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The Retail Vertical Comes in Several Flavors

Analyst Insight: For retail, what's on the supply chain horizon isn't one-dimensional, purely best practice, absolutely the optimum, but rather a continuum of distinct models working within several different environments. From a supply chain vantage point, the best retailers are those who orchestrate supplier resources with their own, resulting in agility and responsiveness to changing situations and differing customer needs. – Robert Sabath, Principal Essentialist SCM, Trissential

The Retail Vertical Comes in Several Flavors

Retail has multiple options; just think of the dimensions involved: Bricks and mortar to internet to omnichannel. Consider its delivery options: same-day delivery, same-day processing, tomorrow delivery, free delivery, free returns, and more.

There are multiple interfaces with products: live demonstrations, rating and ranking sites, videos, places to touch and feel. Oh, and then there are price quotes, price comparisons, shopping apps, high service/medium service/no service.

These are only the beginning. Wait until goods are sized through a video pickup. Product demonstration facilities replace brick and mortar stores. Omnichannel solutions become the savior. National presence and sophistication allow national retailers to manage a single national safety stock, rather than separate safety stocks for each location.

Winners must be clever and agile. They will use others' resources and their own ingenuity. They’ll walk the tightrope between cleverness and practicality. They’ll keep electronic ears and eyes open, becoming the most clever, most agile, most inventive, while keeping feet on the ground and customers satisfied.

Options boil down to practical ones. What tools will best match markets, and how can we differentiate in order to succeed? Four supply-chain strategies emerge:

High-volume, broad-based retailers are differentiated by their supply chain strategies. Amazon uses alternative tools to always satisfy customers, top line driving the bottom line, and uses support organizations and suppliers to deal with the long tail. Walmart focuses on limited selection and the experience (and environment) of low price. Others must follow service strategies that are visible and differentiated, yet match their target niche.

• The most successful high-volume, focused competitors build on reputation, relationships, seasonality or depth of capability. QVC knows its customers and provides personalized supply chain capability starting with a human voice, leading to a responsive delivery process.

• Effective sweet spot competitors focus on subject or interest-based segments. Michael's, Claire's, and Hobby Lobby respond to their target audiences, clustered by subject matter, interest, product type, age group, etc. Their supply chain challenge is breadth, depth and visibility of the product mix, and sensitivity to seasonality and fashion demands.

• Finally, the long-tail retailers, providing high service across a broad range of lower demand items, require great sensitivity to inventory planning and specialized consumer needs. Companies such as OptumRx (an e-mail prescription service) and several of the "R-Us" tool and technical retailers gain their leverage from availability.

Supply chains, techniques, focus and operations of the best companies vary dramatically between the four categories. Ironically, the laggards of each category generally don’t show much variation in their supply chain approaches because they respond to technically inappropriate concepts: history rather than direction, arcane mathematics rather than competitive reality, old-time formulas and forecasts rather than immediate demand and response, push rather than pull.

                                                     The Outlook

It’s simple logic. Customer segments should determine your strategy, your safety stocks, based on volumes, reliability, cycle time and your willingness to respond. Similarly, it's your customers and your willingness to respond that place your organization at the top or the bottom. The right answer for the leaders comes from their unique point of view and their willingness to do what it takes to win. Answers for the others come from textbooks, inflexible package solutions, and an unwillingness to accommodate today's far more demanding marketplace.

It’s your choice.

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