Beating Amazon – Winning with Offensive Strategies

Let’s be honest. If you look at most companies’ strategies to protect margins and market share being eroded by Amazon, the operative description would be “Defensive.” Over the last few months, Competitive Insights and the lharrington group have been researching what specific actions will help companies develop winning strategies in dealing with Amazon. The outcome is a three-part white paper entitled Tackling the “Amazon Effect”—Time for Offensive Strategies. Three key takeaways have been identified:

Well beyond Retail. All industries have the potential to be seriously impacted by Amazon. Wholesalers, Distributors, Third Party Logistics (3PL) Service Providers, and Manufacturers must stop playing defense and go on the offense. Offensive strategies that are based on knowing where you make and lose money for every product, customer and channel combination. Competitve actions that reinvent customer service options, targeted product offerings and intelligent pricing models that take into account the full impact of discounts, promotions, and product returns. Continuing to build traditional competitive strategies using standard P&L levels of detail will result in market displacement. Plainly put, you can’t beat Amazon playing defense.

To win against Amazon it is imperative to adopt a competitive ecosystem that is built on three tenets:

Rapid access to precise and specific profit performance insights by product, customer, and channel.

Utilization of this information to create strategies that break traditional siloed decision making through collaborative, cross-functional decisions.

Setting organizational expectations that that this type of information is the foundation for consistently creating winning competitive strategies, even as business conditions change.

To gain maximum advantage, each industry must use these actionable insights to drive and protect their sustainable ability to generate profits. Examples:
1. Retailers introducing value-adding services that drive consumer purchasing of profitable product portfolios.
2. Wholesalers & Distributors understanding the true profit contributions of each delivery location and the specific profit performance of the products that each customer is buying.
3. Manufacturers using profit performance insights to intelligently make informed decisions regarding product variations by channel and customer category.
4. 3PLs increasing customer loyalty and retention by providing innovative value-added services, with a focus on making their operation and their customers more profitable.

The impact of Amazon has become the “bar” against which companies are being measured by their customers, either directly or indirectly. Companies will not survive if they continue to use functionally siloed, defensive decision-making.

Companies must decide how to compete, collborate, emulate, diverage from, merge with, and/or capitalize on the Amazon Effect. They must be able to quickly and effectively measure the financial impact of decisions with actionable cost and profit information. Information that is trusted throughout the organization.

The choice is simple. Go on the offense to win the game or just be another losing statistic in the rapidly changing playbook.

Want to know more? Please contact or Competitive Insights at tkitajima@ci-advantage.com or the lharrington group at lisa@lharringtongroup.com

We would love to hear your thoughts!

All the best,

Richard

Richard Sharpe is CEO of Competitive Insights, LLC (CI), a founding officer of the American Logistics Aid Network(ALAN) and designated by DC Velocityas a Rainmaker in the industry. For the last 25 years, Richard has been passionate about driving business value through the adoption of process and technology innovations. His current focus is to support CI’s mission to enable companies to gain maximum value through specific, precise and actionable insights across the organization for smarter growth. CI delivers Enterprise Profit Insights (EPI) solutions that enable cross-functional users to increase and protect profitability. Prior to his current role, Richard was President of CAPS Logistics, the forerunner of supply chain optimization. Richard is a frequent speaker at national conferences and leading academic institutions. His current focus is to challenge executives to improve their company’s competitive position by turning enterprise wide data from a liability to an asset through the use of applied business analytics.

The First Annual Supply Chain Data and Analytics Survey Results Are In – Where Do You Stand?

Have you wondered if other companies have the same level of difficulty and frustration regarding getting real and repeatable value from their supply chain data and analytical efforts? Well wonder no more. The results are in from the first global survey answering this question across multiple industries and they are significant.

Using Competitive Insights’ maturity model that is based on data organization & governance, cross functional utlilization and and the number of actual business analytics being routinely used, the current value being realized across all industries is 33.3% of the full potential value that can be derived from the effective use of supply chain analytics!

These results serve as a baseline for companies to have an unbiased source for measuring where they actually stand as it relates to other companies and industries. The survey provides findings that will be updated each year.

The results are published in the Q3 2017 issue of CSCMP’s Supply Chain Quarterly. The responses provide insights and answers to critical questions including:

What is the current satisfaction with the following four attributes of the data you need to do supply chain analytics?

