Omni-channel Commerce: why it is not such good news for supply chains and what you need to win.
Supply chains have survived the last 20 years with an incremental operational efficiency mindset. You were OK so long as you could do it just a bit faster and cheaper this year. The rules of the game have now fundamentally changed with omni-channel and products that go viral overnight thanks to social media. Combine this with ever-increasing customer expectations of product availability and fulfillment speed and improving your game approach will no longer cut it, you need to fundamentally change your game.
What's happening in the marketplace and its impact on supply chains:
Omni-channel fulfillment and the pressures it brings is here to stay. Meeting unreasonable customer expectations is no longer optional. As organizations strive to become customer-centric now that the juice is not worth the squeeze on operational efficiencies any more, ideal fulfillment and repeat sales take priority like never before. Inventory needs to move ever closer and closer to end customer demand as service levels demanded keep going up. Think about what a 1 hour response means for Amazon to service its customers in New York. As Amazon is now learning, if the product is not at the door step in near real-time after that click on the 'Buy' button, it's almost too late. This is no ordinary ask: it requires a complete overhaul of business model and supply chains that support it.
For most organizations looking to go omni-channel, the current complexity level has moved beyond what humans can manage on their own as response times allowed continue to shrink. Pallet and case-picking is no longer enough, organizations have to reconfigure their processes to support piece-picking. As businesses move inventory ever closer to the end demand point in an effort to improve service levels and satisfy an increasingly impatient customer, current processes and solutions come nowhere near to supporting the emerging business models like omni-channel. Omni-channel is forcing Distribution Center consolidation as common inventory and last mile automation is key to delivering smooth customer experiences. This is tough enough to manage with standard products, is back-breaking when combined with the additional challenge of personalization in an attempt to bond with the customer. You just have to look at the personalization options available with Apple Watch to understand why this is a big deal. As organizations focus on rapid innovation to capture market share in this 'customer is truly king' reality, challenges with effectively managing new product introductions from getting demand-supply balance right perspective is an example of the unprecedented levels of complexity. Customer now truly owns your supply chain - they want it personalized exactly as they want it, when they want it, and where they want it and the fulfillment better be flawless and fast. It would be fine if finance relented on the profitability goals as organizations chase this higher service level centric business model, but driving or even improving profitability is often accompanied with the demands of enabling this intelligent and responsive omni-channel experience for the consumer.
The challenges in delivering this real-time supply chain are immense. Most organizations today struggle with the inherent silo nature of supply chain operations and supporting solutions. The resulting disconnects are consistent themes across industries: disconnect between planning and execution systems, between processes and technology to support the processes, and between supply chain partners that need to stay in flawless lock-step to execute. It's no longer acceptable to have a significant disconnect between S&OP high level plans vs. detailed product/location level demand plans. Adding more inventory is not an acceptable strategy either as organizations pursue this instant gratification for the customer: increased order fill rates in this tight time window can not come from higher safety stocks. Inventory proximity to final demand point is fast emerging as the key lever in reconfiguring supply chains. This mandates the move from S&OP to SI&OP processes and to reduce disconnects between planning and execution. Given the increasing volatility, the challenge for most organizations remains how to get a better demand signal and how to automate integration of this demand signal into their S&OP process so investments are aligned with opportunities. Rear-view facing demand management processes will not cut it in this new environment where product demand explodes exponentially overnight with just one celebrity endorsement that goes viral. From a people perspective, supply chain experts are aging in most organizations and with the levels of complexity thrown at them, unable to make optimal decisions in the planning response time available.
Network visibility remains a challenge with most supply chain operations and systems designed to support a throw-over-the-wall silo mindset world of last two decades where e-commerce and retail channels could stay at arm's length.
What's needed to deal with this challenge:
Newer technology solutions that predict more than they report are needed to deal with this unprecedented level of complexity. Silo solutions don't cut it any more as you need full aerial views of the battlefield with solutions that blend visibility, predictive, and collaboration elements seamlessly to orchestrate response in the moment or ideally before the problem manifests itself.
