Tuesday, August 30, 2016

John Gattorna: ‘It’s all about customer segmentation’

08/30/2016 at 4:07 pm | Marieke
John Gattorna_webSuccessful companies such as Zara and Schneider Electric are organised from a customer segmentation perspective. Meanwhile, many firms are caught up in short-term thinking because of their single, failing supply chain. Those were the two key observations during the EMEA Supply Chain & Logistics Summit held in Barcelona in June 2016.
By Martijn Lofvers


“It’s all about customer segmentation,” was how John Gattorna, professor of supply chain management in Sydney as well as various other places, summed it up during the European supply chain conference in Barcelona. “End-to-end supply – the complete value chain from the customer’s perspective – is the only correct approach. The problem is that many companies are stuck with just a single supply chain, ‘one size fits all’. That was disastrous during the economic crisis when companies were forced to act. All the different projects just made things worse. You can liken it to a golf swing: the harder you slice the ball to the left, the more it shoots off to the right.”

Different approaches to customers

According to Gattorna, who has conducted lots of practical research into company supply chains, the only solution is to take an ‘outside-in’ view of the organisation and to subsequently reduce complexity. “It’s a matter of ‘reverse engineering’ the supply chain, from the customer’s perspective. That’s design thinking. You have to recognise customer patterns and you’ll then see that it’s all about customer segmentation. A single supply chain is not enough. Based on the theory of the Swiss psychiatrist and psychologist Carl Jung, companies experience four or five dominant forms of customer behaviour that account for 80 percent of their business. Myers-Briggs developed this into a classification of people’s personalities in order to form teams. However, most company structures originate from the time of the industrial revolution and are completely outdated.”
Gattorna cautioned that customers are very dynamic and their buying behaviour can change quickly. “That’s why Zara works with customer-specific multifunctional teams of around 30 people each. After a couple of years the team members go back into a vertical role such as production, logistics or sales. The functional silos that are commonplace within companies often beg the question: ‘How can we ever expect to communicate with the customer if we can’t even communicate internally?’. Schneider Electric, a manufacturer of electronics for energy management, has internally identified specific customer segments with widely differing customer behaviour.”
A company has to choose a clear approach for each different type of customer buying behaviour. “A preference for collaboration calls for customer relationship management. A lean process suits transactional buying behaviour, and in the case of dynamic buying behaviour then agility is required,” commented Gattorna. He was also very critical of many pointless key performance indicators (KPIs): “In the case of collaborative customers, the most important KPIs are customer retention and a larger share of wallet. Lean revolves around ‘on time in full’ and forecasting accuracy. And highly demanding customers want speed.”