What are the primary forms of technologies usedforyour supply chain analytics?

What types of analytics are your organization taking the most advantage of?

What are the most significant barriers that you have in getting more value?

What benefits have you realized to date from your supply chain analytical investments?

Want to know more? If you already subscribe to Supply Chain Quarterly, then the answers are on the way. If not, you can read the article HERE.

Once you review this information, use it to drive your own internal discussions. Measure your results against other companies. Learn how you might take actions to obtain the maximum value out of your supply chain analytical investments! And just as important SIGN UP NOW to participate in next year’s survey!

All the best,

Richard

Taming the Big Data “Monster” – A CSCMP Learning Opportunity

Are you attending CSCMP’s 2017 Edge Conference in Atlanta next week? Would you like to know where your company stacks up with regard to other companies’ success in deriving real and sustainable financial value from Big Data and Analytics investments?

Please join us at 10:30 am on Monday morning (Track 16) to hear the results of a global survey conducted by CSCMP’s Supply Chain Quarterly, Arizona State University, Colorado State University, the lharrington group and Competitive Insights titled Taming the Big Data “Monster”.

The session will provide meaningful survey insights on the true challenges and benefits that companies have experienced as well as their expectations for future big data and analytics investments. This survey will be continued yearly and will be a valuable resource to measure the progress companies are making in applying big data analytics to support increases in profitable performance . This year’s inaugural release will serve as a starting point for your company to measure and track the progress that you are making versus other companies. At the session you will want to sign up to receive a copy of the full report.

Seats will be limited so please come early and join us on Monday, September 25th from 10:30 – 11:45 a.m. (Level 2 C211-C212) to learn more.

All the best,

Richard

Baselining Your Realized Value and Learning From Other Companies

Gartner estimates that companies will spend $18.3 Billion on analytics and big data initiatives in 2017, an increase of 7% over 2016. That number is expected to grow to $22.8 Billion by 2020 as executives are becoming more cognizant of the importance of gaining sustainable value from big data analytical capabilities. Earlier this year Dun & Bradstreet and Forbes Insights explored this question through a survey of over 300 executives across multiple industries and regions. Here is a link to a recently released report sponsored by Dun & Bradstreet summarizing the results that is well worth the read.

How much has your company spent (internally and externally) over the last 18 months on analytics and big data initiatives? What are your Executive Team’s expectations of ROI? Have you come anywhere near meeting these expectations?

As I mentioned in my last posting, we hear two very different responses when talking with companies about their success in mastering growing volumes of supply chain data and gaining sustainable value from business user analytics. The first is a public ally declared answer of success and progress while the second one, once the door is shut, typically offers various degrees of frustration and minimal progress. To understand the real progress of other companies’ big data analytical efforts, you need a non-speculative way to measure your progress versus your peer companies. You need the ability to have a better understanding of peer companies’ challenges, the benefits they have realized, and their focus for future analytics and big data investments.

I am pleased to announce that the global survey conducted by a team comprised of CSCMP’s Supply Chain Quarterly, Arizona State University, Colorado State University, Competitive Insights LLC, and lharrington group LLC has successfully captured the information required to establish this supply chain industry baseline for big data analytics. The outcome of this survey supports the identification of true challenges and benefits that companies have experienced as well as what they expect to gain from future big data analytics investments. These results serve as a starting point to measure and track each year the progress that companies have made in realizing the value from big data analytics. This year’s survey results will be presented at the annual Council of Supply Chain Management Professionals (CSCMP) Conference and published in various articles in both the CSCMP’s Supply Chain Quarterly and DC Velocity.

So when the door is shut and you are having internal discussions on your successes and frustrations in deriving value from your big data analytics investments, you now have a way to move from speculation to fact.

Where are other companies breaking through the challenges ot rapidly accessing the right data, in solving quality and timing issues and their ability to continually gain meaningful analytical answers to prioritized business problems?

What are their next set of prioritized areas of focus?

One interesting early discovery from the survey results is that some technologies used for big data analytics do offer limited benefits but fall short in providing the true overall business value that can be gained from successful analytical efforts.

