Put Consumers on the Driving Seat to Reduce Your Inventory

By Andreu Marco, Global Senior Vice President, Supply Chain, CSN (Customer Supply Network), Firmenich

Andreu Marco, Global Senior Vice President, Supply Chain, CSN (Customer Supply Network), Firmenich

E-tailers have already changed the way our High Street/shopping centres look like. Most of our traditional offline retailers will probably disappear soon unless they are able to re-invent themselves in order to compete with the now very sophisticated digital players. Interestingly this trend is a lot more developed within Asian countries than in our old Europe or America network. Something similar is happening to FMCGs players who are struggling to find grow or to adapt to the new world as their traditional customers (big supermarket/distribution chains) are also unable to attract consumers and traffic to their stores.

"Most of our traditional offline retailers will probably disappear soon unless they are able to re-invent themselves in order to compete with the now very sophisticated digital players"

But if the impact on the high street is important, what to say about consumers and how they are changing (without knowing it) the way Supply Chains operate. It is especially interesting to see how online platforms, and convenient digital deliveries services and payments are influencing this change.

A few Supply chain orientated organisations seem to be winning the battle. Their strategy is very simple: PUT THE CONSUMER ON THE DRIVING SEAT. And this is not only a marketing sentence. They have translated this into adapting their systems and organisations into a new distribution channel: Omni channel. Seems that the companies who have already invested heavily on Omni channel solutions (technology, distribution, logistics) will have a chance of surviving on this new era where consumers are the boss, and where management teams, especially in planning, operations and supply chain are not in control anymore. We in Supply chain are just at the service of consumers.

LESS MEANS MORE:

Inventories are a big headache for most of companies. Some of them are focused on reducing MOH (Months on Hand) KPI, WIC (work in capital) effect, investors reaction to their balance sheet in terms of ownership of goods, etc. Some others (more aggressive ones) are obsessed with eliminating inventory or transferring it to other supply chains (vendors) through SOI programs. All of that was useful in the past especially for FMCGs, automotive and big distribution retailers. But consumers have again transformed this concept. The new battle is instead Inventory AVAILABILITY. Consumers want the product. And they want it now. Online or offline. They want to convert that sale in seconds, and without frictions. And if it is not in that store or website, they will find it somewhere else and will buy it.

Supply Chain, planning and operations teams have been developing very sophisticated predictability models, algorithms, allocation software’s, etc. in order to help these managers who are obsessed with inventory cost. And the results are generally speaking very poor. Why? Because they are choosing the wrong battle. They are fighting against consumer by reducing inventory cost, instead of investing on Inventory availability through Omni channel solutions. And these last ones are magical solutions, because they not only increase sales dramatically, but also will reduce inventories (and its cost) as there is no need to have everything everywhere anymore. The reason: the consumer doesn’t care where it is coming from. They just want it now.

Companies and SC leaders who have been able to adopt Omni Channel technologies and ways of working are winning on sales, market share, etc. And this can be implemented with a combination of digitization of Supply Chain, Omni channel programs, and reduction of Pools of inventory. All of this as long as it is managed by consumers behaviour, not by old fashion tools and managers.

But this will not be enough. Apart of Omni Channel experiences, which are especially good to increase sales, reduce friction on transactions and reduce inventories (mainly companies’ benefit, not consumers), the next battle will be then about service, at least for those companies who can win the conversion battle though omni channel.

Consumers want personalised, re-invented, sophisticated luxury style, speedy services, that make them feel unique. So the challenge will then be not who is able to convert sales, but about who is winning on the last mile delivery, with innovative services. As my friend and founder of Zappos told me one day in their HQ, it is not about selling, it is about creating a “wow” experience on that consumer. And that also means loyalty!

So my advice, after more than 25 years working to improve customers experience and optimise inventories in different organisations, is that next time somebody comes to talk to you about the COST of your company’s inventory, ask that person to download Wechat or Tmall apps, and try to feel what a Chinese millennial consumer expects when ordering any product or service online….

Finally, omni channel is not perfect and it may create a few challenges to our Supply chains, for example sustainability of digital deliveries, congestion in cities for home delivery, extra packaging, dead of our High streets as we know them now, more emissions, increases on transport cost and capacity, etc. So now that consumers solved the inventory problem to us (Supply Chain leaders), it is time that we reflect on how we are going to face these issues. Not acting will mean consumers will find (again) another way to transform our supply chains without us having any role on that transformation, as is happening now with Omni channel revolution.

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