I interviewed Tom Craig who discussed The New Supply Chain - Out with the Old, in with the New.
Can you first provide a brief background of yourself?
I'm president of LTD management.We are consulting firm that specializes in logistics and supply chain management.Our people all have worked in logistics and supply chain management.That enables us to deliver solutions that work, as we say.
Why are there excess inventory problems?
Excess inventory, there certainly has been, because companies have difficulty in what to do with inventory and how to allocate it and that.The fact right now, what you have with Omnichannel, that's the buzzword that deals with having stores and online, all the ways you touch customers, is that it's two different sales channels now.Two different ways to reach the customers.Stores have traditionally shipped pallet loads and truckloads of product and now with e-commerce,it's shipping eaches direct to customers.As a result, retailers have had difficulty knowing what to do with inventory.So the amount of inventory to deal with the two channels...they've had more trouble so you end up being inventory rich.They have too much inventory, or they have the wrong inventory.It’s tied up their liquidity, so they're struggling with the reality that there are now two supply chains because there are two ways of retailing.As a result, there is an inventory problem.
Is there anything more you can talk about?The different ways of reaching customers?
Well the main way, traditionally is they were in the stores.You can have other ways with catalog people or with kiosk involved, things like that.But the turnabout, the blowout,has been the e-commerce side, whether we call it the Amazon effect or the Alibaba effect.That's just made a whole new retailing way that's very different.Let's just take one minor example. Wal-Mart is the biggest retailer in the world.They have a lot of stores.Their online sales are maybe 15 percent of Amazon's, and if you look at Alibaba, they may be, next year, the biggest retailer in the world.So this whole e-commerce is changing the paradigm of how to retail.Traditional retailers with stores are having a difficulty transitioning to the new reality.
What are the elements of the new supply chain?
The new supply chain—a lot of it deservingly so on certain points, like the need now for fulfillment warehouses, not just retail. Retail warehouses were the ones who were shipping the pallet loads and caseloads of product to stores.They were not able and designed to handle fulfillment orders of individual items, eaches .So, two sets of warehouses have been developed.For retail stores and for direct customers, and this has made a whole new idea of where do I line my warehouses with my different types of customers.And the change here again—we'll call it the Amazon effect here—is deliver orders within two days or less.That's created a whole new paradigm of where warehouses should be located. So you get a lot of traditional, you get a lot of talk about what they call the last mile.That last bit of delivery to the customer, and the costs of that.That has gotten a lot of attention.
What we're saying, with the new supply chain besides that, is you've got to look upstream. You've got to extend the supply chain upstream.A lot has been on the downstream side, and the end result is with that limited focus, problems are not being fixed, like the inventory.You're going to have to move up the supply chain.Because the reality is the supply chain is complex. I’ll use the example of the Mississippi River, United States —one long river from Minnesota all of the way down to New Orleans.But in reality the Mississippi is made up of 700 streams and rivers.That's how the supply chain is.It has that kind of complexity and that kind of branching out and reaching out.That's where you're going to move your supply chain —up.
If you really want to take control of the inventory problem and the time problem of delivering faster and faster and faster without being buried in inventory.We're looking at things like, you've got to compress time. You're going to have to take inventory to inventory velocity.Inventory velocity squared.It's going be faster and faster and faster, and the secret sauce to doing to the time compression and the inventory velocity is extending the supply chain upstream.
Tied with all that would be integration — advanced integration of the process and the technologies to do it.But mainly the key thing, keeping moving it upstream.Putting your supply chain into your suppliers.Compressing that time...go ahead.
Do you have any recommendations, then, for organizations that want to move into a new supply chain?How can they get started?
The main thing is to recognize the reality of the supply chain duality, the two supply chains.Let's start saying what do I do.Their doing a lot like I say on the downstream side.They've got to look now at the upstream side.That's the area that's ripe for improvement.That’s the area to deliver all of the downstream requirements they need. So that's the question.Sit down and instead of saying to my suppliers and stopping it, you've got to go beyond that.Think of it like this, what I'm saying about moving upstream, it's like a defacto vertical integration.So you’ve got take your supply chain and move it up.Upstream.It doesn't stop at the supplier.
Do you have any examples of success that you've seen with this new change?
No, I haven't with that part.No, because I hear conferences and everything else and articles and it's the same old, same old.They're dealing with realities of new fulfillment centers and things like that, but they still struggle with the inventory, because they still talk about suppliers.They don't talk about their supply chain.It hasn't reached the point of making the change.
Thanks, Tom, and how can people get in touch with you to learn more?
Well, the easy way is email.Email is tomc@LTDmgmt.com.
About Tom Craig
Leading global logistics/supply chain management consultant who develops and implements solutions that work/ LTD Management
New_Supply_Chain_White_Paper.pdf 11.0 MB