Mikko Kärkkäinen, group chief executive of supply chain management firm Relex Solutions
Black Friday on November 28 2014, still dominated the conversation at a major retail supply chain conference last month, months after the event.
Five years ago Black Friday wasn’t even ‘a thing’ this side of the Atlantic. But last year it arrived with a vengeance as near riots broke out. MPs demanded Black Friday be shelved, Britain shuddered and wondered “is that really us?” while supply chain executives asked “how the heck do we deal with that?”
As Andrew Starkey of the online retail trade body IMRG pointed out, last year’s “unprecedented” event “caught everyone in the industry by surprise.” A number of high profile high street retailers’ websites crashed, while the iconic British retailer John Lewis’ managing director Andy Street summarised the event by saying: “I don’t think we can put the genie back in the bottle… but do we need to stoke that fire anymore? I personally hope not.”
Of course, it isn’t just the Black Friday genie that won’t go back into the bottle. There’s also Cyber Monday, the online sales peak that falls just three days later. Other retail phenomena, bringing new peaks and troughs, will doubtless emerge over the coming years as customers seem to like a spectacle. Rollercoaster retail will quite possibly be the new normal.
A life less complicated
And these new peaks in demand put huge pressure on the supply chain with sales growing to such an extent that delivering sufficient stock to outlets on time is a challenge in itself. The phenomenon has the potential to trap retailers between the proverbial hammer and the anvil; failure to meet heightened customer expectations can cause serious reputational damage. At the same time working under pressure to meet customer expectations at any cost can put profits at risk; topping up from premium sources or carrying excess stock, especially in the fashion retail sector, is hardly ideal.
In a less complicated age it was possible to have a standard process for periods of normal demand and to run exceptional planning processes for high seasons – in practice this generally meant investing half a year just for planning Christmas. In earlier years, planning for exceptional events was largely based on whatever historical data existed, entered into Excel spreadsheets and analysed with a box of Excel tools. With these you built a view of demand, stock and supply chain capacity against which you tried to balance material flows so products could actually be delivered.
However, as spikes in demand grow ever more common due to increasingly frequent events (and make no mistake Black Friday, Cyber Monday et al. are all events that can be planned for and managed), the ‘spreadsheets and a prayer option’ it is not a sufficient response anymore. A well contrived promotion will register a loss if picking, shelving or transport operations fail due to insufficient capacity leading to extra process costs, poor availability and lost sales.
Creating a continuous planning process
So what is the answer? There isn’t a single solution but there are a number of possible remedies.
Firstly many businesses can benefit from running their channel operations more effectively. That may mean operating a single stock pool and being ready to shift stock from one retail outlet to another. Stock is stock and a sale is a sale. It may be easier said than done but, with a good supply chain solution, it is eminently doable.
Secondly it helps to run a unified operation. You can’t have internal departments competing against one another, defending their own patch, inventories and goals. A properly organised S&OP (sales and operations planning) process can help create shared goals and joint processes that promote collaboration, while a single forecast upon which an overarching sales strategy can be based, inventory and capacity planned and financial goals set is needed. Of course this integrated approach has implications for supply chain organisation and processes but the right supply chain management solution makes this sort of integration much, much easier.
The other thing the emergence of rollercoaster retailing forces businesses to do is to make use of the growing ocean of data that most retailers have available to them. But without the processing power and tools to analyse effectively, mining big data is little more than creating a haystack in which to go hunting for a needle.
Retailers need to be able to turn this vast data pool into a powerful resource that provides better forecasting, dynamic snapshots of a business in real-time and instantaneous illustrations of the impact of supply chain decisions.
And that’s critical in a new world of multiple seasons and events that require a continuous planning process where demand and stock planning is seamlessly linked to supply chain capacity. That kind of capability enables the building of a stock allocation plan that can actually be fulfilled at reasonable cost. Furthermore, as demand uncertainty is ever growing, with a sufficiently agile system, different demand scenarios can be run to check whether the stock allocation and supply chain plan can support sales in extreme circumstances - and this can forestall disaster.
This is today’s reality in a lot of leading-edge chains. What it is, is your future if you are serious about competing in the world we’re moving into – one in which markets are increasingly tough to predict because a new fad or event can boost demand even at Christmas by more than 20% year on year. Make sure you’re properly equipped and strapped in, it’s going to be some ride.