Retail Margin Risk: 5 Critical Supply Chain Steps To Ensure Merchandise Plan Execution

Systematically Identifying and Eliminating Supply Chain Performance Related Issues Can Help Retailers Mitigate Events that Put Margin at Risk

As retailers strive to meet customers’ needs through an omni-channel environment, the complexity of brick and mortar retail is forever growing. Campaign intricacy is accelerating and with the immense amount of POP, kits, products, and creative going out to stores, few retailers feel confident in their stores’ ability to execute localized campaigns quickly or effectively. In addition, communication from headquarters down to store level is indirect and not easily traceable. This inefficiency not only wastes time and leads to confusion, but also impacts profit margins via substantial unnecessary printing and shipping costs, and lost sales due to untimely and inaccurate product mix and messaging.

In an article posted by Integrated Solutions For Retailers, Richard Wilhjelm, explains retailers’ margins are in jeopardy due to unforeseen but predictable supply chain risk factors. Posted below, are 5 critical supply chain steps to ensure retailers are executing their merchandise plans accurately and efficiently.


By Richard Wilhjelm, VP, Sales & Business Development,Compliance Networks (reprinted with permission)

Every year, retailers spend hundreds of millions of dollars to create the perfect merchandising plan. Industry demographics are measured and focus groups created in an attempt to define the desired customer. Once the perfect customer and corresponding products are identified, sophisticated forecasting, planning and allocation systems are utilized to construct complex merchandise plans to achieve specific margin objectives.

Unfortunately the results, particularly during promotional or seasonal events, are often missed margin opportunities combined with damage to the retailer’s valuable brand because of out-of-stocks (OOS) at the shelf. While in-store execution issues often lead to OOS, the culprit is just as often chain performance. In truth, the retailer’s margin was in jeopardy from the beginning due to unforeseen but predictable supply chain risk factors.

The penalty for retailers is high, but is also segment dependent, because consumers react differently to an OOS depending on the product category. But in total, North American retailers lost some $89 billion in sales in 2011, according to research released last year by IHL Group, which specializes in the topic.

Margin Risk
Margin risk, from a retail perspective, is defined as the potential permanent loss of margin due to internal and external related performance related events. Performance events can be internal, changed or late purchase orders or external, late or incomplete shipments and poor ASN accuracy. In either the case, the margin opportunity may be lost for that fiscal period or may not return at all until next year.

Margin Has a Shelf Life
Retailers are coming to the realization that like their products, margin has a shelf life. In the past, the consumer was patient mainly due in part to the fact their options were limited. If an advertised product was not in stock, often the consumer would take their rain check and return in 2 or 3 weeks when the product was back in stock. The need for expensive safety stock was not required and the margin opportunity was preserved, the best of both worlds for the retailer. But today’s consumer has more options. Whether it is increased competition from traditional brick and mortar companies with an Omni-channel offering or pure e-commerce plays like Amazon, or even mobile commerce, the consumer no longer has to be patient. He or she has options and more increasingly are demonstrating the capacity to exercise them.

Opportunity for Supply Chain
A common question we often hear is how supply chain can be viewed as less of a cost center and more of a margin contributor. Within most retailers there exists a tension between the merchant and supply chain teams. Merchants are perceived to be higher in the enterprise hierarchy because they are the generators of gross margin while supply chain executives are often portrayed as “cost of doing business.” But with the new dynamic in the industry and an emphasis on speed and execution, supply chain executives play an ever increasing role in merchandise plan execution and overall retailer profitability. By maintaining proper fill rates, ensuring on-time deliveries, demanding ASN accuracy and minimizing trouble shipments, the retail supply chain executive can influence the overall performance of the supply chain and mitigating both internal and external factors that put margin at risk.

Five Critical Steps Supply Chain Steps to Ensure Merchandise Plan Execution
Where does the supply chain executive start in their quest to influence margin performance? While opinions will vary where the best place to start is, most will agree the desired outcome is a more predictable and consistent supply chain. In the presence of variability, there will be safety stock to mitigate margin risk. By eliminating the variability and providing merchant teams with actual performance related information, retailers can drive down their overall safety stock and improve profitability.

