data to focus on individual players and the (sometimes hidden) value they could bring to a team at large. And while retailers may not have the resources, logistics, and of course, money, to compete with the behemoths of the industry, they do have the data at the fingertips to succeed by playing smarter.

If retailers dive into their data and focus on each individual consumer, as well as their products and services, there’s an opportunity to uncover hidden value in the data associated with the consumer and the products they seek—just like Billy Beane did with the Oakland A’s.

So why should retailers revisit this well-worn story?

  • It’s the customer, stupid. Most pundits and practitioners would agree that the retail dynamic has shifted. The consumer now has the bulk of the power. But the consumer is also willing to provide retailers with a wealth of data and information. Much like Billy Beane was able to, can retailers leverage this data to uncover more about their consumers? Who of them are really profitable? How are they interacting with the brand? And what do the answers to those questions mean for long-term profitability in a highly-competitive industry?
  • Efficiencies in the supply chain. How well is supplier A performing compared to supplier B? Are there metrics that can be measured to gain greater supply chain efficiencies? How about distribution networks, warehouses, and stores? Retailers need to be open to measuring new (and maybe counterintuitive) KPIs across their operations. By seeking data that might uncover new ways to measure and improve operations, retailers can get ahead of the game.
  • Product evaluations. Think of each product as a baseball player. While some products are consistently the highest performers, is it possible there are other equally profitable products sitting on the bench? By analyzing assortment under a data-focused microscope, retailers have the power to understand all the costs and opportunities associated with each product and mix, and identify the hidden gems lurking in their assortments. What else could be uncovered that may have been otherwise viewed as a retail truism?

None of these insights are especially earth-shattering, but what is surprising is how often retailers neglect them. The data is there. The insights are at our fingertips. It’s not about amassing more data, it’s about using the data we have to make smarter, more informed decisions. Billy Beane and the Oakland A’s didn’t discover a wealth of new player data—they looked at the information that was available to every other team and asked different questions of it. If retailers want to compete with retail Goliaths, it’s time they start asking different questions, too.

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NRF 2017 – continuation of the age of the consumer?

What a year 2016 has been. With a unexpected result in the United States presidential elections, the United Kingdom deciding to leave the European Union, one of the world’s largest shipping companies (Hanjin) going bankrupt, Olympic games being held for the first time in South America to name a few, I think we are all ready to close the chapter on this year and look forward to 2017. With every new year we in the retail world, also begin to look towards our annual pilgrimage to the Javits Center in New York City for the biggest retail show of the year – NRF. I have lost track of how many of these I have attended. The nice part is they always teach me something, there is always something new and exciting. So what should we expect during this version? Here are some trends I would keep an eye on:

  • The store version 2.0…or is it 3.0 – Okay okay this might be boring and something that I already discussed last year, but the reality for retail is that the store is continuing to undergo a massive metamorphosis. The age of the massive, cold, heartless store is over. Stores will remain points of sale and fulfillment, but how they achieve these goals is what is continuing to evolve. Are retailers going to leverage stores as do brands such as Restoration Hardware with certain stores that are truly only showrooms, allowing the consumer to experience the furniture and housewares in a variety of settings? Will stores morph towards the Apple Store model – a fulfillment center, a showroom, a service and maintenance center. What about stores such as Bass Pro shops, a store where the experience is as much a part of the store as is purchasing product. Brands and retailers will continue to work on figuring out what their stores need to resemble or what mix they want to employ. This will have an impact on their inventory strategies, labor mix, store technologies and integrated omnichannel strategy.
  • Retail supply chains, back to the glory days? An interesting report came out recently from the University of Auburn and RILA that looked at where retailers were going to invest their funds over the next year. The supply chain, while not earth shattering news, was one area of focus and investment. But, it is investments not in squeezing out more cost savings from the supply chain but instead investments towards making the supply chain the engine for growth and expansion. I couldn’t agree more! The primary function of a well-oiled supply chain is to get the right product or service, to the customer at the right time, right price and for the right margin. Simple! Too often retail has looked at supply chains as where they can squeeze out cost and instead looked to the customer facing assets – web sites, eCommerce, mobile, CRM to name a few – where they should invest treasure with the idea of capturing customers. This remains important, but now retailers, the smart ones, are recognizing that unless they have a nimble and efficient supply chain, can they meet their customer’s expectations? Expectations that are stoked by, at times, overpromising with the front end bells and whistles? It will be interesting to see how supply chains are discussed and viewed at NRF.
  • IoT and digital how are retailers doing? Last year it was interesting to see the number of vendors and discussions that included some degree of IoT (internet of things). Will this hold the attention of the audience again this year or are already past this? I hope not. Reality for retailers and really most industries is that the digital journey, of which IoT is a part of, is only beginning. The digital transformation – where companies are raising expectations to expecting over 40% of their revenue will be generated from digital by 2020[i] – is only beginning. How will retailers begin to adopt digital technologies such as smart displays, virtual reality, connected products via IoT, greater digital connectivity with both customers and their ecosystem? We cannot, and I trust we have not, buried the idea of digital transformation or digital enablers such as IoT. It will be interesting to see how much of the narrative continues to contain a digital focus at NRF.

