Transform Your Supply Chain for Omnichannel – Part III

New Supply Chain

Retail duality requires and is driven by supply chain duality

Retail duality requires and is driven by supply chain duality—to deal with stores and moving cases and pallets of products and to deal with many, individual customers and meeting their satisfaction expectations. The new retailing is about supply chain management. And that new selling requires a new supply chain to drive and create the customer experience. Trying to force standard retail supply chains do more than they were designed for is not agility; it is a failing attempt to change and grow. A one-size-fits-all supply chain does not meet the differing requirements of omnichannel.

Standard supply chains cannot respond to the new retailing. It requires the new supply chain. Otherwise retailers will be buried in inventory along the supply chain, while not meeting providing the customer experience.

The New Supply Chain drives new performance requirements and moves products quickly through the entire supply chain. There are key, interrelated elements that address systemic excess inventory and satisfying customer requirements. The New Supply Chain directs and manages structured complexity to deliver the Customer Experience.

The New Supply Chain directs and manages structured complexity to deliver the Customer Experience.

In turn, to respond to order immediacy by retailers and e-tailers, manufacturers must accelerate production and supply chain capabilities. They also need the new supply chain with its embedded lean capabilities.

Elements of New Supply Chain. It extends upstream, compresses, advances integration, and speeds the movement of inventory/products. The result is reduced inventory and improved performance.

  •  Inventory Velocity. Much inventory sits—in storage of warehouses and other places. No value is added. Products are supposed to flow. From a lean view, this is waste. Moving inventory more quickly through the supply chain is critical to the omnichannel supply chain, to lean, and to good liquidity practice. Velocity is important to mastering demand ambiguity. With the new supply chain, inventory velocity is escalated to inventory velocity squared.

With the New Supply Chain, inventory velocity is escalated to inventory velocity2

Velocity means that companies can move inventory faster and runs counter to what some firms do by adding to their already high stock levels—and low turns that add to liquidity and inventory problems. Companies face being left behind by order immediacy that will be required across borders, industries, and markets.

Not every product requires velocity. Selection of products/SKUs is needed. The targeting can be based on analytics, segmentation, or other methods. Inventory velocity mitigates the tendency toward carrying more inventory, while increasing service.

  • Time Compression. Removing excess time is important to the new supply chain for inventory velocity. Unnecessary time exists throughout the supply chain. With so many parties involved in the supply chain, it is caused by internal and external actions.

Compressing time means being able to react more quickly to sales vagaries—and, in turn, realizing inventory yield maximization. Identifying areas of extra time is needed in to compact it. Value stream mapping of the supply chain is an excellent tool to find time compression opportunities and reliability improvement. This is especially true for the upstream sector where much of the total time occurs.

It may also impact outsourcing. There should be a shift from outsourcing with logistics providers to instead using supply chain providers. This means a new breed of outsourcing firms who can compress time—and positively impact inventory velocity. This is a new outsourcing performance metric—contribution within the supply chain, not for a logistics activity.

  • Extend Supply Chain Upstream. Upstream is where the supply chain begins. Extending the supply chain is a logical result of recognizing the supply chains within supply chains and managing its complexity.

Supply chain management pulls, not pushes, inventory. Extending the supply chain is a natural action to doing this. It does not expand the definition of end-to-end supply chain management, it actually performs it. In fact, end-to-end recognizes that suppliers are not an end. Suppliers have supply chain complexity and supply chains within supply chains.

The omnichannel supply chain can have a pushback to suppliers for more and faster deliveries. This means more than implementing procedures for supplier compliance. Upstream extension implements the New Supply Chain with key suppliers. It is designing and managing the entire supply chain, not sectors of it, not logistics functions of it. The extension is into the supply chains of suppliers. Identifying key suppliers can be accomplished using segmentation or supply chain risk analysis.

This upstream move redefines supplier relationships and identifies the previously unknown, hidden supply chains—the supply chains of suppliers. It is the secret sauce of inventory velocity and is a de facto vertical integration of supply chains. The result is that extending the supply chain shortens it by removing unspecified parts, compresses time, and drives inventory velocity to inventory velocity2.

  • Advanced Process and Technology Integration. The supply chain process flows horizontally across the internal organization and externally to suppliers and customers. The horizontal direction contrasts with organizational pyramids with its vertical emphasis and implicit silos. Also factor in all the stakeholders and participants involved with supply chains.

Supply chain complexity and breadth has gaps in the process; it has gaps in technology. These gaps—black holes—mean a loss of visibility and of compressing time and building velocity. Total process and technology integration is integral with extending the supply chain upstream.

Much technology reflects sections of the supply chain. WMS, TMS, and other technologies address pieces. They are somewhat standalone pieces of select activities and do not provide visibility and control of the entire supply chain. Integration is about visibility; but visibility is not enough. Expanding digitization for the total supply chain is needed to drive and manage it and to support the process.


The world is in the early stages of a global supply chain revolution. The Amazon Effect. The Internet of Things. Platform Businesses. The new supply chain will grow beyond omnichannel. It will cross into other industries and markets and will incorporate supply chains of products, information, and finance.

The world is in the early stages of a global supply chain revolution. The Amazon Effect. The Internet of Things. Platform Businesses.

All the elements of the New Supply Chain tie together. They are not separate steps. They are not to be selectively chosen or excluded. These are inter-related. The New Supply Chain brings performance excellence.

Similarly for manufacturers and others, moving to the New Supply Chain provides structure for the advanced lean requirements that come with the new operating reality.

Think about what will happen when virtual reality becomes virtual retailing and what that will requires supply chain management with larger order sizes and greater product mixes. Or, as retailers struggle, what will happen if and when brand-name manufacturers enter e-commerce markets? Retailing is being continuously redefined.

Moving to the New Supply Chain is required for the new global reality of doing business. It is not a choice.


Source: LTDManagement

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