Naturally, this surveying effort will only get stronger as we learn from you what is beneficial and what is needed to get more insightful information. If you did not participate this year, please take the time to complete next year’s survey. It will only take a few minutes but the impact can be significant. Participants of this year’s survey represent over 20 industries around the world.

This year’s results are clearly statistically sound. Lets make next years participation a blowout!

All the best,

Richard

Where Are You Really In Taming The Big Data and Analytics Monster?

There are often two answers that I hear when talking to companies about where they are in mastering growing volumes of supply chain data and gaining sustainable value using various forms of business user analytics.

The first response is the one publically offered – “We have made substantial investments in technology and expertise and are well on our way in harnessing real value from our data.”

The second “real” answer, once the door has been shut and confidentiallty agreements have been signed, is one of frustration and disappointment. “Our progress has been extremely slow. Yes, we are doing the traditional project exercises like various forms of modeling. However, it is still difficult to get to the value-added information directly into the hands of the decision makers quickly and consistently for ongoing strategic and tactical needs. Even if they do get this information, there is often an underlying doubt about the quality of the data used in generating the required information.”

Companies need to have a measure of how they stack up against other organizations in their journey to master big data and analytics. To address this need, a survey has been created by a team from Arizona State University, Colorado State University, Competitive Insights, CSCMP’s Supply Chain Quarterly and the lharrington group LLC. The purpose of the survey is to capture meaningful answers regarding the progress that companies are making in mastering data and the application of meaningful business analytics. The result will be used to create a Supply Chain Industry Baseline that reflects meaningful responses from a multitude of companies, different industry segments and regions of the world.

This survey will be issued on an annual basis to serve as a means to track the progress that companies are making year over year. The comparisons will show where and how companies have been successful. Finally, it will be a resource to understand the actual challenges and frustrations being experienced by companies in their pursuit to master their data and meaningful business analytics. Therefore, the survey findings will be a resource for companies to determine how their efforts measure up to other companies and to serve as input for internal discussion on big data and analytical priorities.

A preview of this year’s findings will be issued, prior to general release, to all of those that respond to the survey. Highlights of the findings will be presented and discussed at the annual Council of Supply Chain Management Professionals (CSCMP) Conference in September. More detailed results as well as other relevant research will also be published in the Supply Chain Quarterly and DC Velocity.

Over the next following weeks, recipients of Supply Chain Quarterly, DC Velocity and Competitive Insights‘ monthly newsletter will be receiving this electronic survey that has been carefully designed to create this industry Baseline. Responses will only be used to create the Baseline and the associated correlations and findings. No individual response will be published or referenced in the results or used for any company solicitation.

The more companies that respond and the more honest their responses, the stronger the results will be for EVERYONE in the Supply Chain Industry. Please take the survey HERE or at colostate.az1.qualtrics.com/jfe/form/SV_bO98R0OrXZTnxYN

All the best,

Richard

The Ultimate Value from Supply Chain Visibility

Ask any supply chain executive if they would like to have better, more insightful, supply chain visibility and I can guarantee the answer will be YES. Visibility initiatives can be focused on any aspect of the supply chain from supplier compliance to customer demand sensing. Many companies are investing in “end to end” supply chain visibility capabilities using Control Tower applications to monitor and control specific operational movements and activities. Clearly, these investments can yield huge benefits in increasing efficiencies, reducing costs, mitigating risks and ultimately ensuring the ability to fulfill customer orders.

However, there is another form of visibility that can add “disruptive” competitive advantage. This visibility is associated with the performance of every supply chain asset in contributing to the generation of profit. Naturally, the goal of any visibility investment is to ultimately support improvements measured on a P&L statement. But how many companies do not recognize that there are deeper layers of visibility that can provide far more detailed insights with regard to profit performance contributions?

Let me give you an example. A specific company has 110,000 customer delivery locations selling through wholesalers, distributors and directly to the customer. Historically, the company has managed customer product offerings using standard cost and revenue calculations. However, they found it difficult to get to actionable insights that could improve on the “one size fits all” order fulfillment strategy by channel. The company undertook an initiative to gain accurate profit performance information for every product sold to every customer. The end result, just under 3,000 customer locations provided over 80% of their operating profit. Empowered with this type of clear, strategic and actionable visibility, the executives immediately pursued answers regarding the root cause for such a dramatic performance variance. Once the drivers for poor profit performance were understood, smart segmentation strategies were developed and implemented to significantly improve margin contributions.

