By Bill McBeath

A strong brand drives market share, higher margins, and negotiating power in business relationships. But how many of us think about the key role supply chain plays in strengthening a brand? After all, supply chain people are the "grease under the fingernails" guys out back worrying about the warehouses, factories, and deliveries. What do they care about brand? And branding folks are the pinstripe suits out front worrying about the company image, the next ad campaign, and that endorsement from a big star. What do they care about the supply chain? In winning deals … they care a lot.

A brand is a promise. Superior supply chain capabilities are the foundation to consistently delivering a customer experience that fulfills and strengthens the brand promise, both emotionally and practically. Consistent delivery is imperative in building that most critical element in the customer relationship—trust. Without consistent delivery, the brand is just an empty façade … a broken promise.

Keeping Pace with the MTV Crowd

A hot fashion store like Hot Topic must have the absolute latest, coolest, hippest clothing and accessories for their fashion-fickle teenage clientele or they loose customers. Their brand is built around not just keeping up with trends, but setting them. The typical 12-18 month delivery cycle for apparel sourced overseas doesn't cut it with Hot Topic, so they source locally. Behind that spiked black leather is an efficient, high velocity replenishment system. Not just quickly getting things on the shelf, but also strategies to quickly turn merchandise to make room for the latest and greatest new thing, which is key to increasing profits and keeping your fashion-conscious customers coming back for more.

Customer Value Through Supply Chain Efficiency

Wal-Mart brands around everyday low prices. Price/value relationship is critical to the Wal-Mart shopper. To be profitable at this game, Wal-Mart developed their renowned, extremely efficient, high volume supply chain. The efficiency and total-cost-effectiveness of Wal-Mart's supply chain is essential to keeping their brand's promise of "Always Low Prices. Always." Wal-Mart offers a very wide variety of product segments (Fashion, Fresh and Packaged Grocery, Consumables, Short-Life Products, etc.) each with widely differing supply chain requirements. This highly diversified product mix meant Wal-Mart had to develop a highly diversified (and highly efficient) set of inbound logistics capabilities.

Clearly a store's format and merchandising mix (dictated by a retailer's brand strategy) have a profound impact on inbound logistics and replenishment requirements (all the way from the plant to the shelf). The supply chain-brand connection also goes beyond merchandising and replenishment to areas such as:

  • Returns, repairs, service
  • Customization
  • Packaging/displays
  • Excess and Obsolete/Markdown strategy
  • Fulfillment
  • Handling Out-of-stocks

Returns, Repairs, Service

Elite brands implicitly and explicitly promise that customers will be pampered. They must offer premium services or else their brand image is just a hollow promise. Premium services require deft supply chain and service network capabilities. For example, every Mercedes-Benz in the U.S.—no matter how old, how many miles it's logged or how many owners it's had—can receive Roadside Assistance, 24 hours a day, 365 days a year. Mercedes will jump-start your battery, bring you gas if you run out, or change a flat tire, all free of charge. Mercedes offers similar services throughout the world (even in places like Botswana). Your service logistics network has to be world class—and profitable—to support the brand.

Tweeter competes with other consumer electronics retailers, including mass merchants and big box retailers like Best Buy and Circuit City, who tend to focus on low-to-mid price products for the mass market. Besides offering high end, cutting-edge products, Tweeter differentiates their brand as the place for connoisseurs who love audio and video equipment by offering in-home installation and repair services (i.e. elite service not offered by their mass market competitors). Their "Performance Package" adds 10 years to the manufacturer's warranty. Tweeter's in-home and extended service offerings are supported by a network of 5,000 service centers (obviously not available from Circuit City!).

Customization and Personalization

Mass customization and personalization are key elements of certain brands that strive to give the customer a feeling of being special. But mass customization requires an overhaul of traditional supply chains. On select styles of Nike shoes you can choose your own custom colors for each of the 10 or so parts of the shoe (e.g. base, accent, quarter panel, swoosh, lace, cage, etc.). An image of your shoe is colored in front of your eyes on their website as you make selections (you can design some pretty bizarre looking shoes this way!). Plus you can add your own personalized name or favorite team's logo to the shoe, which is shipped direct to your home. It requires significant revamping of conventional manufacturing and distribution processes and operations to deliver personalization like this.