The following are five steps supply chain executives can take to ensure merchandise plan execution:

Step One – Focus on On-time Deliveries and Fill Rate (increase sales) – The velocity and cadence of promotional events in the retail industry is greater than ever before. Ensuring orders are complete and on-time is critical to most merchants and fundamental in reducing margin risk.

Step Two – Monitor & Reduce the Purchase Order Lifecycle (reduce supply chain days) – Continuously monitor the purchase order lifecycle for opportunities. A shorter purchase order lifecycle is more responsive to demand signals, less prone to out-of-stocks and requires less working capital to fund.

Step Three – Monitor ASN Accuracy Religiously – Poor ASN accuracy can doom inventory integrity leading to poor merchandise plan execution. While it’s important to audit vendors for accuracy, it is also important to focus valuable audit resources on the lower performing vendors versus the higher performing vendors.

Step Four – Monitor Transportation Performance – Ensure vendors are adhering to the routing guide for transportation requirements. The selection of a wrong carrier can result in additional supply chain days while multiple shipments during the same week can accelerate transportation expenses.

Step Five – Over Communicate With Your Vendor Trading Partners – Provide vendors 24/7 access to key performance data. Immediately alert vendors to past supply chain failures, or if possible, alert them to upcoming execution opportunities. Over communicating performance data to key trading partners will result in visibility for all parties involved.

The value of merchandise plan execution is critical to any retailer’s margin objectives. By systematically identifying and eliminating supply chain performance related issues, retailers can mitigate those events that put margin at risk. In a recovering economy where working capital still remains constrained, the supply chain professional who can run a predictable and consistent supply chain, influence margin performance, and increase operating cash flow will be invaluable.

About The Author

Richard Wilhjelm currently serves as VP, Sales & Business Development for Compliance Networks, a supply chain performance improvement solution provider. He is responsible for strengthening executive-level relationships with customers and key prospects.  Richard has over 25 years of sales and marketing experience in the supply chain software industry.



Packaging Optimization Is Key to Big Supply Chain Benefits

If you thought that minor changes in your supply chain practices couldn’t yield big results, think again. A recent Chain Store Age article highlights the benefits of packaging optimization in an effort to get the most value out of your supply chain.


From the article:

In today’s data-driven world, there are now ways to analytically assess and optimize the size and shape of boxes that are shipped around the world. Understanding the optimal size and shape required has multiple positive impacts. First, it reduces the amount of corrugate required. Second, it reduces excess space (“air”) in the box which results in less damage. Third, it improves the density of the goods being transported (e.g., more packages in a truck) which results in few trucks and therefore lower freight costs. And lastly, less corrugate, less filler, and fewer trucks equals sustainability benefits.

However, packaging engineering is not typically part of most supply chain organizations’ strategy and physical distribution is not taken into consideration when designing consumer packaging. Traditionally, the focus is on consumer appeal, as expected, but retail supply chain specialists should be taking a closer look at packaging design as another way to optimize the supply chain.

Other examples and success stories are plentiful, but it is our experience that only a minority of companies have dedicated the time to explore the potential. Thinking outside the box as it relates to your packaging design is only going to grow in importance as retailers continue to realize the cost savings, supply chain efficiencies and sustainability benefits of employing a smart packaging optimization strategy. As U.S. chains increasingly focus on international markets for growth, looking for ways to streamline their in-country supply chain will be another tool to compete with local competitors and capture some of the online retail sales that are expected to exceed $1.2 trillion* globally this year.


Collaboration and partnerships with suppliers can lead to better supply chain transparency

When it comes to issues in your supply chain, collaborating with suppliers and stakeholders can provide greater transparency into all moving parts. According to Supply Chain Brain this can help prevent disasters and lost revenue.


From the article:

As a result, retailers are increasingly looking to establish partnerships with their suppliers that promote sustainability and ethical working practices.

At present, large retailers can easily exceed 100,000-plus suppliers, and therefore a scalable approach is required.

