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It is cold in New York.  My feet are tired, but I have enjoyed the first day of the National Retail Federation (NRF) Big Show.  (Twitter hashtag #NRF12).

I had the luxury to stay in the same room and hear some great presentations. Here are my insights.

1) Shopper Insights are the Way to Drive True Collaboration.  I got up early.  I moderated a panel for Coca-Cola for a session at 8:30 Am on Sunday morning.  Yep, you got it.  A very early morning….  I thought that an early session on a holiday weekend would be empty; but believe it or not, the session was packed.  In fact, it was standing room only. The session was on shopper insights.

Retailers are hungry to learn about demand insights from iconic consumer product brand manufacturers.  The retailers attending the session were  new at it. Only six hands in the audience were raised when asked, “Do you have a shopper insights group?”  I leave the session firmly believing that the sharing of consumer insights is the way to establish a true win/win value proposition.

2) MicroSegmentation is Now Feasible. Craig Riner, RiteAid delivered my favorite presentation of the morning.  His focus was on Real-time Merchandising.  <My friends in consumer products (CPG) would call it improving the Digital Path to Purchase (#DP2P).> Craig presented a case example of how RiteAid used their loyalty card–Wellness + — to build a new brand.  As he explained, “26 million adults in the United States today have adult diabetes.  When they are diagnosed, they are in shock.  They don’t want to be defined by the term “diabetic”, but they need help with meal planning, fitness and lifestyle. We redesigned our loyalty card to be a brand card to meet these needs.” They used their loyalty program to provide relevant content, offers and programs to this target consumer.  They teamed with WebMD to build content.  It now has 20 million videos, directly connects consumers to a nutritional counselor and allows shoppers to load the Wellness + card online.  This wallet feature enables targeted coupons to be downloaded based on relevance.  There is no need for paper or scissors for coupons.  It is easy.  When the loyalty card is swiped in the store, the coupons are applied to the purchase automatically.

GlaxoSmithKline also spoke on how they, a supplier to Rite-Aid, had partnered with RiteAid to also use the Wellness+ features.  Using the data base from the RiteAid program, Glaxo was able to reach consumers directly with targeted programs.  Using the program, they were able to drive double digit growth.  Their advice:  “this powerful program increases the need for planning.”

3) Social Enables New Business Models. Supply Chain is back in Vogue.    Kerry Cooper, Chief Operating Officer of ModCloth also delivered a compelling presentation on the redesign of the apparel value chain using demand insights from crowdsourcing.  The average apparel supply chain is 9-12 months long.  Modcloth brings 50-70 new products to market each day with a suppy chain of 6-8 weeks with 20% less inventory.  Yep, you got it.  ModCloth, a small apparel company in Pittsburgh is able to deliver more variety with fewer mark-downs and less staff.  The secret is a new business model based on crowd sourcing.  (According to Wikipedia the official definition of crowd sourcing is: the act of sourcing tasks traditionally performed by specific individuals to a group of people or community (crowd) through an open call.)  Using social/eCommerce convergence in a crowdsourcing model, they focus on delivering vintage clothing to a customer that wants to be unique.

The number of companies successfully using mobile/social/ecommerce convergence to drive new business models is growing.  Gilt Groupe was featured on stage at one of the Super Sessions, and Threadless was onstage with Modcloth.  Each of these companies have used social to define new business models.  We have moved from experimentation to mainstream.  What I found interesting was that for the first time in three years, each of them described their business models in “supply chain terms.”  Yep, you got it.  Supply chain is getting  cool again. As the cycles are getting shorter, the need for good information increases, and supply chain fundmentals of perpetual inventory and supply chain visibility are growing in importance.  Signs on how to improve your supply chain were everywhere.  I smiled because the supply chain was not everywhere at the show for the past two years.  <I love being a cool kid. >

4) Mobile is Shortening Data Cycles and Reducing Latency. Big Data is Fueling the Need to Rethink Supply Chains:  Retailers are aggressively working on mobile/social and eCommerce convergence.  The tone has changed.  It is no longer a science project.  The NRF program drips with it. The tone over the last two years has accelerated.  <It should be a WAKE -UP CONSUMER MANUFACTURERS>  This program is so MUCH more advanced in the understanding of disruptive technologies than the Consumer Goods Technology (CGT) program in October or the Grocery Manufacturers Association (GMA) conference that I am attending in two weeks. The gap is widening.  I leave my first day session thinking that the supply chain for retail is like the cell phone in China. You might say what? Has the Shaman lost her mind? Let me explain.

