September is a good time to start thinking about supply chains in retail, if only because in the months leading up to Christmas they come under the greatest strain. In fact in the past few years I’ve noticed that senior managers in retail tend to have that strained look in the pre-Christmas months.
They’re worrying about the Christmas trading figures and what they will do to their share price when they’re released in the weeks after the festive season. Quite a few companies – not least Marks & Spencer – have taken some painful hits in Christmases past. Will this year be any easier?
But I digress. I wanted to start with something a senior manager in one of the UK’s larger retail chains told me recently. With an odd sort of smile he boasted: ‘We can tell if one of our customers is likely to be pregnant even before her husband knows.’
Before we have any sniggering at the back, I hasten on to add that the source of this information is the loyalty card data his company picks up whenever a customer pays at the till. The woman spending on pregnancy testing kits and certain other telltale items we needn’t go into here, is likely to be in the family way.
What struck me about this story was just how reliant retail supply chains now are on first-class information about what customers are buying. The ability to predict buying patterns more generally and have a supply chain which can react to them fast – weather’s going to be good this weekend, let’s do a special offer on barbecue meat – is increasingly sorting out the retailers whose chief execs have smiles on their face from those who don’t.
One retail chief executive who’s sporting something of a forced smile at the moment is Kate Swann at W H Smith. Now, it’s fair to say that the high-street stationer has slaughtered quite a few management reputations in the past few years. Quite simply, none of them have been able to carve out that unique role for the company that would enable it to see off the competitors nibbling away at its markets.
Swann may be different but it’s interesting that her strategy implies an enhanced role for supply chain management in the store. To give one example, I’ve long given W H Smith a wide berth if I’ve wanted to buy a book which is outside the top sellers. I just know it’s not going to be there.
Trouble is, it seems a lot of other book buyers have the same idea. We’ve been heading off to Waterstone’s, Ottakar’s or smaller specialist shops. Swann hopes to lure us back by stocking more titles. She wants the store to have the reputation of the kind of place you can enter knowing that you’ll be able to buy what you want.
Whether she pulls off this trick is will depend on better information about what customers want to buy – not to mention getting a broader range of stock onto the shelf. And as W H Smith’s margins are under pressure, you can bet this week’s best seller to a crumpled copy of yesterday’s Currant Bun that the logistics team will be under pressure to reduce the quantity of stock in the supply chain.
Which brings me to the ‘bullwhip effect’. One Dr Calvin Lee, vice-president and chief scientist at Evant – a company that provides retail management software – identifies this as one of the factors that causes supply chains to break down. The problem is caused by demand information being distorted as it’s transmitted up the demand chain, says Lee.
This produces the bullwhip effect which is seen in unwelcome developments such as too much safety stock, forecast projections which prove wide of the mark and supply chain costs that are rising too fast. Bottom line: worse customer service. In W H Smith’s case, the bullwhip is all those books stacked in warehouses rather than out on retail shelves.
Lee may be right about the bullwhip effect on supply chains. But doesn’t the solution really come back to more management focus on what matters – knowing what customers want, then simplifying the supply chain to get it to them swiftly.
The retailer that knows about the pregnant ladies seems to have the whip hand over these supply chain information issues. Whether Swann can do it, too, we shall see. If not, no doubt shareholders will be able to think of another use for the bullwhip.