As Jo Webb, the head of stakeholder relations for Sedex and member of the UN Global Compact Supply Chain Sustainability Advisory Group, explained: “Risks increase further down the supply chain – whilst at the same time the capacity to address those risks decreases – it is the iceberg of non-compliance lurking beneath the surface. Focusing on first-tier suppliers only is not enough. Collaboration is key. Some of the chronic supply chain issues we are seeing are endemic and no one company can solve them on their own. Duplication is still prevalent.”

Major retailers are now taking action, identifying the challenges with their suppliers so that they can tackle them together, and offering greater equality to workers by encouraging open conversations at all levels.


Five Questions CEOs Should Ask about their Supply Chain

For CEO’s, most your time may not be spent focused on your company’s supply chain, but they should, at least some of the time. According to Industry Week, supply chains ensure products are delivered on time and in good shape, factors that contribute directly to a company’s bottom line.


From the article:

Supply chains can be defined as the movement of three critical resources: materials, information and money. A failure in the movement of any of these can lead to a failure of the entire chain, whether there is only one supplier or hundreds. If a payment is late, a part held up, or there’s no data or misleading data available to track a component, the supply chain will fail.

And, to build on this, if you think quality in a supply chain is just having the right materials in the right place at the right time, you’re not thinking broadly enough. Supply chain management must also focus on the quality of the materials, the accuracy and content value in the information shared between supplier and customer, and the accuracy and timeliness in the financial transactions.

Walmart supply chain, retail localization

Wal-Mart issues ‘zero tolerance’ policy for global suppliers

Wal-Mart Stores is tightening the reins on its global suppliers. Effective March 1, the retailer is implementing a “zero tolerance” policy for any supplier who subcontracts work to factories without the company’s knowledge, the Associated Press reported. Previously, Wal-Mart gave suppliers three chances to correct mistakes.

Walmart supply chain, retail localization

As part of the new rules, Wal-Mart will require all factories in Bangladesh to undergo an electrical and building safety assessment from an independent agency.

“While an overall global approach is necessary, there is a need for heightened attention to the risks specifically related to building structure in Bangladesh,” Wal-Mart said in a 10-page letter to suppliers Tuesday.

In addition, beginning June 1, suppliers must have an employee stationed in countries where they subcontract to ensure compliance. In the past, suppliers relied on third-party agents to monitor activity.

[via Chain Store Age]

Macy's In-Store marketing, mobile

Macy’s Taps Mobile as Silent Salesperson

Macy’s has long innovated in the digital arena and continues to do so with its mobile offerings. Martine Reardon, chief marketing officer for the department store chain, says Macy’s mobile apps and content are designed for communication, customer service and marketing. By using QR codes to lead consumers to rich content such as Bobbi Brown makeup tutorial videos, the mobile channel becomes a “silent salesperson.” Reardon continued, “It’s not a direct sell, but it adds to sales. It connects the best of the web to the in-store experience, and there’s conversion in both channels.”

Macy's In-Store marketing, mobile

Gearing up for the critical holiday shopping season, Macy’s re-designed its app, and 44% of existing users downloaded the new version prior to Black Friday, reports Reardon. The redesign resulted in 19% overall growth in its app user base. With the application, Macy’s leveraged push notifications to inform in-store shoppers about unadvertised Black Friday specials.

The retailer also created a dedicated application, used by 10% of its mobile customers, to help shoppers navigate its Herald Square flagship — the largest department store in the world —with turn-by-turn directions, information on special events, and a reservation system for the store’s restaurants and Santaland attraction. It also worked with partnerseBay and GSI Commerce to create detailed specifications of more than 300 products most of interest to holiday shoppers.

In its 39,000-square-foot Herald Square shoe salon, store associates use iPod touch devices to look up inventory information, accept cashless payments, and help to locate out-of-stock items.

Macy’s accepts Google Wallet in five markets and is piloting ISIS, the wireless carrier-driven mobile wallet solution, in Salt Lake City, Utah and Austin, Texas. Reardon says the retailer is working to integrate Apple’s Passbook into its operations.