Bottom line, supply chain operating visibility is a game changer. More insightful, actionable and timely information on supplier performance, movements of containers, multiple postions of inventory, etc. allow for a more proactive management of all supply chain operations. However, operating visibility can drive competitive and “disruptive” improvements in profit at a level that creates actionable insights answering the profit performance questions of “how, what, when, where and why”.

I would love to hear your comments.

All the best,

Richard

Hanjin: Why are today’s supply chains more at risk? Part 2

My last posting focused on the potential use of analytics and big data to protect an enterprise’s ability to generate profits and offered the following definition for Supply Chain Risk Management (SCRM);

“the development of strategies to minimize or eliminate the financial impact of supply chain disruptions through the identification and prioritization of possible disruptors at all points in the supply chain, from sources of raw materials to the final delivery to customers”.

In this posting we will address the following questions:

Why are today’s global supply chains more susceptible to significant disruptions?

The success of adopting Lean practices. Yes, the widespread adoption of Lean has provided for reduction of waste, increases in efficiencies and lower operating costs. However, it has also eliminated the access to alternative choices, if the primary resource of an operation is no longer available.

Expansion into new operating regions while also shifting production to lower cost operating areas. Today’s supply chains simply have more moving parts that go beyond the direct span of control of one company; more moving parts, more risk.

The volatility of operating in today’s world. Political uncertainties, currency fluctuations, shifts in market demands and social unrest are further factors that can throw a curve ball to any global supply chain operation. Think about how the Arab Spring impacted business throughout the region.

Who needs to be involved in creating, implementing and maintaining an effective SCRM program and What can you do that goes beyond Crisis Management?

Supply Chain Risk Mitigation strategies should always be based on three basic principals; redundancy, contingency and policy mitigation strategies. Each can involve elements of adding costs, making specific operational changes or simply changing an operational policy.

To be effective, the identification, selection, justification and internal socialization of the mitigation strategy must be cross-functional and this often means involving Sales, Marketing, Finance, Supply Chain as well as other appropriate functions. If these types of decisions are made in a vacuum (siloed) they will never survive the organization resistance to change or the next set of budget cuts.

How do you determine that your SCRM strategies are working?

Your company must have a consensus based “measuring stick” that is cross-functionally agreed upon. An agreed upon set of measurements that are aligned with the organization’s priorities and that allows for an organizational consensus on how to identify, measure and prioritize significant, potentially disruptive risks.

There is no better way to do this than to understand the specific financial impact of each potential disruption, e.g. how much it would hurt the bottom line. Once created, the same set of measurements should be used to monitor the mitigation impact of each implemented strategy.

I would love to hear your comments.

All the best,
Richard

Hanjin: A Wake-Up Call

Is this affecting your operation?

From the Wall Street Journal Logistics Report, September 8, 2016:

“The owners of some $14 billion in cargo stranded on Hanjin Shipping Co. vessels are considering desperate measures to recover their goods. Courts in Korea and the U.S. have said the company’s ships can enter ports without being seized by creditors, but it’s unclear who will pay to unload them if they dock, the WSJ’s Erica E. Phillips and Costas Paris write. Some shippers aren’t waiting to find out. Samsung Electronics, which has $38 million in cargo on Hanjin ships, is considering chartering 16 cargo planes. Others say they don’t even know where their freight is, let alone have a plan to rescue it. Trans-Pacific shipping rates have spiked as much as 50% amid the uncertainty, with brokers describing the situation as ‘a total mess.’ ”

Too busy to read this blog trying to find a fix? Then this blog is for you!

The majority of my postings have centered on the use of analytics on big data to directly increase profitable performance. However, the smart use of analytics goes beyond the need to find opportunities to generate more profit. It should also include the capability to support the mitigation of significant supply chain disruptions. The ROI for using analytics on big data to enhance profits is more than enough to justify the investment. The ROI is multiple times larger when you leverage the same data with additional analytics to protect profits. Therefore, the next four postings will now focus on the protection of an enterprise’s ability to generate profits.