Retail Executives Have No Clue About Digital

I remember attending a conference a couple of years ago, where, as the conference was concluding, the people around me were saying to each other, “I don’t know what the organizers are going to do next year. I mean, omni-channel is done – we’ve figured out what we need to do, and now we just need to figure out how to do it.”
At the time, I kind of agreed. It felt a lot like the tail end of the Internet Bubble, when, desperate to keep the frothiness going, people were moving on from basic internet and holding up mobile as the next big thing. Mobile WAS the next big thing – but it didn’t arrive in 2001. It took until 2007 to get here in any meaningful way.
In the same way, I hear fellow analysts and industry pundits say things like “omni-channel is dead” or try to invent some new term to mean something even bigger and better than omni-channel – in the same way that web people were holding mobile up as the next big thing in 2001.
And at the same time, I look around at the retail shopping experience and think, “Where are the flying cars?” This is scifi speak, by the way, for “We’ve been promised a vast and shining future, and it’s not here yet. Why not? What the heck is taking so long?”
How can both of these perspectives exist at the same time? One view is that omni-channel is over, it’s all figured out, the only thing left to do is get the cogs and gears running, and everything will be great. The other view is that what retailers present as a shopping experience in 2016 still looks an awful lot like the one you could get in 2007. Which, to be really honest, especially when talking about the store, looks an awful lot like the one you could get in 1985 (you know, when Doc Brown invented the time machine).
Well, my partner Brian and I have cracked open the data from our latest benchmark report (due later this month), and what we found answers the question. The disconnect is at the executive level, and it comes from having no clue what digital really means to the retail business.
We’ll go into detail in the report about this disconnect and how it manifests, especially in the largest retailers. But that statement – retail executives have no clue what digital really means to the retail business – actually is pretty obvious, once you think about it. When 90% of retail business comes from stores, when digital has only impacted the business over the last 10 years or so, when even the CMO is more likely to have come from traditional advertising than from digital (and marketing is the department within retail most impacted by digital today), it shouldn’t be too surprising that the executive team has no clue.
Generally, companies deal with these gaps, these blind spots, by bringing in people to educate them. By spending focused effort on understanding what digital means to retail in general, and what it means specifically for their own company. And we’ve had at least 10 years of a lot of people spending a lot of brainpower trying to understand and predict what digital means for retail. So it’s not like there isn’t a lot of material to start from.
So why is this understanding so hard? I think there are a couple of reasons. One, these people were raised in stores, or traditional merchandising or marketing. These are the things that are familiar to them. When faced with uncertainty, it’s easy to fall back on what you know. Two, generationally, these are people who are not digitally savvy. That’s an easy accusation to level, and one that is probably not true in the specifics – my grandmother was teaching herself web page development nearly up to the day she passed away.
But even then, using the tools is not the same as understanding how these digital tools change how customers see the world. It’s way too easy to lose touch with customers, the problems of their lives, and how your brand fits into those lives.
The bottom line is this: no substantive change is coming to a retail enterprise unless and until the executive team understands the nature of the digital transformation that is impacting their business. This isn’t about fixing the store, or even “creating a more seamless customer experience”, a phrase I often hear thrown about.
This is about understanding how consumers are changing their own shopping experiences. This is about understanding how technology – consumer-provided, retailer-provided – will continue to change shopping experiences. And, apparently, until retail executives develop a deeper sense of empathy along those lines, traditional retail will continue to fail to meet consumer expectations.
And those flying cars? They’re still nowhere to be seen.

U.S.-NAFTA freight value drops 6.4 percent, reports BTS

The Department of Transportation’s Bureau of Transportation Statistics (BTS) recently reported that that U.S. trade with its North America Free Trade Agreement (NAFTA) partners Canada and Mexico saw a 6.4 percent annual decrease to $92.7 billion in June. 


By  · 
The Department of Transportation’s Bureau of Transportation Statistics (BTS) recently reported that that U.S. trade with its North America Free Trade Agreement (NAFTA) partners Canada and Mexico saw a 6.4 percent annual decrease to $92.7 billion in June, coming on the heels of a 3.1 percent drop to $89.8 billion in May, and a 3.3 percent drop to $90.4 billion in April.
This marks the 18th straight month of declines for the total value of U.S.-NAFTA freight.
Air-transported commodities were up 5.0 percent, due in large part to a 35.6 percent increase in the value of imports of pearls, precious stones and metals, said BTS, with rail down 4.4 percent, truck down 5.8 percent, pipeline down 15.6 percent, and vessel down 19.7 percent, with crude oil price declines driving the decreases in the dollar value of products shipped by vessel and pipeline.
BTS said that trucks moved 65.4 percent of U.S.-NAFTA freight, representing $31.2 billion of the $49.2 billion in imports, or 63.5 percent, and $29.4 billion of the $43.5 billion in exports, or 67.5 percent. Rail was next at 15.2 percent of all U.S.-NAFTA freight, followed by vessel (6.0 percent), pipeline (4.5 percent), and air (4.0 percent).  Truck, rail, and pipeline accounted for 85.1 percent of total U.S.-NAFTA freight flows. 
From June 2015 to June 2016, the value of U.S.-Canada freight flows fell 7.2 percent to $48.2 billion as all modes of transportation except air carried a lower value of U.S.-Canada freight than a year earlier. And for the same period the value of U.S.-Mexico freight dropped 5.5 percent to $44.5 billion as all modes of transportation except air carried a lower value of U.S.-Mexico freight than a year earlier. 