[via RIS News]

Retail Localization, storage, supply chain

Developing Superior Supply Chain Talent

The supply chain job market is changing and the academic and business communities need to ensure that their training programs are keeping pace, says Closs. Traditionally, educational and on-the-job training programs have focused on delivering very deep functional knowledge, he says, “but the market is telling us we have to train and develop people with a much broader perspective and understanding.”

Retail Localization, storage, supply chain

This trend is being driven by both employers and by supply-chain students and graduates. “Top students are looking for companies that emphasize a broadly defined and integrated supply chain with opportunities to work and learn across areas,” Closs says. “At the same time companies are looking for students who have the desire to learn the supply chain in depth and also the capability to work cross-functionally.”

This trend is evident internally at Michigan State as well, Closs says. “I am increasingly interacting across the university with different colleges, such as engineering, criminal justice and agriculture. These colleges are coming to us and saying, ‘we need supply chain talent.’ What they really are saying is, ‘we need people that understand cross-functional trade-offs.’”

In response, Michigan State’s supply chain school is actively working with the other schools to develop people who know how to work in teams with people outside their core areas. “We bring them together to solve unstructured problems, the type of problems they are likely to see in industry, with the same type of team environment,” Closs says. “Universities typically are very good at in-depth and not so good at cross-functional, so what we are doing at MSU is working together in a proactive way to force interchanges between students and faculty. This ranges all the way from how faculty does research to how we put together classes and how we evaluate overall performance.”

[via Supply Chain Brain]

Amazon using Staples shipping lockers

Staples to allow Amazon to install shipping lockers in its stores

Office supply retailer Staples announced Monday that it is going to allow Amazon to install its shipping lockers in its U.S. stores. The lockers, which have been previously installed in select 7-11 locations, allow customers to place orders online and pick them up in the store.

Amazon using Staples shipping lockers

According to a Reuters report, retailers that partner with Amazon on the lockers receive “a small fee” of an undisclosed amount in exchange for the placement of the lockers.

[via Retail Customer Experience]
FedEx, Green Monday, Supply Chain, Shopper Marketing

FedEx Projects Record ‘Green Monday’ Shipments

FedEx expects to have its busiest day in history on Monday, Dec. 10, when it moves a projected 19 million shipments through its global ground, express and freight networks. The 10-percent, year-over-year increase will once again be driven by e-commerce feeding the FedEx Ground and FedEx SmartPost networks.

FedEx, Green Monday, Supply Chain, Shopper Marketing

So-called “Green Monday” falls on the second Monday of December and is one of the most lucrative days of the year for retail companies. In 2011, U.S. consumers spent $1.1bn on that day alone, according to comScore. Green Monday also traditionally kicks off the heaviest online shopping week of the year.

For the overall holiday season between Thanksgiving and Christmas, FedEx forecasts more than 280 million shipments to move through its worldwide shipping networks. This would be a year-over-year volume increase of more than 13 percent compared to 2011 when 247 million shipments were processed.

[via Supply Chain Brain]

iPad mini, allthingsd, retail localization

iPad mini availability could be limited by supply chain issues

As has been the case with most of Apple’s recent product introductions, the company should have no problem selling as many of the new iPad minis as it can make, but there’s the rub.
iPad mini, allthingsd, retail localization

DisplaySearch analyst Richard Shim says supply chain issues with Apple’s display partners could limit the initial run of iPad minis causing a longer than usual wait time for delivery.

One of the issues is that at $329, the new iPad mini is the least expensive iPad yet and could well spark a bigger than expected demand.

“The new low price point is expected to appeal to a wider audience and drive up demand. However, panel supply chain indications point to an even more than typical tightness in the market for the iPad Mini,” Shim wrote in a blog post.

Shim also said Apple is working with established partner LG Display for the panels that Apple’s manufacturing partner Foxconn is using to make the iPad mini. However, a new partner, AUO is having yield issues with the iPad mini’s new 7.9-inch panel.

While Samsung was Apple’s initial sole supplier for the first iPad, Shim says Apple and Samsung appear to be “winding down their relationship most likely due to the legal conflicts the two have been embroiled in recently.”

[via Tab Times]