Today’s supply chain executives are constantly dealing with disruptions to their supply chain operations. According to British Standards Institute, in 2015 global supply chains incurred a combined $56 billion in extra costs due to crime, extreme weather, terrorist threats and the migrant crisis that swept across Europe. One of the most insightful research efforts was done by Vinod Singhal from Georgia Institute of Technology and Kevin Hendricks from University of Western Ontario with the following results:

As depicted in the top section of the visual below, most disruptions are managed through a Supply Chain Crisis Management process. This often involves activating a “Situation War Room”, gathering the right people and beginning to process information about the situation in order to determine how to get the operation back up and running. This is a reactionary approach to handle supply chain disruptions. This approach uses valuable time in putting a game plan together while being unable to meet specific customer orders.

Using the insights gained from supply chain analytics, the right approach is to focus on Supply Chain RiskMitigation activities that minimize the financial impact of a disruption before it actually occurs. Mission Impossible you say? Not so. The use of analytics to increase the profitable performance of an operation can also be used to create another set of operational lenses. Lenses that offer insights that empower the organization to mitigate the financial impact of prioritized, potential disruptions.

In addition to being a founding member of the American Logistics Aid Network (ALAN)(www.alanaid.org), Competitive Insights has been studying Supply Chain Risk Management best practices for 11 years. During that time, we have participated in creating the first Industry Standard of the subject, ASIS’s Supply Chain Risk Management: A Compilation of Best Practices, published numerous industry articles as well as offered executive education in both conference and university settings.

Therefore, I offer the following definition for Supply Chain Risk Management (SCRM); “the development of strategies to minimize or eliminate the financial impact of supply chain disruptions through the identification and prioritization of possible disruptors at all points in the supply chain, from sources of raw materials to the final delivery to customers”.

The continuation of this blog series will address the following SCRM points:

Why are today’s global supply chains more susceptible to significant disruptions?

Who needs to be involved in creating, implementing and maintaining an effective SCRM program?

What can you do that goes beyond Crisis Management activities?

How do you determine that your SCRM strategies are working?

Remember, the amount you gain far exceeds the cost of change.

I would love to hear your comments.

All the best,

Richard

Supply Chain Digitization – A Reality Check

Today, I am going to switch gears to focus on the hot industry topic “The Digitization of the Supply Chain”. This subject is getting a lot of attention in the media especially as it relates to the Internet of Things (IoT). According to Gartner, by 2020 there will be 21 trillion devices streaming information empowered by the IoT. Information on everything from the current performance of a part within a machine to the current location of my dog.

I get the industry buzz about the digitization of the supply chain. But I have to ask myself the question; “Other than specific performance/event notifications, will companies really gain the true business value that is possible from this exponential growth in data?”

Today, corporate enterprises have no shortage of data. Data from their ERP, supply chain, finance and sales related systems, just to name a few. Data that is often siloed and often hoarded by functional organizations. Even with the ongoing investments that companies have made to access, visualize and manipulate their data, I often hear the statement “we still cannot get the insights we need from the information in our systems. We aren’t realizing the return on investment we had hoped for and expected”.

In June of this year I ran the Analytics and Big Data Track for the Chief Supply Chain Officer Forum hosted by EyeForTransport. It was a great day and a half spanning subjects from Data Governance, supporting enhanced S&OP processes and strategic initiatives all through the proper use of analytics and data. The consensus from the discussions was clear. To get real value from data you must have VACA:

Having processes in place to ensure the VALIDATION and quality of the data

Being able to have timely ACCESS to the data

Gaining CONCENSUS that the right data that is being used to solve a problem

Applying the appropriate ANALYTICS on the data to drive actionable insights that improve the performance of the business

Sounds pretty obvious, right?

However, if we are being honest, how many companies can say they have mastered VACA for the enterprise data they have today? If not, then how is adding additional finite pieces of data that comes with the digitization of their supply chain going to help?

I think a reality check is required. Clearly, nothing is going to slow down the exponential growth of data and the digitization of supply chains. There will be a continuation of great success stories such as the ability to catch the failure of a critical component of a machine before it actually fails. However, to gain maximum value, companies need to prioritize and act on their VACA capabilities.

The smart place to begin is with the data that already exists within the enterprise. The smart money is to extract the value from this information before starting to add significant volumes of IoT data.