Amazon plans another big distribution center in Chicago area


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 Photo by Bloomberg
PHOTO BY BLOOMBERG
For the third time in about three months, Amazon has announced plans to add a huge distribution center in the Chicago suburbs, this time in Monee.
Amazon said it plans a fulfillment center of more than 850,000 square feet in the south suburb, where hundreds of employees will sort, pack and ship small orders such as books and electronics.
The company's statement did not specify exactly how many workers will be in the Monee facility, other than to say it will be "hundreds and hundreds."
It is the latest in a series of deals by Amazon as it builds a network of distribution centers in the Chicago area to meet the growing demand for online shopping.
Amazon in late May said it planned a second large distribution facility in Joliet. The Seattle-based company, which opened its first Joliet building last October, said it will have 3,500 workers in Joliet once both warehouses are operating.
In June, Amazon said it planned to hire hundreds of workers at a new Romeoville warehouse.
“We place our fulfillment centers close to customers to provide the fastest possible delivery times, and the growth in Illinois is directly tied to our increasing customer demand,” Akash Chauhan, vice president of Amazon's North America operations, said in yesterday's announcement of the Monee warehouse.
The warehouse will be built for Amazon at 6521 W. Monee Manhattan Road just west of Interstate 57, Amazon spokeswoman DeAnn Baxter said in an email. She declined to provide an estimated completion date, but said “we expect it to move quickly.”
According to real estate date provider CoStar Group, Amazon will be a tenant in an 856,605-square-foot building that Atlanta-based Seefried Properties and San Antonio-based USAA Real Estate plan to develop on the site. Amazon plans to move into the building in October 2017 on a 15-year lease, according to CoStar.
David Riefe, Seefried's senior vice president of the Midwest Region, did not immediately respond to a request for comment.
"It's clear that Illinois is a growing center for businesses like Amazon that need a strong transportation hub and logistics," Intersect Illinois CEO Jim Schultz said in a statement. "We are excited to earn another investment by Amazon and will continue to work closely with them to expand their presence here."
Intersect Illinois works with the Illinois Department of Commerce and Economic Opportunity on economic development in the state.
It is unclear whether the state is providing financial incentives as part of the Monee deal. Intersect Illinois spokeswoman Kelly Nicholl did not immediately respond to requests for comment beyond its statement.
In addition to large distribution centers outside the city, Amazon also has leased smaller spaces on Goose Island and the South Side to make fast deliveries to homes in the city. Expectations that Amazon and competitors will continue gobbling up urban warehouse space are fueling asurge in industrial development within Chicago's city limits.

What this month’s Jet.com sale means for the future of retail

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One in ten retail sales in the United States –- a projected $373 billion in 2016 -– happens online. Forrester predicts total U.S. online retail will grow to $500 billion by 2020. That number will only continue to increase globally as more businesses take core operations to the web.
Retailers grasp the web-focused future of the industry, but the sale of Jet.com to Walmart earlier this month has sped up the shift and validated the online marketplace approach to e-commerce.
Moving Storefronts Online and Logistics Next Door is a Winning Model
With the sale of Jet.com, traditional retail significantly moves into the business of online storefronts with global reach and locally-sourced logistics. The move by Walmart follows years of trying to compete with Amazon’s e-commerce success fueled by a fundamental shift in consumer behavior toward on-demand quality.
More importantly, Walmart buying Jet.com and Macy’s decision to close 100 stores in order to boost online operations this month does confirm that the next generation of retail will be dominated by online sales and direct-to-consumer logistics companies.
Global retail sectors once defined by brick-and-mortar, face-to-face customer interactions – selling items from electronics to books to automobiles – now need to consider incorporating the online marketplace model originally created by Amazon to differentiate during the dot com boom.
Next generation retailers will move away from storing goods in numerous local retail stores and into regional distribution centers.
Consumers will browse those goods online and have them delivered directly to them, increasingly on demand, with easy return policies. This means less inventory, more selection and lower prices being delivered to an increasingly urbanizing America where retail space costs are rising and storefronts start to not make business sense.
This model helped Amazon capture close to 60% of the U.S. online sales market growth in 2015. Retailers who successfully subscribe to a version of it will be able to capture some of that online sales market share. Retailers who don’t entertain adopting the model risk fading away completely.
Amazon, the US e-commerce and cloud computing giant is said to hire 1,000 people in Poland. The company already hires almost 5,000 people in Poland and has service centers in Gdansk, Wroclaw and Poznan ON 14 April 2016. (Photo by Jaap Arriens/NurPhoto via Getty Images)
(Photo by Jaap Arriens/NurPhoto via Getty Images)

