This is part two of a two-part article. The first part is here.
Online shopping is like magic for the customer. Click a few links and the purchased item will appear on your doorstep within a day or two, thanks to Supply Chain.
For the online retailer, it’s anything but magic. The customer does not see the network of manufacturers, shippers and warehouses that meet demand with supply. For the most part, online retailers have a physical process to manage, and the result of it all is inventory – the things they need to keep waiting to be purchased.
Hopefully that wait isn’t too long, because having stuff lying around is a cost. Retailers aren’t mind readers, but they get an idea of what customers want, based on past purchase data. They were pretty good at delivering the goods.
It all falls apart when the unexpected happens. The COVID-19 pandemic has given the existing system a good beating. Online retailers need to reconsider how they calculate inventory, so they don’t get stuck with too much – or too little. This will require teamwork and organizational flexibility. And that matters – a lot – to marketing teams who need to drive demand but not overpromise.
Digging Deeper: Brooks Group on Building Customer Confidence amid Supply Chain Crisis
Get your departmental ducks in a row
Indeed, an important factor in taming unpredictability is aligning your sales and marketing efforts with your inventory. This advice is easy to write but difficult to implement. Large companies have the resources to achieve alignment. Small businesses may lack reach and time, being too busy
sell… and grow.
“A typical salesperson says, ‘Buy it, whatever it is. A marketing guy will say “buy what is promoted”. Operations and inventory will say ‘just buy what’s there,’” said Mark Hart, COO of Pollen Returns, a pickup service for e-commerce businesses. What each unit considers a “victory” is different. All must agree on expectations, he noted. There must be a reasonable target to aim for. Missing the mark is okay, he said, as long as the team is willing to learn from their mistakes instead of pointing fingers.
“The reality is that the best marketers can’t tell operations… what the customer will buy or like,” said Dave Emerson, SVP for global e-commerce at SEKO Logistics, a global freight and delivery company. “They take a step back. They sell, or sell, or end up with a ton of shitty stock.
Each department may seem to be working against the grain. Marketing may be too forward-looking, while sales may not pay attention to funnel and conversion percentages at each stage, explained Russ Sharer, director of sales for The Brooks Group, a training firm in sales and leadership consulting.
And the operations? They may reduce their production to minimize risk because they have doubts about sales and marketing. “It’s actually a big problem in most companies that the incentives for the three groups are often at odds,” Sharer said. Mixed foresight meetings should bring together the three, where they should show their work and defend their projects.
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Build the supply chain buffer
So you have the data, and you have the alignment. What is this supposed to correspond to? Creation of a supply chain buffer.
Businesses need to know how much stock they have on hand and when to reorder. Again, no crystal ball can give you this information. But if they are successful, then they can build a buffer into their supply chain that can offset the shock of the unpredictable.
“The concept of supply chain buffers is not new, but the pandemic has reflected the importance of these buffers throughout the supply chain,” said Matt Garfield, managing director of the practice of retail and consumer products from FTI Consulting. “Essentially, buffers are designed to absorb uncertainty within the supply chain.”
The buffer is “generally sized according to the variability of demand”. Garfield continued. “The greater the variability in demand, the greater the buffer. Simply put, we add safety stock and/or safety capacity throughout the value chain. »
Maintaining a high inventory once served as a buffer, but it comes with risks. “You’re trading more capital tied up in inventory,” said Casey Armstrong, CMO of e-commerce fulfillment firm ShipBob. There is the risk of not selling, plus storage costs. “We’ve seen more brands take a ‘drop’ style approach, where they introduce limited quantities of a product that sells out quickly,” he said. Businesses can “set stock reorder point notifications to alert your team when stock reaches a certain unit threshold that indicates it’s time to create a new purchase order (at SKU level), working in delays”. Armstrong said.
“Smart brands will retire products that move very slowly in favor of profitable, top-selling products.” Armstrong continued. “Keeping a close eye on inventory turnover and the speed at which your products are selling can be very telling (usually favoring a thinner SKU count or product catalog).”
Businesses can develop plausible “worst case” scenarios that they can plan for, within their means. It pays for a business to be nimble, to have the ability to react to sudden increases and decreases in sales, Hart said. Suppose the team decides they will budget for a sudden 25% drop or a 200% spike, then they have to plan to adapt to those fluctuations and budget accordingly, he explained.
Flexibility can be achieved with a two-vendor strategy, Sharer said, “by splitting the business something like 80/20. I would also make sure to pay on time and have a good relationship with their key leaders. When supply is tight, one thing suppliers do is try to improve the “quality of their revenue – bigger orders, predictable payments, better margins.”
In short, the supply chain buffer is created by “spending money on inventory or capacity in anticipation of a future peak in demand,” Hart said. He offered this checklist:
- Begin to understand the true cost of inventory or capacity ownership.
- Understand the cost of demand alignment or anticipation.
- Agree on how much to spend.
- Maintain continuous monitoring and adjustment.
“It’s not ‘one-and-done’ or ‘set-and-forget’,” Hart said. “It’s a living, breathing process.”
Dive Deeper: The Impact of Logistics and Supply Chain on Customer Experience
The opinions expressed in this article are those of the guest author and not necessarily those of MarTech. Staff authors are listed here.