Without effectively addressing VACA requirements, the digitization of the supply chain will increase the data related headaches that most companies are wrestling with today. With VACA proven and in place, the lessons and experience gained can then be applied to the new data that will come from future supply chain digitization investments.

I would love to hear your thoughts.

P.S. – get this right and you can take a VACAtion!

All the best,

Richard

Are Your Omni-Channel / E-Commerce Sales Really Profitable? Part 4

This is the final posting of this series focused on Omni-Channel / E-Commerce profitability. The focus of this posting is on the impact of product returns.

We have defined the four components of the Total Cost To Serve (TCTS) for Omni-Channel / E-Commerce orders to be:

The cost to purchase or manufacture the products, often referred to as the product’s Standard cost
The costs to position inventory to be ready for order fulfillment activities
The costs to actually fulfill the Omni-Channel consumer order, and
The cost of product returns

After defining these costs, we offered the straight forward profitability equation of:

Omni-Channel Order Profit = Net Revenue – (A+B+C+D)

Today, we are going to specifically focus on the cost category D above.

The problem

When consumers buy a product sight unseen, there is often a level of uncertainty about whether the product will be what they actually want. Retailers often offer free returns for customer satisfaction, an offer that consumers use to their fullest advantage. But how does that affect the overall profitability for the retailer? Seem simple? The answer is often not so obvious.

Let’s start with the revenue part of the equation. A returned product turns a positive into a negative because the actual revenue received for the transaction has been returned to the consumer. The loss associated with the order also has to account for all of the costs associated with the returns process. These returned product costs can be more significant than most people realize. Let’s break down product return costs in more detail.

Original Order Fulfillment Costs (sunk costs) – since the product(s) are being returned, the original order fulfillment costs are now not being covered by the revenues associated with the order. Therefore, these are now sunk costs that need to be absorbed.

Inventory Carrying Costs – the length of time that a consumers holds the product can have a significant impact on inventory carrying costs. When an initial order is filled, the typical inventory replenishment process applies which can mean that new replacement inventories have been ordered. Therefore, in reality the seller of the product now has working capital tied up in inventory sitting at the consumer’s location, inventory in-transit as it is being shipped back to the seller’s receiving locations as well as new replenishment inventory. This can significantly increase the levels of working capital tied up in product inventories. Forecasting returns can help but most companies end up replenishing inventory to ensure there are no lost sales, given their lack of confidence in their data.

Return Transportation Costs – this category of cost is dependent upon whether the consumer pays the shipping fee to return the product. If not, then return transportation costs can add significant increases to profit losses.

Secondary Handling Costs – assuming the returned product is placed back into storage or on the shelf, there are costs associated with the receiving, inspecting and put-a-way activities for the returned product.

Disposal Costs – if the product is not going to be placed back in general inventory and it is to be discarded or destroyed, then there may be a disposition cost associated with the returned product.

All of these costs are demonstrated in the visual below and can have a significant impact on the profitability of an Omni-Channel / E-Commerce channel.

The solution

So how do retailers selling in the Omni-Channel / E-Commerce tackle this issue? The solution starts by again recognizing the wisdom in the adage “one size does not fit all”. Treating all customer product returns the same way is simply a formula for failure.

The solution starts by segmenting Omni-Channel / E-Commerce customers by understanding their overall net profit contributions over time. This requires having specific and accurate facts regarding exact profit performance for Omni-Channel / E-Commerce customers including the frequency and impact of their product returns.

This form of segmentation enables the creation of tailored product return policies that help manage the negative impact on profitability. Informed policies regarding how products are returned, if there are shipping fees, if charges apply for returned products or if there are defined time windows for products to be returned.

Of course this may drive some customers to shop with another retailer. But that may not be such a bad thing from a competitive advantage perspective!

I would love to hear your thoughts.

All the best,

Richard

solutions
••••••••••••••••••••••••••••••
data assurance

cost insights

category insights

enterprise profit insights

supply chain risk insights

services
••••••••••••••••••••••••••••••
• education
• training
• support
resource center
• blog
• customer stories
• articles
• infographics
• videos
• white papers

about
••••••••••••••••••••••••••••••
• history
• social responsibility
• press release
• events
• contact