Today, you will not find a traditional handset phone in a Chinese home.  They skipped a generation of technology and went straight to mobile handsets.  I find this situation on the use of disruptive technologies in retail analogous.   Retailers have been late adopters of supply chain technologies.  <I smile everytime a retailer wants to talk to be about implementing a Perpetual Inventory (PI) signal or implementing a new ”advanced technology for allocation logic that sits on DRP (linear optimization).” > Today, as I drag my tired feet out of NRF, I firmly believe that retailers skipped a step in supply chain maturation and consequently are able to move faster on the adoption of these new technologies.   While consumer products companies are on a forced march to implement the licensed technologies of ERP/APS and CRM, retail is leapfrogging.  They are investing in Big Data analytics, mobile applications, social/mobile and ecommerce convergence.  They are not hamstrung by the maintenance upgrades of client/server applications of the last ten years.

Tomorrow, I am booked from 9-5 pm on the show floor. I will be in search of cool technologies. Look for my blog post and insights. One thing is for SURE,  I will be wearing comfortable shoes. It will be a long day. You would never know that it was a holiday weekend at #NRF12.  The show is packed. There are lines everywhere.

“Why am I focused on the supply chain? The answer is simple. It is a barometer of my business. All the problems show up first in the supply chain….”

Michael Dell, CEO of Dell

This week as I did briefings, gathered data for the book, and talked to experts, my mind was cranking.  So, when you play supply chain trivia this weekend with your friends <OK, so you might say, “Yeah, right! Not me, Lora.” >, here are five factoids.

§ Materials are Growing Scarce. In 2011, the British Geological Society listed 52 minerals as critical.  27 of these can only be sourced from China.

§ Product Complexity is Increasing.  In grocery retail, the average store in the United States has three times the number of items that it did in 1990.  The number of items is growing ten times faster than store profit.

§ We are not Safe & Secure.The efficacy of biologic products is a growing concern. (A biologic is a medicinal product that is created through a biologic process versus chemical synthesis. To be effective, these require tightly controlled cold chain environments.) The top 32 most commonly counterfeited drugs have cold chain requirements. These are some of the most important and most susceptible drugs to both loss of efficacy and counterfeiting. .

§ We have not solved the Issues around Waste. One out of three fruits and vegetables spoil on their way to market. Two out every five chickens are thrown in the garbage.

§ Progress on New Product Launches is Stalled.  Only 25% of new product introductions achieve 7.5 Million in annual sales. While the number of products introduced over the past five years has numbered 1600-1800 items, the success rate percentage has not improved.

While these may seem divergent points, for me they all sound like an opportunity.  Yes, I believe that an opportunity knocks for supply chains to drive value, but I am convinced that we cannot seize value unless we look at supply chain processes as a system.  To do this, we must be T–shaped managers (think horizontally across silos’s and outside-in) with a focus on system thinking.

What is the Difference between a Complex Process and a Complex System?

In the face of rising business complexity, supply chain is a complex system composed of complex processes.  Most people that I interview for the book will discuss their business complexity.  Or they will share insights on their process complexity, but do not fully grasp the impact of the concept that the supply chain is a complex system.

Systems thinking is the process of understanding how things influence one another within the whole.  The practice of systems thinking is rooted in the fact that you cannot look at one process without looking at the entire system. The focus is on cyclical versus linear cause and effect.  For example, you cannot change inventory levels without affecting cost and customer service.  Or that the interactions of how one value network impacts the other.  For example, did my cancer treatment not work because the biologic drug was counterfeit or because the rare metal for the stint was not available from China?

