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
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
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
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
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
- Excess and Obsolete/Markdown
- Handling Out-of-stocks
Returns, Repairs, Service
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
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.
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.
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
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.
Between Merchandise Segments and Replenishment Approaches
||Replenishment and forecasting
||Allocated product, long term forecasting
||Normal replenishment (daily or weekly), normal forecast
(few months out)
|Fresh Produce, Bread
||Multiple deliveries per day (or per week) from local
|Dry/Frozen Canned Foods,
||Normal replenishment (daily or weekly), normal forecast
(few months out)
|Hardware, HBC, Stationery, Paper Towels
||High volume, high velocity, low cost, rapid replenishment,
Multiple deliveries per week
|Short Life Cycle Products
||Rapid replenishment, frequent delivery, complete lifecycle
|Leased Areas (store-within-a-store)
||Any product segment
||Various replenishment approaches available—e.g.
store direct, unitized shipment, etc.
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
Logos, tradamarks, and corporate
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their respective companies and brands
ChainLink Research, Inc.