2014-03-June-Shoes.jpgFollowers of Gartner's yearly Supply Chain Top 25 list may have noticed signs of progress over the last few years toward a responsive, demand-driven supply chain. As a student of the supply chain, I watch to see who makes the list and what market advances it highlights for suppliers and retailers. Last week though I got to experience the progress firsthand.

Here’s my personal supply chain story, which reveals some important best practices for retailers.

An Omnichannel Supply Chain in Action

Gartner's list identifies 25 companies that “best exemplify the demand-driven ideal for today's supply chain” and shares their best practices. There are some remarkable advances being made by supply chain leaders -- whether or not they are on the 25 list -- and sharing best practices is a good way to improve across the industry. And while all boats rise with a rising tide, the seas are much more turbulent these days in our omnichannel world. Supply chains need to align or get caught in a new perfect storm.

Consider this scenario:

You're walking through the mall and see the perfect pair of shoes. You know, the ones you noticed on the fashion website and then on your Facebook page (because Facebook always knows what you are thinking). There they are in the store window on sale, so you pop in. You ask for your size in black to go with a new suit you just bought. CATASTROPHE! They only have them in blue in your size. You try them on. They fit like a dream and look great on, so now you really really want them. They are no longer just an idea, they are your must have shoes but they are the wrong color.

A decade ago a consumer who faced this out-of-stock situation at their retailer might be told to wait until the next shipment arrived, or a check might be done and a suggestion made to visit another store location. More recently, the consumer might have gone online, found the shoes and perhaps purchased them from a different retailer. Consumers expect more these days and retailers have to step up to a seamless customer experience in order to keep the sale and maintain a delighted customer.

In this case the customer got exactly what she wanted and the retailer did too. Here’s the second half of how this scenario played out:

The sales person immediately says she can check for the shoe availability online. Yes, they have them and will ship no delivery charge to your home. They arrive within the week -- right size, right color, same wonderful sale price! And yes they look fabulous with your new suit.

Since I am a true supply chain geek, I wondered what went on behind the scenes in this scenario. Turns out the retailer in this story -- Macy’s -- has been investing over the past years in technology and approaches to optimize for omnichannel. They are outstanding in this endeavor and have been recognized by analyst and industry organizations alike for what they do and how they do it.

The 30 Second Definitive History of Retail Supply Chain Excellence

The retail industry was one of the first to embrace electronic data interchange (EDI) to automate and gain efficiencies in the supply chain. To this day EDI and its progeny continue as the backbone of the business networks that bring product from suppliers through to the point of sale -- from ordering, packaging and shipping to payments and returns.

Macy’s received an excellence in supply chain collaboration award from VICS (Voluntary Interindustry Commerce Solutions Association) several years back for a MyMacy’s logistics initiative to reduce complexity, cost and time required to process vendor routings. More recently, a Gartner survey reported Macy’s major supply chain focus as well as overall industry priorities had shifted from reducing costs to initiatives for customer satisfaction and growth. And last year it received the Customer Engagement Award for Digital Technology at the National Retail Federation’s Annual Conference.

Underlying this journey for Macy’s and other leading retailers are the technologies that enable labor and cost savings, cycle time reductions, streamlined inventory management, improved cash flows and better decision making. That same technology is now being applied to drive end to end supply chain visibility. Much of supply chain execution these days is prefaced on visibility to track to consumer behaviors in planning cycles, and then to adapt inventory and fulfillment tactics to match demand at any channel.

Adaptive Approaches Maximize Inventory at any Channel

Seventy-eight percent of digital shoppers "webroom" -- research online before heading to a store to purchase -- according to a recent Accenture survey. Alternatively, some store trips lead to a digital purchase. The same study found that 72 percent of respondents “showroom,” or buy digitally after seeing a product in a store.

Consumers have merged online and offline into a single shopping experience, and they expect retailers to align with that world view. Yet Accenture’s benchmark study of retailer’s readiness to deliver seamless customer experiences found 81 percent reporting absent or underdeveloped capabilities in tailoring assortment, pricing and shopping occasion to customer expectations across channels.

Macy’s has been working to make sure those capabilities are in place, creating an agile supply chain to maximize to customer behaviors. It has built multichannel commerce strategies and made technology investments against demand-supply point combinations. For example, the buy/deliver shoe scenario described above might be one combination, another might be web order/store pick up. Macy’s is turning retail outlets into multichannel fulfillment centers. It are also fulfilling direct from their supply chain partner DCs (Distribution Centers).

In a recent interview, Macy’s Group VP of logistics shared that Macy's uses a combination of lean manufacturing and forecasting, along with an omnichannel strategy. It focusses on fulfilling customer needs through existing inventories instead of purchasing new ones. Macy's customers are twice as likely as other online buyers to have researched a product in its stores before purchasing it online. And Macy’s cashes in on this: It makes sure that customers can place their orders anywhere, through any device. Macy’s is also investing millions with vendors, in joint decision making in the choice of “inventories that haven’t even ... come into their possession.”

The shoes in my earlier scenario were sent directly from the vendor, shipped to the consumer, “sold” to Macy’s. This required both a solid backbone and enhanced management capabilities to keep better track of real time perpetual inventory levels and dynamically allocate inventory across channels to match ever changing customer behavior and demands.

Same Day Delivery May Be a Battle, But Profitable Customers Win the Day

While Google, Amazon and Walmart have focused on customer shopping behaviors and battling over shorter and same day deliveries, forward looking retailers will ultimately need to focus on winning “profitable customers.”

In his recent blog post, Gartner analyst Robert Hetu shared his own supply chain shoe story.  He pointed out that in the pursuit of multichannel excellence, “one of the most challenging aspects has been accurate and flexible inventory that can be maximized to meet customer demand regardless of channels.”

Robert ordered two pairs of dress shoes from macys.com and they arrived simultaneously at his door -- one pair came from the Galleria Mall near Pittsburgh, Pa., while the other came from Willowbrook Mall in Wayne, NJ. “Flawless execution of an e-commerce order fulfilled from store inventory and shipped to my door. And the shipping was free! I am a delighted customer.”

Robert wrote about the next challenge for high performing supply chain companies,

After years of perfecting a supply chain that delivers to stores retailers are faced with an entirely new challenge. Supply chain optimization along with assortment optimization, are two critical elements of the go forward multichannel strategy. The complexity of layered costs will require a new way of accounting and assessment at a customer level. The question is how profitable am I as a customer of Macy’s?”

In the End, It's All About the Shoes

I have no doubt that we will continue to see paradigm shifts in supply chain strategies. I’d like to end this article with some thoughts on the amazing results that supply chains like Macy’s are achieving in the new world of omnichannel retailing, and share my prescient remarks on the challenges ahead. But at the moment all this supply chain talk is just background noise, because I really need to go try on my new suit with my truly AMAZING new shoes!

Title image by MJTH (Shutterstock)