The Point of Sale is Now Anywhere with an Internet Connection
Amazon, Jet.com and other leading online-first retailers create and continue to improve purchase-to-delivery models to reduce backend friction. The resulting supply chain efficiency delivers consumer access to goods at consistently lower costs.
In order to succeed in this new environment, new, legacy and smaller companies alike will need to move beyond traditional sales to provide convenient, reliable and on-demand online service to customers looking for their next pair of shoes, suit, headphones – even their next car.
Consumers with access to the web can search, find and purchase products from anywhere. They can use the internet and their own connected mobile devices to read product information, survey options and complete purchases. And third party review sites like Yelp and testimonials on company websites and consumer message boards enable shoppers to hold retailers accountable better than ever before.
In the near future, retailers will need to incorporate consumer freedom into their sales models to meet the customer whenever, wherever to complete an online sale.
Retailers Must Invest in Both Technology and Convenience
jet.com
Driving down the costs associated with buying and selling allows these retailers to spend more on technologies that will connect suppliers with buyers and shorten the distance between point of sale and delivery.
A technology-powered focus on finding new products and securing logistics will allow online-focused companies to win over today’s device-wielding customers. Retailers should use the web to target consumers who care less about who delivers the goods, and more about their price, quality and convenience.
Facebook did not create social networking. Mark Zuckerberg and his team created technology to do it much better. That’s what legacy leader Amazon and relative newcomerJet.com have done for retail. They have built web-based models that cut costs for buyers and sellers. Models that other retailers can riff off of.
Online marketplaces that allow consumers who value quality and convenience above all to search for goods and services they need from the comfort of anywhere. Walmart took note of Jet.com’s prowess and scooped up a leading e-commerce platform that will help define how the company, and retailers in general, do business moving forward. Online, on-demand and on a consumer’s device screen.

Monday, August 29, 2016

What factor(s) does Slot3D consider for slotting SKUs versus the commonly used practice of ABC analysis?
ABC analysis was once considered an industry best practice.  Certainly, it was preferable to previous practices, which barely took SKU movement into consideration.  Velocity based ABC analysis is designed to slot the SKUs with higher velocity ahead of those with lower velocity. 
Many have found this method to be a relatively easy one to setup using spreadsheet programs in conjunction with ever-changing database information.  Although using spreadsheets is a manual exercise requiring readjustment of slotted SKUs due to seasonality, new product mix, or varying demand, the results may render favorable savings, particularly if readjusted on a regular basis.
The downside of ABC analysis is that it does not take into consideration various other critical factors that apply to each SKU relative to corresponding slots.  Velocity is just one of many factors critical to proper slot selection.  Business and operational rules are most often also considered in SKU placement.  They may include potential SKU grouping, various restrictions (crushing, Hazmat, etc.), pick/replenishment height, pick paths, and zones. 
So, too, the costs associated with SKU placement require careful consideration prior to slotting.  So often the “Picking” cost is the only issue considered in ABC analysis.  Yet “Replenishment” is just as strong a factor needing to be weighed in each slotting decision.  Additionally, any slots outside of the “golden zone” for picking, whether by hand, or machine, require additional factoring for the reality of the time required to pick and replenish.  Of course, the slot itself has an inherent value that is often overlooked in the slotting decision.
Slot3D considers ALL of these factors for each SKU and every slot.  The resulting re-slotting, or Greenfield warehouse rearrangement, assures all of these factors have been taken into consideration for every recommended SKU slotting placement.  Preferable over ABC analysis, Slot3D users realize the benefits of up to date analysis, without requiring human intervention.  Of course, users may still drop in new information for “what if” analysis, reslotting for new SKUs, easy drop and drag 3D rack/shelf addition for increased capacity, etc.
The key element that makes Slot3D unique is not necessarily the fact of having AutoCAD® embedded within, so the SKUs being slotted actually fit in the recommended slot.  It is more so that all of the above factors are considered for the placement of every SKU to deliver the best, most cost efficient, automated results. 