These are three big themes I will be looking for at NRF. You might ask yourself – well what about omni channel or mobile commerce or even social commerce. I am sure these topics will remain a constant. However, I think it is time we stop trying to categorize commerce and just call it what it is – commerce. There was a great article earlier this year from the Harvard Business press that talked about consumers moving to a model of ambient commerce. A world where being able to purchase, transact and acquire products is always on. Consumers no longer have to think about shopping or transacting. Retailers must be aware of this new reality.

A few weeks away from our annual kick off for retail in New York City and NRF. Hope to see you there.

[i] Gartner, “Create an Industry Vision for Digital Business.” April 11, 2016

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The struggle for retailers – How do I fulfill all those orders, on time and within budget?

It’s December and retailers have kicked into high gear to meet the increasing demands of holiday consumer shoppers, both in store and online. If the Thanksgiving to Cyber Monday time frame in the United States is any indication, the strain felt by the retail supply chains is not going to subside during the Christmas season.

A recent article in the Wall Street Journal highlights the struggles retailers such as Toys “R” Us faced last year when it came to fulfilling all the online orders that taxed their systems. Click here for article. So what are we to make of this? Should retailers

Plenty to go around! If your supply chain is up to par.

Plenty to go around! If your supply chain is up to par.

throw their hands up and allow the mighty Amazon to march on, unabated? Of course not. Retailers must be increasingly savvy when it comes to their integrated online and brick and mortar strategies.

  • Be judicious with online promotions. Easier said than done, as the majority of consumers expect to get deals online, and better prices. But, retailers need to start being disciplined with their promotion and pricing strategies, and avoid running a promotion for the sake of it. They truly need to understand why and how this promotion will impact their bottom line.
  • Have a network view of all distribution nodes. The advantage traditional retailers have is the real estate they have invested in. While it is not always a positive, retailers must take a holistic view of their assets. Can they distribute popular, standard or fast moving items from their stores? View them as forward-positioned distribution centers. Hold back inventory that is more unique, less likely to be mass purchased back in true distribution centers.
  • Don’t be afraid to set expectations with customers. This is difficult, especially considering Amazon isn’t shy about taking a financial hit on some of their fulfillment promises. But why can’t retailers have a deeper understanding of their product assortment with associated costs? Certain items need to have a cutoff date – if you do not order by this point then there is no guarantee it will arrive by the desired date. Yes, this is available sometimes, but make these options crystal clear.

At times, retailers must feel like they are the dog that constantly chases cars – run, run, run, but alas the car is always faster than you. In a way retailers need to stop focusing all their attention on the car (aka Amazon) but rather focus on other dogs – can they out run them? Focus on your supply chain network. Is it flexible enough to allow the retailer to seek new offerings, new business models? Without the visibility and understanding of what is possible, what can you really hope for?

Retail faces a daunting task. Not only do they have to compete with the likes of Amazon but they have to keep up with our, the consumers’, needs and desires. A challenge, but a great opportunity.

