Supply Chain Experts Stress Collaboration

The supply chain that serves today’s complex consumer will face major turmoil in the next two years as the crossroads of change are expected to radically impact business fundamentals that have been common place for more than three decades.

That was is a central message business professionals heard Thursday, (April 11) at a full-day supply chain conference at the University of Arkansas.

The focus of the conference centered on how the supply chain players could collaborate to win in an omni-channel world.

Clearly, the challenges have never been greater, according to James Tompkins, founder and CEO of Tompkins International.

Looking back to the holiday season 2012, he says the “lunacy retailers showed from matching prices and rushing home deliveries” was a nightmare for supply chain logistics, but it looks like those two services are here to stay.

Tompkins urges supply chain executives to brace themselves as the chaos is expected to continue for the next several years.

He says the tipping point is certain given the pressures companies feel to grow profits following the sluggish recovery.

“I expect to see more business bankruptcies in the next years than any other two-year period of recent history,” Tompkins told the 100 or so professional attending the conference.

He and other logistics experts said for too long the supply chain has been a clunky system built around retailers controlling and storing inventory in distribution centers and then hauling it to physical stores in full truckloads. This multiple chain link system is obsolete in a world where consumers want a great variety of products, delivered to their homes on any given day.

Tompkins says there are six levels of measurement within the supply chain and for the past 13 years most companies have been able to achieve success in the first two of those phases. The average of the entire supply chain is roughly 2.6, he said, and that is a long way from 6.0 where onmi-channel retailers or consumer products companies should be today.

Getting from 2.6 to 6.0 won’t be easy but Tompkins says it’s necessary for the next generation and the quickly evolving world of omni-channel retail.

For far too long the players within the supply chain have had a mine-only mentality, but Tompkins says the only route to a 6.0 is through visibility and collaboration, which means sharing without fear.

It is only when collaboration happens that excess links can be taken out of the chain and provide more a seamless flow of products.

Tompkins and other speakers said the collaboration conversation has been taking place for roughly 10 years but it has only recently been put into action as retailers, manufacturers and logistics firms felt pressure to raise profits in a stagnant economy.

David Vehec, senior vice president of GENCO, a private third party logistics firm, told the audience that Hershey’s and Ferrero Rocher recently came together to share transportation costs in the final leg from a GENCO warehouse to the same retailer.

“A few years ago this would have never happened, but it saved both firms money and they signed on to do it,” he said.

Brenda Hambleton, chief marketing officer for ES3, an East coast-based third party logistics firm, said her company convinced regional grocery retailers to close their own distribution centers and outsource via shared services everything from storing inventory to pallet packing and final shipment to the retailer’s back room. She said competing grocers share warehouse and truck space which provides a cost savings to both.

The experts say they are just scratching the surface in terms collaborative possibilities.

Tompkins says there is no time to waste in getting supply chain fluidity, with Amazon expected to take its Prime offering to next-day delivery by 2014.

“Whether you like it or not, Amazon sets your customer’s expectations for you. I don’t care if you are a retailer or a consumer products company, Amazon is out in front,” Tompkins said.

“My wife gets three boxes from Amazon a week, mostly re-orders, and if this grandmother is comfortable buying online so is most of America,” Tompkins said.

He says retailers have to ready their supply chain to compete in the next generation, which is already here.

Hambleton said the technology is here to get supply chain companies from the average 2.6 level to the 6.0 – technology that didn’t exist five years ago.

“We have to take the collaboration and automation processes across the entire supply chain to address product from the factory, through delivery, to the in-store display using on-shelf-availability models while also figuring out home deliveries,” she said.

Tompkins agreed, saying companies that want to be relevant in the next few years will have to maneuver these crossroads from a retailer centric to a customer centric world, because it is the consumer who is driving expectations.