Packaging and Displays

Supply chains are being challenged to deliver products in ever expanding varieties of packages. This trend is being driven largely by branding needs. Retailers want customized packaging to fit the needs and image of their own unique store formats and brand. Manufacturers want to stand out from the crowd and cover a variety of very targeted customer segments with the same basic product. As a result of these brand requirements, the number of package variations has exploded and supply chains are being reconfigured to support packaging postponement to help deal with the nightmare of forecasting against these proliferating packaging micro-segments.

For example, Gillette sells disposable razor blades in Europe. To meet all their branding, promotional, and language needs, they have about 1,000 different packaging variations for the European market alone. To handle this variety, they created a new European packaging and distribution center that receives finished, unpackaged razor blades, which are pulled and packaged as needed to fulfill demand from regional distribution centers.

Excess and Obsolete/Markdown Strategy

The brand image of a product can profoundly influence a company's approach to handling excess and obsolete inventories. For example, obsolete products that are part of an elite product line may be disposed and written off rather than weakening the brand image (and future margins) by marking down prices.

Fulfillment

UK-based Tesco grocery store has the motto "Making shopping better, simpler, cheaper". They strive to give "value and choice" to their customer and support this with home delivery of groceries. Tesco currently delivers 110,000 orders per week to homes. Tesco has put a lot of effort into refining the supply chain systems and processes for this, such as picking, packing, and vehicle loading. Tesco employees pick orders using shopping carts outfitted with computers that direct them to the most efficient route through the store, fulfilling multiple orders simultaneously and bar code scanning the orders as they go.

Handling Out-of-stocks

How a store handles out-of-stocks is a part of their brand. In off-price retailers that sell manufacturer overruns and out-of-season merchandise (such as TJ Maxx or Marshalls), if the merchandise is not on the shelf, customers understand that out-of-stock means not available. It's part of their brand's "contract" with customer—you get extra low prices on high quality name brands, but what you see is what we have. In contrast, upscale stores offer to ship overnight at no charge from other locations, or give you a discount on another similar item if the one you wanted is out of stock.

Format and Merchandise Mix Impact Inbound Logistics

Brand strategy drives retail formats and merchandising mixes, which in turn drives supply chain requirements. Table 1 below gives examples of the relationship between merchandise segments and the variety of replenishment approaches needed to support them.

Relationships Between Merchandise Segments and Replenishment Approaches
Product Segment
Examples Replenishment and forecasting
High Fashion
Designer clothes Allocated product, long term forecasting
Basic Fashion
Domestic Apparel Normal replenishment (daily or weekly), normal forecast (few months out)
Grocery-
Perishable
Fresh Produce, Bread Multiple deliveries per day (or per week) from local sources
Grocery-Dry/Frozen
Dry/Frozen Canned Foods, Frozen Foods. Normal replenishment (daily or weekly), normal forecast (few months out)
Consumables
Hardware, HBC, Stationery, Paper Towels High volume, high velocity, low cost, rapid replenishment, Multiple deliveries per week
Short Life Cycle Products Electronics Rapid replenishment, frequent delivery, complete lifecycle forecasting
Leased Areas (store-within-a-store) Any product segment Various replenishment approaches available—e.g. store direct, unitized shipment, etc.

Table 1
Source : ChainLink Research, Inc.

In addition to the replenishment strategies illustrated here, different product mixes utilize a variety of different channels and inbound logistic processes and methods such as cross dock, flow-through, consolidation, pallet, partial pallet, and case-level distribution, break-pack, etc.

Connecting the dots

When merchandising and branding decisions are divorced from supply chain and logistics considerations, many golden opportunities are lost. Best-in-class retailers and manufacturers understand the connection and synergies between building their brand and building their supply chain capabilities. It will serve supply chain professionals well to learn the language and logic of brand building and become part of those critical discussions and decisions. And CEOs who want to build a powerful brand should not forget how important delivering the goods is in building confidence and trust in their brand. With the right supply chain capabilities, you can keep your brand's promises.


Next month we will discuss product brands and supply chain processes.

 

 

 


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©2003 ChainLink Research, Inc.