Thursday Mar 07, 2013

Its all melding together

Let us start our discussion of the 5-layer model with looking at the changes in consumer behavior - the apex layer that has knock on effects on all the rest.

In other words, let us examine our own behavior when we buy things these days. How often do we rely on just the product label for product information? We rely quite a bit on multiple sources of online information in addition to traditional media such as TV and print. Our awareness of products and brands is built not only on personal research & experience but that of others.

The smartphone, especially one of the consumer oriented ones since iPhone's launch, is now a trusty tool for the shopper - a link to all the information she needs. BTW, it has just been 5 years since the iPhone was launched - hard to imagine, isn't it?

I list the most notable trends that have implications for value chains.

Driver Change / Trend
Mobile Computers
Smartphones and tablets marry the computational capacity and connectivity of PCs with the ubiquity of a phone.
Imagine for a while your day without your phone - it is difficult to just think about that. Let alone readjusting to life without it. As an 'always online' and 'always with me' implement, it is a valuable medium to reach customers / consumers.
Online Commerce Online sales are growing (see more details below) and is no longer a geeky curiosity. In fact, mobile phones and tablets have only increased the ease with which consumers can shop online. The endless aisle. The long-tail. The cheaper storefront option when compared to a brick and mortar store. E-commerce is all that and also table stakes for those selling to the the Gen-Y and the Millennials. It offers the ability to reach remote markets and run very targeted promotions.
Price Comparison
Price comparison bots and mobile phone apps that allow shoppers to pick the best deal have made price competition fiercer.

The stiff price competition has implications for both operations and marketing. Supply chains need to improve operational efficiency and drive out costs. Marketing needs to 'differentiate' the offering thus making comparisons difficult.

Opinions from friends & family ...
Social technology e.g facebook, twitter is making it easier to get views and opinions of people who have always mattered.
At the very least, companies need to know what is being said about them or their offerings. Eventually they need to master it to the same extent as traditional media.
... even complete strangers
Every one of us has looked at a product review on even though it was to research a product buy somewhere else.
As with social media this represents a huge source of market intelligence that cannot be ignored.

Macy's financial results announced last week have been the subject of many omni-channel related articles, not least because of Macy's clear enunciation of their strategy but also because it is clearly showing results.

Online sales are a big and increasing contributor to their growth. What is interesting from a value chain perspective, is that Macy's has been using the stores to fulfill online orders and plans to do more of that in the future. Considering that brick and mortar retailers carry vast amounts of inventory in their stores, this trend is likely to grow as the tools and processes to handle fulfillment from stores develop further.

Staying on the subject of online sales a bit longer, let us do a back of the envelop estimate of Macy's online sales. If 60% (extrapolating comp-sales for all stores) of their $1.28B of top-line growth came online sales and online sales grew 41% in the year then their online sales in fiscal 2012 are ~ $2.6B. Roughly 10% of sales but 60% of revenue growth. In this light, the emphasis on an omni-channel strategy is obvious.

Macy's is not unique though. According to the US Census Bureau, which has a special section tracking the electronic economy, eCommerce has been growing monotonously for the last decade (see the seasonally adjusted sales in dotted blue in their chart below). Even the financial crisis that triggered the great recession was merely a brief dwell.

As the mid and small end of the retail industry moves online, the share of online sales will grow. Predicting where it will stabilize at is an interesting but mostly academic exercise. For businesses right now, the more immediate area of inquiry should be to re-imagine their operations with an omni-channel consumer in mind.

Why you ask? The clue is something that you find posted on many stores in India. It is Mahatma Gandhi's quote from when he was a civil rights activist in South Africa of 1860 - “A customer is the most important visitor on our premises. He is not dependent on us. We are dependent on him. He is not an interruption of our work. He is the purpose of it. He is not an outsider of our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us the opportunity to do so”. The answer to our question is that consumers are 'favoring' omni-channel retailers - and falling out 'favor' of the consumer is not a viable business strategy.

To be sure the omni-channel challenge is not just to provide a unified merchandising and fulfillment experience. It is not just the ready access to online and mobile channels. It is also the monitoring of vast sources of market information on online fora as well as the influence of friends and family. All that information needs to get internalized in the business processes of the organization - to inform and improve the merchandizing and fulfillment processes.

To close, one should look at what Macy's CFO said recently, "Candidly, it’s getting so hard to know what’s a store sale and what’s a mobile sale and what’s internet. It’s getting harder to figure out the lines between them". As consumer behavior and enterprise response evolve more into the omni-channel mode, this will get even more complicated. Even so, for the sake of operational efficiency retailers will need to distinguish between the channels used by consumers. .... hmmm, that is a good subject for a future post. 

Monday Feb 18, 2013

Peeling the layers

The intent of this blog is to discuss trends and economic or business data related to the value chain (planning & execution). The aim is to connect the dots between the latest buzz (& hype) and the fundamentals behind it. Am hoping to reach supply chain professionals who are not able to find the time or the energy to do this themselves.

I will attempt to translate the language that economists and the business trade uses into plain English. 

The reader is aware that the subject area is quite broad - spanning the areas of consumer behavior, physical supply chain, management approaches, analysis methods and tools at the very least. For a clear discussion therefore, we need to have a simple framework to describe the aspect of the value chain that is in focus. I will use the following graphic for that purpose.

5 Layer model

The preeminence of the customer / consumer at the top of the value chain has never been in doubt. A lot of the discussion of the globalization of the value chain has been on the physical supply chain. However, the intermediate layers that connect the customer with the physical supply chain is where we will have to spend time as well. Though we will examine the details in future posts, the layers in brief are the following

Layer Description Trends in play
Customer Channels The market facing of companies. This has been the plane with the most radical tech-driven change. Think mobile and online commerce.
The most far reaching is the burgeoning of constant and ubiquitous communications tech -- think mobile. Omni-channel is the war cry in retail. Offerings and products are being re-imagined and adapted to meet this reality. Demand sensing needs to accommodate social interactions.
Business Process
The processes that a company devises to meet it market and manage its value chain have to look at market needs as well its physical, organizational and systemic constraints. Rapid and iterative innovation has been driven not just by large incumbents, but also be agile start-ups that have been quicker to spot and exploit trends. Businesses are emphasizing process more than systems.
Applications and Data
Though a large part of the data that an organization uses to run its business is created by its own internal applications, an ever increasing share of it from partners and other external sources 

The diverse sources, formats and ownership of the data & applications being used is coming of the way of responsiveness and agility. Businesses are keen on 'visibility' 

Logical Value Chain
Tax, tariff and trade regulations create incentives and artificial constraints that shape the logical supply chain design. The root cause is mostly external and sometimes organizational structure. In either case, process automation is central to the solutions being put in place.
Physical Value Chain
This is where the rubber hits the road and where the supply of goods and services is created. Often dubbed the real-economy, this is certainly one area that we will discuss quite a bit. The supply chains are adapting to cost and risk management. Energy and demography are in the center of a struggle to improve competitiveness (aka productivity). As value chains go they are getting longer (# of tiers) and broader (variety of activities that are outsourced) adding to complexity

Lastly, and not just for the sake of legality, I have to remind you that the views expressed on this blog are entirely my own and do not necessarily reflect the views of Oracle.

Look forward to the open discourse that this online medium uniquely offers.


We discuss the trends in economic / business data related to value chain (planning & execution). The aim is to connect the dots between the buzz (& hype) and the fundamentals behind it.

The views expressed on this blog are my own and do not necessarily reflect the views of Oracle


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