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Does the Supply Chain Make the Store?

The link between retail success and efficiency
Supply Chain Solutions

There’s a fifteenth-century English proverb that states “clothes make the man” to highlight the link between what one wears and his (or her) status. Similarly, it is conceivable to suggest that “supply chains make the store” to recognize the growing importance of transportation, warehousing, and inventory management to a retailer’s success.

Could such a bold claim be true or is it just hyperbole? Before you roll your eyes and claim the latter to be true, think about the links between a fundamentally strong supply chain and a retailer’s ability to effectively serve customers. A store’s produce department depends heavily on the fresh produce supply chain to support timely flows of high demand product in excellent condition.

Yet, the store is not a passive entity that waits patiently on the supply chain to produce manna from heaven. The store has critical information, makes key decisions, and executes daily operations that should drive supply chain activity. Hence, the two groups must align their processes to ensure on-shelf availability of highly desired fresh fruits and vegetables to satisfy consumer demand.

Alignment and success come from a collaborative environment where a partnership approach supplants the adversarial shipper versus buyer mentality. According to Dan Gilmore, editor-in-chief of Supply Chain Digest, supply chain collaboration (SCC) requires companies to go beyond simple transaction integration and cooperation to joint planning, process redesign across trading partner interactions, and the sharing of risks and rewards. Achieving Gilmore’s vision of SCC is not easy, but it is well worth the effort. A properly established initiative will reduce out-of-stocks by 4.4 percent and supply chain costs by 5.4 percent, according to a 2014 McKinsey & Company study.

Successful SCC is based upon three building blocks: cohesive goals, rich information, and reliable fulfillment. To understand these SCC building blocks, industry experts from the supplier, third-party logistics, and retailer communities shared their thoughts about how “supply chains (and SCC) make the store.”

Cohesive Goals
One of the primary challenges to supply chain success is a tradition of functional silos and internal focus that exists within most organizations. This leads to narrow goals and performance metrics that prioritize individual activities rather than collective outcomes.

For example, seeking to minimize delivery costs by using rail delivery will reduce cost per hundredweight, but may lead to higher inventory costs due to shipment size and greater shrink from slower transit time. Instead of sub-optimizing delivery costs, the collective goal of shippers and retailers should be to ensure on-shelf availability balanced with low shrinkage rates and total logistics cost control.

Getting to this level of goal cohesion is not simple and cannot be achieved with an “us versus them” mentality. It requires a willingness to help one another and invest time in building strong relationships according to Chuck Olsen, chief executive officer of the Chuck Olsen Company in Visalia, CA, and a 50-year produce industry veteran. “It’s up to us as a supplier to help our customers move more product, make more money, reduce shrink, and to teach them how to keep the cold chain going.”

Olsen acknowledges that buyers may find it faster to communicate via email and EDI [electronic data interchange], but notes the importance of human connections. Spending time on the phone and having face-to-face communication are very valuable for building relationships.

It is also necessary to move beyond a broad collaboration strategy and specify the focus of the SCC initiative. Time must be invested in developing a front-end agreement between parties. This helps to clarify roles, ensure fairness, and promote commitment. Likewise, the agreement will bolster confidence in SCC.

“Mutual respect and trust are needed for a truly effective relationship,” confirms Mike Graham, senior vice president of supply chain operations for Meijer, Inc., a 200-plus discount chain based in Grand Rapids, MI. “There should be an agreement on the goals and responsibilities of each party.”