The Supply Chain:
It's More Complex Than You Might Think
by Scott Pearson
At its most basic, a supply chain is a network of entities that work to bring a product from the initial concept to the end consumer, and in some cases even beyond. Many businesses focus on specific aspects of the supply chain and can be considered a single link in the chain, while others may represent multiple links. Depending on product type, there may be five or more links in a specific supply chain, not including the transportation aspects (logistics) between each of the steps. Manufacturing the product and distributing the product to specific commerce channels are just two of the many links in the chain. But the supply chain that manages product flows from conception to the consumer can be quite extensive.
Below is a list of entity types that may be involved in a retail supply chain. In many cases, this basic supply chain may in fact rely on elements of additional supply chains to deliver a final product. For example, buttons on a men’s dress shirt are a component of the dress shirt, but they rely on an additional supply chain to manufacture and deliver the buttons to the manufacturer of the dress shirt. The same goes for the cotton fabric used to make the shirt. And, of course, finished products often go beyond the manufacturing of the item itself and can require packaging and other ancillary needs.
Manufacturers are a key component of the product lifecycle, but manufacturing can’t be thought of solely in terms of creating a product. This process also relies heavily on the sourcing and managing of the raw materials and components required to manufacture and package a final deliverable (recall the example of the buttons above).
Manufacturing is largely the bringing together of various components to build a composite good based on the elements that make up a finished product.
Of course, it doesn’t all end here. The capacity of the manufacturing facility is a key component of the final delivery schedule, and the anticipated demand of the finished goods drives the production cycle as well. So, forecasting the demand of the product, the sourcing of the components, and the timing of the production schedule all required to complete an order can be extremely time intensive, and can be impacted by delays in any of the global supply chains involved.
To address all of the needs described above, manufacturers often rely on technology, ideally with real-time visibility and tracking, to manage the overall process. These management systems include Product Lifecycle Management (PLM), Demand Forecasting and Sourcing solutions, and Enterprise Resource Planning (ERP), each designed to address and streamline targeted aspects of the manufacturing process.
The general concept of wholesale is the process of selling large quantities of goods to be retailed by others. This may be performed by entities that sell solely Business to Business (B2B), or in some cases by those that sell products B2B, but also Business to Consumer (B2C). Wholesalers may also be the manufacturer of a product or may serve more as a pass-through in the selling process.
While wholesalers that also sell B2C are often vertical retailers (those who manufacture their brand, sell into other larger retail brands, and market their product under their own banner), this may not always be the case.
The needs of wholesalers vary from those of manufacturers, but often mimic them in many ways. Sourcing of products is still a general need, but in most cases this sourcing is through vendors of finished goods. Demand forecasting is a requirement, but typically the demand is derived from pre-defined orders and/or commitments from their end customer (retailers). Efficiency of ordering products and distributing to the retailer is where wholesalers can increase their sales margin by reducing inventory costs, streamlining the delivery of merchandise, and anticipating unique needs that may require back stock to be available to replenish uncertain demand.
For the vertical retail brand, the wholesale needs represent only a portion of their business (B2B), but they also need to continue down a separate path and supply chain to accomplish the B2C retail aspects of their business.
Traditional retailers purchase goods from manufacturers or wholesalers or may provide goods that are on consignment. Consignment may come in more than one form. The first is the shop-in-a-shop concept, where a brand occupies a space to sell their products and those who work in this area of the store work for the brand itself, and not the retail company. The second is areas of the store where products are sold that focus on a particular brand, and where the vendor manages the inventory, and the purchase of the finished good from the retailer takes place when the product is sold.
In the e-Commerce world, the consignment concept has grown to include items that may not be in any physical location but may be sold with the purchase generating a unique Purchase Order (PO) that delivers the good directly from the vendor. This allows e-Tailers to increase their product catalog without any inventory or associated carrying costs.
As retailers continue to combine their sales channels (brick-and-mortar stores and e-Commerce aka “bricks and clicks”) many brick-and-mortar retailers are also introducing products to the store that are not in their physical inventory.
Retailers have an entirely different set of needs than manufacturers or wholesalers. As the breadth of products carried by a typical retailer can be quite large, the demands of managing the overall product catalog increases exponentially. They need a solution to manage the product master file and global vendors, and to approach forecasting, planning and allocation in a more sophisticated manner.
Some store locations are different than others in terms of sales, product assortments, size and even customer profiles. Some products are staple products (carried year-round as basics), and others are seasonal in nature. And, with the advent of omnichannel, some locations serve a broader purpose of delivering products from the store that were purchased online while others serve as mini warehouses.