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When we all become a market place, it is up to your supply chain network protect the brand

In a recent article, Crate & Barrel, announced that it would start selling other brands on their website. Click here for article. This is not a new concept. Companies such as Lord & Taylor, Saks, Macy’s, Walmart and JCrew are already selling other brands on their ecommerce platform. In the case of JCrew you can even purchase products such as New Balance sneakers in their brick and mortar stores as well. According to the WSJ article, there are more than 250 retailers already offering this functionality. This begs the question, are retailers and more specifically their eCommerce activities gravitating towards become more of a market place?crateandbarrelicon_400x400

Are we seeing another influence on retail from the likes of Amazon and Ebay, two online pioneers that made their businesses through offering their clients almost unlimited selection of products from a wide swath of brands. For the likes of Crate & Barrel it makes sense for their customers. For obvious reasons, they want customers who come to their web site to have access to the widest array of goods for the home. However, they cannot grow their inventory offered as fast as if they allow others to join their marketplace. Rather than spend time scouring for new products, niche vendors and the latest trend, Crate & Barrel can open up their platform and incentivize these brands to come to them. Makes sense, right? Yes, but there are some key issues these brands have to consider:

  • Transforming their eCommerce assets into a marketplace places greater pressure on the brand’s supply chain. The value that an Amazon offers when it allows vendors to sell their products via the marketplace is the massive supply chain and fulfillment engine that goes behind that front end web site. Retailers like Crate & Barrel and other traditional brick and mortar brands have struggled to seamlessly and easily bring eCommerce to their offerings. If they now take on a greater array of product through their site, product that falls outside their control, can their supply chains keep pace?
  • It’s the brand stupid. One appealing factor for brands to associate with the likes of Crate & Barrel is to ride on their brand presence and reach. For Crate & Barrel the positive is being able to offer their customers a deeper and wider product assortment. The risk for Crate & Barrel is that it is their brand that is on the mast head. What happens if one of the vendors they allow onto their online asset sells defective or subpar products? The real issue is that it is the brand, Crate & Barrel that will suffer.

So what does this mean? As more of these brands begin to explore the strategy of creating mini-marketplaces on their web site, they have the opportunity to expand their offerings to their customers (don’t forget as we have stated many times, the customer has now gained the power in the retail relationship) but they will have to rely upon their supply chain network at a more intimate level. These brands must be able to have absolute clarity with regards to which suppliers are being allowed onto the marketplace. There must be absolute understanding into the product offering, what happens post sale and how will disputes be handled by the entities involved. They must also have clarity as to the impact these relationships have on their financial supply chains. This requires a supply chain network that has a deep degree of insights and visibility, but also the capacity to have the flexibility to manage a marketplace that itself needs to be nimble enough in order to truly achieve the aspirations of the medium.

This is yet another example of the continuous evolution of retail. I wonder when I can start buying my groceries with that Basque Honey dining table on the Crate & Barrel site?

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Back to School: the second happiest time of the year for retailers…but not necessarily for kids!

As the last days of summer come to lazy close—sigh—retailers and parents of school children should all be squealing with glee.  Okay maybe that’s an exaggeration, but the end of summer does mark the beginning of the retail race to the black. They are looking to beginning to build up their holiday season inventories while ensuring they capture as much back to school revenue as possible. However the back to school season is a microcosm of the shifting sands in the retail world.

Back to school is the second largest sales driver, right behind the end of year holidays – accounting for over $27b worth of sales.[1] But while this time of the year is a boon for retail, there are signs this rosy picture is cracking because of the usual disruptors.  Their disruptions come primarily in the form of growth in consumerization,[2] and the pressures from ecommerce giants such as Amazon.

Let’s dig into some NRF numbers:

  • 97% of online sites visited are either super centers or office supply sites.
  • 84% of parents will only purchase online if free shipping is offered.
  • Over a third of parents will make purchases online.

Retailers that are in this space are probably selling commodity items – a heavy percentage of office supplies. (Click here for an example list.)

These items are difficult to differentiate through value-added services, customization, or contextual experiences. They are often based on convenience and price, and are usually not overly bulky but can be heavy. Why is this important?

Consumers are going to shop for these products and look for value and cost to be the biggest drivers. This is in the sweet spot for the likes of Amazon and Jet.com. But could some of the items – like paper and books – place an additional strain on fulfillment for retailers? Possibly. What is the opportunity for retailers to thwart being overwhelmed by Amazon’s ecommerce prowess?

Here are some strategies:

  • Focus on an in-depth understanding of your network. Where can you hold back inventory? Can you fulfill from different nodes, and are there parts of your network that can push inventory out earlier in the process? Bring more flexibility to your distribution and fulfillment capacities to control your costs, but most importantly, retain customers through profitable fulfillment. As the data from NRF reminds retailers, consumers want and expect free shipping, how can retailers better leverage a network view of their inventory to address this trend.
  • Leverage the digital supply chain to focus on creating a user profile. Can retailers follow their customers as they progress from pre-K to college and beyond? This insight may open up opportunities to provide location-based value-added services. If a child is about to be a junior in high school, inform them of a local college prep program. Create some contextual wrappers around your inventory. Leverage the digital mirror to your supply chain to create stickiness to your brand. Hopefully this not allows for a degree of brand loyalty, but allows the retailer to do a better job with demand sensing and shaping.

