Consumer behaviour changes require supply chain agility
The following piece is from SAPICS, a professional knowledge-based association that enables individuals and organisations to improve business performance
Recent market results are forcing retailers to begin pondering how to make their supply chains more agile in the face of changing consumer behaviour—while still keeping costs as low as possible. Getting this balance right is increasingly important as consumers become more demanding and yet more price-conscious at the same time. Consumer confidence, for example, has slipped back to levels last seen at the beginning of the 2008 financial meltdown.
“When it comes to the supply chain, South African retailers tend to focus on cost to the exclusion of most other considerations,” said Jan Tukker (pictured right), General Manager of Logistics at The Foschini Group (TFG) and conference content committee member of SAPICS – one of the leading industry bodies in the field of supply chain management.
He added: “This approach inhibits retailers’ ability to respond quickly to changing market demand. We need to find new ways to build agility into our supply chains.
“As supply chain management means getting the right products to the right place at the right time and cost to satisfy consumer needs, any positive changes to a retailer’s supply chain agility will result in a positive impact on satisfying customer needs.”
Tukker argues that today’s markets increasingly demand at least a measure of agility. One driver is changing consumer behaviour.
Global research from Accenture shows that today’s consumers are increasingly networked and thus better informed than in the past. These consumers are coming to expect that real-world channels offer the same kind of experience—personalized, immediate—that they get online.
“Retailers have to ensure that their real-world supply chain can begin to offer the kind of experience that consumers want,” said Tukker.
“Cutting logistics costs might make some kind of sense but all too often the impact on revenue isn’t fully understood. In addition, a more agile supply chain could mean that stock holdings could be reduced quite substantially, and that, too, would have an effect on the big picture.”
Another issue is that, in many retail sectors, such as clothing, lead times are very long especially as supply sources have moved offshore—with hugely negative effects on the South African clothing industry. Goods coming from the East or elsewhere by sea take months to arrive, which means that a retailer cannot respond quickly to the fact that item A is flying off the shelves while item B is not moving at all.
“One part of the equation is getting the buying process properly optimised. If buyers are confident about their reading of what their market wants, they can order the right items in the right quantities,” said Tukker.
Getting this right will, presumably, require greater focus on analytics to understand consumers better—a core competence for any retailer.
However, no buying process can ever be perfect, according to Tukker, so retailers do need to have ways of adjusting their stock to customer demand rapidly. Air freight is probably the only option when suppliers are offshore and rapid supply is needed.
Growing fuel costs are generally putting cost pressures on logistics, making air freight something that could wreak havoc with margins that are often thin already. One thing that retailers can do, to mitigate rising fuel costs, is to optimise their distribution network by ensuring that their distribution centres are optimally placed in relation to supply and demand.
“In the longer run, though, nearshore or onshore suppliers are starting to make more and more sense, both in the context of escalating logistics costs and the need for supply agility,” said Tukker.
“It’s crazy that a piece of clothing, for example, costs more to produce locally than it does to produce and ship from a far-distant destination.”
Tukker notes that building up a base of reliable local suppliers that are able to supply goods at short notice will mean a concerted effort by retailers to build relationships based on trust with them.
“One thing is clear, supply chain agility is increasingly going to be a prerequisite for long-term success in the retail industry,” Tukker concludes.
“We need to stop focusing on single issues like logistics cost and build a composite picture of the total supply chain and its impact on profitability—and then build innovative strategies to meet consumer needs.”