As time goes on, needs change. Seasonal goods lose their luster, so replenishment of these items becomes counterproductive. As companies often look to consolidate goods into key locations, rules for online orders that are shipped from stores or for stock balancing measures can optimize stock in the sites most likely to sell them.
While Commerce Channels are a component of the retailer, they do have special needs in the context of the supply chain. As channels are in place to provide direct consumer access to the finished product, the ability to make the right product available at the right location at the right time becomes a bit more challenging.
As the supply chain’s primary goal is to deliver upon the end goal of the product journey, from concept to consumer, these channels serve a critical role in consummating the sale. Channels may be brick-and-mortar stores, e-Commerce, or a combination of the two. The ultimate purpose of the commerce channel is to reach the consumer directly, be it through physical or digital approaches.
These commerce channels also represent a link in the supply chain as it is crucial to ensure the products desired are available to sell, and/or the products promised for sale are available to be delivered to the consumer. So, even in a physical location such as a store, the ability to manage the products to ensure they are available on the floor, easy to locate within the four walls, and/or available to acquire outside of the four walls to meet the needs customer demands is significant.
More and more, the adoption of omnichannel solutions such as Order Management (OMS) are being deployed to ensure an “Endless Aisle” concept allowing items to be purchased from anywhere and fulfilled from anywhere with high efficiency and efficacy.
The Movement and Storage of Goods
Many of those reading this article may have been left to wonder where the movement of goods and capabilities that manage the movement and storage of goods fall into the supply chain described above. To be sure, they are elements of the supply chain. They are in fact among the most obvious supply chain issues of note in the current environment.
While a related and integrated component of supply chain, the storage and movement of goods is commonly referred to as logistics. Logistics is part of the end-to-end supply chain process, but with a distinct focus on movement within the entities that comprise the supply chain, or to the consumer themselves.
Perhaps the most obvious component of logistics is the transportation of goods. This transportation may involve the components needed by manufacturers to produce a product, the transportation of finished goods to a wholesaler or retailer, or the transportation of goods to a “staging area” such as a Distribution Center (DC) or Warehouse. Of course, transportation is also required for the final delivery of a product to the consumer, often called the ”last mile.” Transportation may come in the form of air, freight (ship, train or truck), and with the last mile, now local driver delivery services and perhaps soon via drone.
Each link in the supply chain has the need to track shipments of goods to ensure they arrive when anticipated. Delays, damages, or partial shipments will all have impact to each of the corresponding links in the overall end-to-end supply chain. Any impacts may require adjustments to demand forecasts, planning, allocation, and other aspects of the business processes.
While warehouses are most certainly a component of the supply chain, they are grouped here under logistics, as the primary focus is the storage and transportation of goods. Warehouses may be part of a manufacturer’s, wholesaler’s, or retailer’s infrastructure. In some cases, the warehouse may be owned by a third-party and acts as a representative of the wholesaler or retailer. This is known as Third-Party Logistics (3PL).
In all cases, the primary purpose of a warehouse is the storing of goods and the allocation plans. While some incoming items may be pre-packed and moved directly to the shipping area (known as cross-dock), others may have additional services applied while in the warehouse (i.e. ticketing). The primary goal is to store products in a location that lends flexibility to where and when products should be delivered based on ongoing sales and need.
For e-Tailers, the warehouse may represent the entire inventory of available products, while for brick and mortar it most often contains a subset of the inventory, as most inventory is available for sale in stores. For the omnichannel retailer, it often serves the purpose of direct-to-consumer shipments for web orders and separate picking waves for delivery to the stores.
The primary purpose of a retail supply chain is to deliver a product to the consumer, and to manage the entire process from concept to consumer. Supply chains can be quite complex, with one supply chain feeding into the next. As such, coordination of each stage is critical to a successful delivery of a finished good to the consumer.
Sourcing of goods, forecasting of demand, overall resource management, and logistics are all components of a successful supply chain. Each of these components of the supply chain will vary based on the type of business, with the vertical retailer having perhaps the most complex series of supply chains, as they serve often as the manufacturer, wholesaler, retailer, and direct-to-consumer channels.
Understanding the unique supply chain is key to success and achieving a competitive advantage, but also having tools in place that allow you to address the “what if” scenarios is perhaps the most indicative of optimal results. What if a shipment will be late? What if a shipment is damaged? What if only a partial shipment will be delivered? All of these can break a supply chain that lacks ways to address these issues in a proactive manner.
Jesta can help in all stages of the supply chain and is dedicated to the unique needs of retailers through the entire product journey from concept to consumer. The below diagram provides a high-level overview of the Jesta solution portfolio.