Supply Chain Management

As consumers and supply chain professionals, we are fast approaching the upcoming 2010 holiday buying season which formally kicks off with the post Thanksgiving holiday Black Friday weekend event in the U.S. and other regions, where consumers search for the best bargains. Over the coming weeks, retailers in all product dimensions will be able to experience the results of their investments, or lack thereof, in MCC or MCO. Supply chain planning and operations will also experience even more challenges brought about by the implications of an uncertain economic environment, along with an even more experienced consumer than in 2009.

Three significant trends are playing out in various buying segments.  The Wall Street Journal featured a recent page one article, The Just In time Consumer (paid subscription may be required), which concludes that the recent severe recession in the U.S., and other countries, has brought forward a far more frugal shopper, where he or she practices a just-in-time approach to buying decisions.  The article notes that manufacturers and retailers continue to report that consumers are making more frequent shopping visits and are buying in less quantity. Consumers are far more value-oriented, and are embracing the very same lean and just-in-time principles that many operational teams have implemented across supply chains.  There is a similar pattern in emerging consumer markets such as India and China.  Grocers are accommodating smaller, more frequent trips while apparel and fashion have had to modify production and selling cycles to accommodate consumers who postpone buying to in-season vs. traditional pre-season cycles.  The implication noted is that the upcoming holiday buying season may well be reflected in a 'U' shaped demand cycle, where consumers will respond to initial incentives or wait until last-minute deals and incentives occur just before an actual holiday or buying need.

The second trend is the empowered consumer, who continues to gain an information advantage and becomes more sophisticated with every passing day. The device most attributable to driving this trend is the explosion of smartphone purchases among all types of consumers. Similar to last year, consumers have the ability to perform all forms of online research, price-comparisons, and order goods and services without having to enter a brick and mortar store.  More importantly, the smartphone enabled consumer can do this research while in the store, or in a competitor's store, with the ability to ascertain who has the most attractive price and item availability.  In a recent research report, IDC Retail Insights notes that the new informed consumer wants a more engaging buying experience vs. being just sold.

The third significant trend is the changed state of demand forecasting and inventory management across global supply chains. In 2009, retailers practiced smart, lean inventory management strategies which paid rewards in increased profitability.  Since that time, manufacturers and wholesalers in many sectors continue to shed inventory and operate in the leanest just-in-time environment across geographically extended supply chains.  Products with strong demand such as smartphones or other high demand consumer electronics have experienced critical component shortages that have impacted demand fulfillment.  With every participant in the fulfillment cycle, from the end consumer to the lowest tier supplier, practicing just-in-time buying, inventory management becomes a far more intricate exercise, requiring far higher levels of coordination and synchronization.  As also noted, two years of severe economic recession and a just-in-time oriented consumer shatters previous demand forecasting assumptions based on historic buying patterns, and it is no wonder that many firms have shifted emphasis to more frequent sales and operations planning (S&OP) processes augmented by keener demand sensing and response processes.  Demand sensing, augmented by supply chain wide agility and flexibility is a far more important capability in the post-recessionary era.

There should be no doubt that multi-channel commerce and multi-channel supply chain fulfillment operations will again play a major role for retailers in the current holiday buying season.  Of more significance in the coming weeks will be how retailers and manufacturers jointly perform in engaging more informed consumers, practice smart  inventory positioning, and demand response.

Stay tuned since the post-holiday results may prove to be rather interesting.