Why does Systems thinking Matter?

In finishing fifty interviews for the book, Bricks Matter, I find the points of view in stark contrast. 

I know that it is dangerous to generalize, so please bear with me.  In my interviews, people with business backgrounds tend to talk about business complexity and the evolution of processes to simplify and streamline processes and cycles to improve reliability.  I also find that people with Informational Technology (IT) backgrounds tend to focus on simplifying complex processes.  This is in contrast to the supply chain leader discussions that I have been privileged to listen to that have focused on how to maximize opportunity with a focus on the whole or focusing on the entire system.  

I leave these interviews believing that the number one thing that Universities need to teach the fourth generation of supply chain leaders is how to be system thinkers. <So, if you are a student in a supply chain curriculum, please enroll yourself in a systems thinking course. When you do, plan to study.  As an engineering student, I took my systems thinking class twice.  The first time was not pleasant. I got a C.  My mom was not happy.  The second time, I got an A.  She was happier.  It is a tough class. >

So, coming out of these interviews, I believe that whether it is business complexity, process complexity, or system complexity, the key for these new leaders will be in streamlining and simplifying complexity.  Let me give you an example. I am struck by the brilliance of A.G. Lafley’s transformation of the Procter & Gamble organization in 2002.  He focused the entire company on the two moments of truth.  He asked the organization to judge themselves by how well they served the consumer.  He asked them to answer two questions:

§ Was the product on the shelf when the customer wanted it?

§ And, when the customer used the product, were they delighted?

If the answer to both of these was “yes“, then they had been successful.  If the answer was “no”, the organization had failed.

He then organized metrics and organizational thinking outside-in to focus on these moments of truth.  It was simple, but powerful.  It forced the team at Procter and Gamble to think across silos outside in.  It made the complex simple.

I believe that the problems and the solutions to industry supply chain issues are inter-connected and need to be viewed as part of the whole.  I think that true supply chain leadership can happen only when we can design outside-in using simple, but effective goals to align the organization in systems thinking.

What did People Read on the Journey?

The other question that I asked in the research was, “What books had the greatest impact on you, and your journey as a supply chain professional.”  The answers surprised me.  Supply chain books were seldom mentioned, in general, business books had the greatest impact.

Here is what the first generation of supply chain leaders read in the journey:

-36% of the respondents were impacted by The Toyota Way, by Jeffrey Liker.  This was a milestone book about lean and lean thinking.

-18% of the people interviewed were driven to think harder about supply chain by reading Good to Great, Jim Collins.  Companies remember the images of the hedgehog and the flywheel.

-9% mentioned The Goal, by Eli Goldratt.  This book was a pivotal book in my career.  This book kicked-off the Theory of Constraints (TOC) thinking.

-5% listed Clockspeed by Charles Fine.  The impetus of this book is to look at cycles and time.  This for me is the essence of systems thinking.

-5% cited the book Who Moved my Cheese, by Spencer Johnson.  The road to supply chain excellence is also full of organizational pitfalls and potholes.  One of the companies that I interviewed said it well, “People game each other.  Most of my time is spent in negotiation and sandbagging. I have learned to do this well.” (So, you may also want to take a class in political science.)

-5% listed In Search of Excellence, by Tom Peters and Robert H. Waterman.  This is also one of my favorites.

So tonight, I arranged my book shelf carefully placing these books with a hole in the middle.  In the middle,  I have a place for the book that I am writing that is titled Bricks Matter for publication on August 1st. Every now and then as I write my 98,000 words, I will look up and imagine the book surrounded by the others that helped drive new levels of supply chain thinking.  When it publishes, I hope that it will also be on your bookshelf with all of these others.  It will be a book on systems thinking and how thinking holistically about supply chain management drives value.  Meanwhile, thanks for reading and have a great weekend. If nothing else, I hope that I helped you with your weekend game of trivial pursuit.