Why Electric Cars Will Be Here Sooner Than You Think

Adoption of electric vehicles will not be gradual, because the factors required to unlock demand for them are in place


Hy-Vee, a Midwestern grocery chain, installs charging stations at all its new locations. The number of commercial charging stations is growing quickly.ENLARGE
Hy-Vee, a Midwestern grocery chain, installs charging stations at all its new locations. The number of commercial charging stations is growing quickly. PHOTO:ACKERMAN + GRUBER FOR THE WALL STREET JOURNAL
In 2015, about one in every 150 cars sold in the U.S. had a plug and a battery. But mass adoption of electric vehicles is coming, and much sooner than most people realize.
In part, this is because electric cars are gadgets, and technological change in gadgets is rapid.
One big leap is in batteries. A typical electric vehicle today costs $30,000 and will go about 100 miles on a charge, if that. Within a year, you’ll be able to get double that range for just a little more money.

Tesla Motors Inc. is the standard-bearer, promising a Model 3 vehicle meant to appeal to the masses at $35,000 without incentives and more than 200 miles of range. By comparison, the average new car in the U.S. today sells for about $33,000.

But Tesla is hardly alone. Later this year, Chevrolet will roll out its $37,500 Bolt EV. It, too, boasts more than 200 miles of range, which appears to be the new goal for eliminating “range anxiety”—the fear that a vehicle will run out of juice—among potential electric-vehicle buyers.
And that is just the start. Pasquale Romano, chief executive of ChargePoint Inc., the world’s largest maker of electric-car charging stations, says he works with, and talks to, most major car companies. “We have seen their internal plans to just electrify everything,” he said.
In the short run, many of these cars will be plug-in hybrids, with both electric motors and gasoline engines. It makes sense to lump them with electric vehicles because most new models have enough battery power to get the average U.S. commuter to work and back without using any gasoline.
Steve Majoros, a marketing director at General Motors Co.’s Chevrolet unit, says that 90% of trips and 65% of miles driven in its Volt plug-in hybrid are on electric-only mode. The Volt can go 53 miles on a charge.
Every plug-in hybrid is effectively an electric car that is carrying a “range extender,” just in case. They will help electrify a large share of the miles Americans drive. They’ll also help ease consumers into electric vehicles, overcoming any remaining fear about being stranded after running out of juice.
Competition among electric vehicles and plug-in hybrids will be intense, which will drive down prices. Volkswagen AG has pledged to make every model available as a plug-in hybrid by 2025. BMW AG has made the same promise. Hyundai Motor Co. promises eight plug-in hybrid models by 2020, plus two all-electric vehicles. Toyota MotorCorp.’s overhaul of the plug-in Prius, boasting twice the range, arrives before the year is out.
The Chevrolet Bolt EV in January at the North American International Auto Show in Detroit. Hybrid and electric vehicles are rapidly gaining popularity.ENLARGE
The Chevrolet Bolt EV in January at the North American International Auto Show in Detroit. Hybrid and electric vehicles are rapidly gaining popularity. PHOTO: PAUL SANCYA/ASSOCIATED PRESS
Another trend will help—the proliferation of charging stations. ChargePoint Sunday said it has 30,000 stations in its network, where it collects any fees levied by owners. By comparison, there are about 90,000 publicly accessible gas stations in America, says Mike Fox,executive director of Gasoline & Automotive Services Dealers of America.
The number of commercial charging stations is growing quickly in part because they’re relatively cheap—costing $3,000 to $7,500 per port, depending on whether it is new construction or a retrofit. When attached to a business, they can attract customers, and encourage them to stay longer and spend more.
Hy-Vee Inc., a chain of 241 grocery stores in eight Midwestern states, installs charging stations at all its new locations; it has four chargers at each of 42 stores. Charge times for electric cars vary widely, depending on the station and car make, but it typically takes 30 minutes to an hour to get a decent charge. Conveniently, that is roughly as long as it takes to have a meal, says John Brehm, director of site planning at Hy-Vee.
Placing charging stations at workplaces, where cars spend much of their time, will be uniquely powerful. When a workplace installs a charging station, employees are 20 times as likely to buy a vehicle with a plug, according to a survey from the U.S. Department of Energy.
Drivers won’t switch to electric vehicles as rapidly as consumers adopted smartphones. The average American keeps a car for 11 years. For most people, though, by the time you’re ready to buy another car, there will be a range of plug-in vehicles available at prices comparable to gasoline vehicles. And that doesn’t count the projected savings in fuel, or in maintenance, since electric vehicles have many fewer moving parts.
It is the nature of disruptive technological shifts that it seems like nothing is changing—until it seems as if everything is changing at once. Electric vehicles have been a long time coming, but they now represent such a clear and present threat to the gasoline engine that Mr. Fox, of the service-station association, now recommends that members signing long-term contracts for fuel include an option to renegotiate if more than 10% of a state’s fleet goes electric.
If Tesla can deliver on its current promises with the Model 3, says Mr. Fox, “gas vehicles are history—it’s horse and buggy days.”