This move to SI&OP process also dictates a newer technology solution which was built with the enterprise in mind, not individual silos of sales, operations, and now inventory. Things are coming a full circle from the initial integrated but weak planning capabilities that led to the best of breed argument in the sense that now best of breed integration gets in the way of agility needed to plan and execute at an enterprise level. Planning has to emerge to the next level by technology that enables automation as well as predictive capability that looks at everything through the prism of profitability. With current and projected speed requirements and complexity levels, throwing bodies at this problem is a losing strategy, we need systems that can truly deliver optimal enterprise level plans fast and simplify planner lives by automating and reducing as much of the clutter as possible. This is the move to simple as an end point, which is anything but simple from the journey perspective unless organizations are willing to look at the problem with fresh pair of eyes and implementing radically different solution paradigms, which don't burden the planner with static plans and unmanageable high number of alerts, but predict and sort through much of the noise to let the planner focus on the remaining few key problems.
Also big data is impacting supply chains in unique ways. Now that the organizations are able to capture and retain ever larger volumes and types of customer data, ranging from customer sentiment to support chats, the key challenge becomes how to make sense of all this data in ways that generates accurate insights without excessive baby sitting involved. Predictive is fine as a concept, but it remains a healthy mix of art and science, and organizations underestimate the effort needed to continually fine-tune the models as underlying assumptions and trends change. Everyone wants more meaningful data and ease of use in using that data to make timely decisions. Profitable growth will only come to organizations that can manage to drink from the fire hose in terms of exploding big data volumes and data types that need to be distilled down into actionable and timely insights. We need solutions that automate 99% of the traffic for planners, while enabling intelligent analysis and action recommendations along with exception notifications for the planners to optimize response to the remaining but key 1% traffic. To be fair, predictive technology can really help with use cases like new product introduction or promotions, where current past performance centric ways to forecast impact manually leave much to be desired. We see the real-time information stream and predictive science coming together in a demand sensing paradigm that just was not technically feasible till a few years ago.
Demand sensing to get closer to the real demand signal and integrating customer demand in your S&OP process is key going forward. So is managing NPI and promotions, which has always been a hard nut to crack, but now there is renewed hope with the predictive capabilities available in modern Integrated Business Planning IBP platforms. Today the global marketplace needs to be seen as one volatile integrated whole and response to demand changes have to be engineered in a similar holistic fashion to profitably enable omni-channel commerce. Not only do you need network-wide visibility in real-time, you need to take your response paradigm to the next level. This means network wide optimization at warp speed and combining predictive machine learning abilities to detect optimal response patterns with automation of execution to enable speed.
Segment your supply chains and seek network wide visibility. You must also have global real-time visibility to inventory and constraints as you close the gap between planning and execution. Organizations will need to use item level demand to drive it all from production scheduling to store deliveries. Deploy demand sensing capabilities to stay on top of the fickle demand curve and augment this demand sensing capability with robust response capability that can orchestrate a profitable reaction across the extended supply chain. Organizations need to embrace automation and intelligent technology that can predict events before they occur with machine learning capabilities that can present options to deal with issues without the planner having to deep dive in the data. Combine this with context aware and social collaboration across internal and external boundaries, and you will have the tools to deal with the reducing experience planner population and the need to make smart decisions fast all the time.
At GitaCloud, we believe profitable business model innovation is what it will take to survive this ever increasing complexity and need for customer centricity with incredible agility, as the days of relying on operational efficiencies alone are now over.
We can help with:
- Improving planner productivity by proactive exception management and automating routine tasks
- Converting your S&OP process to SI&OP by integrating inventory replenishment planning with their regular sales and operations planning processes.
- Redefining your consensus demand management process to break the silos of sales & marketing vs. operations in producing an accurate consensus forecast.
We still see low adoption rates of incorporating social chatter and consumer sentiment into generating short term demand sensing models and believe this to be a huge opportunity for low hanging fruit as organizations strive to get closer to end consumers.
With in-memory platforms, and the ability to seamlessly blend an automated predictive solution with a smart exception identifier/manager solution is where GitaCloud is focused to bring innovative and real-world solutions to the marketplace. Any solutions that rely too heavily on either side of this coin will simply not scale to meet the challenges imposed on them. We help incorporate big data into your forecasting and planning processes.