By Richard Wilhjelm, VP Sales & Business Development, Compliance Networks, August 1, 2013 Source: SCDigest
Monday, September 30, 2013
In the late 1990’s, then Gartner Analyst Arthur Mesher wrote an influential piece on supply chain management titled “The 3 V’s of Supply Chain, Visibility, Variability and Velocity. The article at the time was visionary as it turned the focus of supply chain management from that of cost reduction to using supply chain improvements to drive profitable growth. This shift in philosophy from cost focus to market gains continues to be a supply chain strategy amongst leading retailers today and was the central thesis for my recent series titled, "Retail Margin Risk: 5 Critical Supply Chain Steps to Ensure Merchandise Plan Execution”. Since the 3V framework remains relevant today and will be the topic of an upcoming Supply Chain Digest Videocast, let us review the 3Vs of supply chain and why it’s still extremely important to the retail practitioner today.
“Data rich, information poor” is a common theme I hear amongst retailers of all shapes and sizes. While core execution systems create reams of data never once imagined 10 years ago, retailers are challenged more than ever to aggregate the data to support informed business decisions. While supply chain visibility means different things to different people, most supply chain experts will tell you it’s the ability to see problems before they occur. How does this impact the supply chain professional? There are too many ways to list in this short post but examples include, anticipating late shipments before they occur, understanding which suppliers advance ship notices are accurate or not and what merchant presents us with the most trouble shipments? Understanding the answers to these questions before they occur gives the retailer a strategic advantage in today’s marketplace. Supply chain visibility or the ability to “see around corners” is the antidote that cures many of these supply chain ills. Another example of supply chain visibility we discussed in June was the value of monitoring the purchase order lifecycle which provides us the perfect segue into our next V, variability.
One of the immutable laws of retail states that in the presence of variability, there will be safety stock. Safety stock has negative ramifications across the entire retail enterprise. Excess stock to the chief merchant means the dreaded “m” word, mark-downs; to the CFO, potentially higher capital requirements and a lower return on invested capital (ROIC); to the SVP of supply chain, higher transportation, warehousing, labor costs and trouble shipments. And finally to the CEO, it means lower overall profitability which translates into lower bonuses. As bad as safety stock is, the flipside could be potentially worse. Out of stocks (OOS) or empty peg hooks in today’s uber-competitive, omni –channel-fueled marketplace can lead to lost market share and brand erosion. So where is the source of the variability culprit? It can come from a number of sources. It can come from an inaccurate forecast from the inventory planning department where the ripples or the effects get greater as it moves downstream in the supply chain. It can come from not having visibility into vendor shipping performance leading to inconsistent lead times. Or it may just be the vendor is not filling the retailer’s orders as promised. Whatever the cause for variability, part of the cure once again is visibility. And whatever the causes of variability, one of the casualties will no doubt be velocity.
The paradox of today’s retail supply chains is that they are getting faster and longer at the same time. While seeking low cost manufacturing options in Asia, retailers work tirelessly to shorten the time it takes from product concept to store shelf. The value from such an exercise is immense. Less capital requirements to fund the operations, faster order-to-cash cycles and reduced manufacturing costs all lead to improved retail profits. Throw in the extra margin retailers receive from a private brand offering and it’s easy to see why velocity as it pertains to inventory will be a strategy for many years to come, no longer how the supply chain becomes. Retailers who source their product domestically, versus overseas, benefit from a higher-velocity supply chain. The message is clear from many of today’s private equity companies that have significant ownership stakes in many retailers – increase velocity!
From my perspective, visibility, variability and velocity are now more important than ever as it pertains to the retail supply chain. While we broke them out individually for the purposes of this post, in truth they are very interconnected. Visibility is an enabler for velocity. Where there is extreme variability, it’s difficult to attain velocity. To reduce variability, the supply chain professional needs a big helping of visibility to be able to “see around corners”. And when a company increases its supply chain visibility and velocity while reducing variability, a more consistent, predictable and ultimately profitable supply chain is just around the corner.
For more information about the 3Vs of the supply chain send us an email at email@example.com.
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