Supply Chain News: Inventory Management by Retail Category


We Aggregate Inventory Turns Across More than a Dozen Retail Sectors

Aug, 29, 2016

Supply Chain Digest Editorial Staff
Every year, REL, a Hackett Group company, assembles data on working capital management. One of the three components of working capital is inventory, which REL measures in terms of Days Inventory Outstanding, or DIO. DIO is calculated as follows:
End of Year Inventory Level/[Total Cost of Goods Sold/365]

Supply Chain Digest Says...

Retailers also have a higher ITS than do manufacturers or wholesalers. The June ITS, for example, was 1.50 for retailers, versus 1.35 for manufactures and 1.33 for wholesalers.
So, you calculate the average cost of goods sold forone day, and then see how many of those COGS days you keep in inventory (based on year-end balance sheet numbers).

As such, DIO is sort of the reverse of inventory turns, in that a higher DIO, all things being equal, means poorer inventory management performance, while a lower number signals improvement. You are being more efficient with inventory versus a given level of COGS. Fortunately, with a number for DIO, inventory turns can also be calculated.
That formula is as follows:

Turns = 1/(DIO/365)

As we reported in the July issue of the Retail Vendor Performance Management Bulletin, retail inventories in general have been rising, certainly as measured by the Inventory-to-Sales (ITS) ratio, published by the US Commerce Dept.

The ITS ratio measures the amount of inventory held as a percentage of one month's worth of sales. As can be seen in the chart below, while the retail ITS is highly seasonal, the trend since 2010 is definitely up.



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Retailers also have a higher ITS than do manufacturers or wholesalers. The June ITS, for example, was 1.50 for retailers, versus 1.35 for manufactures and 1.33 for wholesalers.

SCDigest's biggest value-add is taking the data REL makes available to us, based on fiscal year 2015 results, to first re-categorize the companies into more narrow sectors, enabling better comparisons.

This is especially true for retail, for which we break small number of sectors in the REL data into a number of more narrowly defined categories.

We also add in a number of retailers not in the REL data to make some of the retail sector populations more complete. For both REL or SCDigest's work, retailers must be public companies to be able to grab data for COGS and inventory levels from financial filings.

With all that said, here are some inventory turn numbers for leading retail sectors (the numbers in parentheses denote how many retailers are in each category):

• Grocery (8): 13.0
• Home Improvement (3): 4.3

• On-Line (4): 11.1

• Mass Merchants + Dept. Stores (11): 4.2

• Drug Stores (3): 8.7
• Dept. Stores (8): 3.4

• Mass Merchants (3): 8.1

• Footwear (4): 3.4

• Office Products (2): 6.8

• Sporting Goods (3): 2.7

• Electronics (3): 5.6 

• Auto Parts (4): 1.5

• Specialty Apparel (15): 4.4


By way of comparison on the manufacturing side, consumer packaged goods companies had 5.5 turns on average in 2015, and apparel manufacturers had turns of just 3.0.