Back to school can be stressful enough – as retailers let’s not have the added stress of how to continue to drive and capture revenue in a world of omnichannel and consumer-driven supply chains. There are opportunities to protect revenue but also uncover new opportunities; the retailers that start to think network and digital are pointed in the right direction.

[1] Data from NRF – https://nrf.com/news/infographic-look-back-school-supplies-lists-and-online-shopping

[2] Consumerization of the retail supply chain is the shift in dynamic towards the consumer. The consumer has become the focal point in the retail supply chain.

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Brexit – the unthinkable is now reality.

Late last night, in the UK, the news came out that the English populous had voted to leave the European Union. The finally tally was 48.1% to remain and 51.9% to leave – the impacts on the financial markets were immediate and as expected quite negative as the Pound Sterling dropped to its lowest levels versus the US Dollar since 1985, the stock markets across the global rapidly shed value and the impacts on British companies also suffered drastic losses on the market. Bell weather British retailers such as Marks & Spencer, Sports Direct and Tesco have suffered double digit percentage losses on the open markets. The repercussions are only beginning to be felt throughout the global economy. Let’s take a quick look at some areas that will feel the impact.

  • Disruptions to our supply chains come in many forms: One common thread with supply chains, is the fear and dislike of disruptions and unknowns. Often times we focus on such disruptions such as raw material cost fluctuating, demand being fickle or transportation costs to name a few, but Brexit reminds us that one large disrupting force are geo-politically driven. The severing of ties to the open market will impact supply chains when it comes to tariffs, trade agreements, freedom of labor movements, access to capital to name a few. How supply chains react to such disruptors comes down to how nimble and how flexible the supply chain network has been built. No supply chain can prepare for every possible disruptor, but how quickly the supply chain can lean on its digital mirror to react faster will separate which supply chains that simply survive and which thrive in moments of chaos. Supply chains must be nimble enough to be able to react to such changes – which markets will become more profitable, where may new costs impact profits, what about labor costs – these are but a few questions that supply chains must be able to address in order to survive and thrive in this environment.
  •  Impacts on the United Kingdom: As mentioned above, UK based firms as well as the currency is already feeling the impact. And this is simply the beginning of these changes. When it comes to such supply chains as retail, there will be issues around access to labor as well as the open markets. According to The Wall Street Journal, retail, which is Britain’s largest private sector, has leaned on labor coming from the European Union to bolster their needs. The labor tends to be more economically than locally hired assets. One of those countries, Poland, has by some reports close to 1m workers in England. Many of whom are in the retail sector. What will happen now with this labor pool? In addition, this labor pool sends back close to 1b pounds home annually, helping that local economy with discretionary spending. Retail will be impacted both in the UK and Poland in this example. The leave vote has also stoked some fires for North Ireland and Scotland to reconsider their stance within the United Kingdom, as both voted heavily to remain in the EU. If these nations break off what does that do for UK based nations and their supply chains? Will there be a move of services, financial and even manufacturing to these geographically close markets?
  • Wake up call for the EU: The European Union has just seen the second largest economy and one of the major players of its Union turn their back on the club. The statement coming from across the English Channel was, we are better off not being part of the one of the largest global markets and rather go it alone. The shift within the EU will tilt even more towards Germany. As the lean manufacturing powerhouse of the EU, it will continue to see its influence and power growing now that the UK can no longer wield the influence it had when it was part of the EU. What remains to be seen is which EU nations step up to try and counter balance Germany? France? Italy? None of the above? The silver lining in this vote is the possible kick in the pants this gives the EU to address issues from debt to immigration to trade. There are two clear paths the EU can follow – a slow and painful break down or a reawakening and resurgence as a stronger entity.

What all this reminds us, is that our supply chains are under constant pressure from disruptors. They can can come from natural events such as earthquakes in Japan, Tsunamis in the Indian Ocean or volcanic explosions in Iceland. Disruptors can pop up because of misinterpretations of demand signals, poor communications between suppliers, errors in forecasting and the list goes on. Finally we have witnessed, once again, a major supply chain disruptor that comes from geopolitical events. The standard operating procedure should be to expect these to continue to be part of our supply chains.

At a fundamental level, the turmoil that Brexit has unleashed, casts a light on the importance of having a much more robust and clear view of the extend supply chain network. How well does your supply chain have a clear and understanding of the digital mirror of your physical supply chain? The more industrial grade digital supply chain you have to mirror your physical supply chain the greater flexibility your supply chains will have to react to these occurrences. For example, if a UK based grocer depends on supplies from French vineyards for wine, Italian distributors for olives and Spanish farmers for pork, with the new geopolitical shifts how fast can this grocer find new sources of product? How rapidly can they determine the potential cost impacts new tariffs etc may have on their cost to fulfill? Without greater transparency and understanding of the network they might be operating with old data or even no data. A challenge in a market that demands rapid and wise reactions to these disruptions.

End of the day we don’t know what the long term and even short term effects will be. This is unprecedented and will be the first time Article 50 of the Treaty of Lisbon will be enacted. The reality is that there is no “status quo” we are in a world that is constantly changing and demands that our supply chains do the same. How well prepared is your supply chain to deal with such disruptions?

As the famous English saying goes – Stay Calm and check your supply chain.

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Anaplan – finally spelling the end of Excel?

indexThe whirlwind Spring event season is finally starting to wind down…sort of. Most recently I was in San Francisco attending the Anaplan user conference at the Fairmont. Not a bad location to spend a few days. Although I will say the hallways remind me a bit of the movie The Shining. Over the past year, Anaplan has emerged as one of Silicon Valley’s unicorns. With a valuation over $1billion and a large cash infusion earlier in 2016, the pressure and expectations are mounting. Rightfully so, their ambitions appear to be on par – to become the de facto planning platform. In essence they are looking to replace the old workhorse known as Microsoft Excel. Talk about an ambitious and lofty goal.

Anaplan plays in a host of functional areas, ranging from finance and human resources to sales and supply chain (more on the last later) and in a range of industries from financial services to CPG. Their underlying technology allows these businesses to create the planning models and apps required to manage their operations, in many cases taking Excel spreadsheets head on. As Anaplan’s CMO Grant Halloran stated from main stage – Excel has spread like a virus. I don’t think he meant that in a positive way! But the reality is the tool has been on our desktops for decades, its simplicity and lack of a comparable cross industry platform has made it ubiquitous. Because of this it has spread like a virus. And for all its shortcomings it does work. Is it the most robust planning tool out there? No. But sometimes good enough is better than perfect. So does Anaplan have a chance? Their momentum suggests it does, particular for large use cases where Excel has simply withered under the sheer volume of data, complexity of the process, or both. Let’s focus on one area they have invested heavily in over the past 2 years – supply chain.

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Gunning for an icon.

First of all, supply chain means a lot of things to a lot of people. While I believe it goes beyond factories and warehouses, the outer boundaries of what supply chain management is remains a moving target. A clear opportunity for Anaplan – but one that will require both focus and execution, as well as making some hard decisions as to what to ignore. Where does the company continue to invest? Do they want to focus on complex planning around bill of materials and sourcing, does it make more sense to focus on demand planning or do they lean on their work with financial planning and look at the sales & operations planning (S&OP) space? They already have an impressive list of customers in the space headlined by the likes of Diageo and Del Monte. Of course these spaces have some entrenched players that Anaplan has been competing against and scoring some wins. However, to continue to build on these successes they need to continue to bolster their supply chain talent across the board, evolve their strategy, and most importantly, keep building the use case library that demonstrates their ability to address supply chain issues.

The challenge for Anaplan remains that their brand is not fully established within the supply chain space. That can be both an opportunity – being the fresh face in the space – but also a challenge – where is your street cred? Supply chain professionals are fickle, they want to know that you have experience and use cases that are tightly aligned with their needs. But nothing ventured, nothing gained!

There is clearly the desire from the top management at Anaplan. As a unicorn with cash, they should have both the resources and cool factor to continue to attract the appropriate talent to make this vision a reality. But the road is full of grizzled veterans and many have tried to displace Excel. I have joked with colleagues that had Microsoft branded itself as a supply chain vendor they would be the #1 vendor, thanks to Excel. Go bold or go home seems to be the name of the game these days, clearly Anaplan is looking to do so. Maybe the new kid has what the grizzled veterans didn’t – the right technology.

For another view of the event please read my colleague Doug Henschen’s piece – click here.

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