Written by: Ram Venkatesh
Momentous change can happen when you are bored, says Ram Venkatesh
In the Foreword to his book Re-Imagine bestselling author, business and management guru Tom Peters explained how his eleventh book came about.
“Because I’m pissed off,” he wrote, “I happen to believe that all innovation comes, not from market research or carefully crafted focus groups, but from pissed-off people.”
After more than 20 years in retail and several corporate sourcing reorganisations and restructures, I can comfortably say I share those feelings. It is not that every reorganisation or restructuring was wasteful or unnecessary, but for the massive process engineering that it took and the resultant impact both up and down the value chain, the results and improvement were at best incremental. In addition, organisations went through the same process again in three to five years. While changes were for the better, they were static, non-organic events until the next reorganisation.
Like every other MBA graduate of the ’80s and ’90s, I was an ardent believer in over- analysis and aggressive Key Performance Indicators (KPIs), bound by what I was taught by my mentors and limited by organisational boundaries. It was a time when price, value, quality and customer service were direct and measureable. Then, about two years ago, I took a college level course by Steve Blank, a Silicon Valley entrepreneur and academician.
Though the course was about start-ups, it was an epiphany of sorts. How does one unlearn processes and habits programmed into you? “To truly get closer to customers takes a culture of customer-centricity, empowerment and innovation,” writes Brian Solis, author of What’s the Future of Business? “We must destroy bureaucratic processes and bureaucratic structures and build a new, from a new base,” says Tom Peters.
Now, the time is for investing in fantastic and shareable customer experiences through multiple channels and platforms and multiple touch points. How can we expect people and old corporate structures to behave, collaborate and work differently just because we call them omni-channel buyers or omni-channel designers and give them more responsibilities? Irrespective of how the future merchandising organisation structure looks, if the total user/consumer experience is paramount in this new world of omni-channel retail, it is equally important that the entire ecosystem with all its touch points is more important than the sum of its parts, whether it be external or internal to the organisation.
This can happen only if there is a customer-centric value chain loop. It cannot simply be multiples of one sale in one channel with good customer service. Tom Peters points out, “We must understand that a ‘product’ or ‘service’ – even an excellent one — is but the price of entry, the bare bones beginning.” The larger the value chain loop, the poorer and less sharable the customer experience.
What are the fundamentals that the sourcing organisation should be built on to support an omni-channel business and fantastic customer experience? Here are some thoughts.
1. An extended enterprise philosophy
Jeffrey Dyer’s book, Collaborative Advantage has some great examples from Toyota’s experience of how this philosophy works. This simply means that purchasing organisations behave and engage in the spirit that the supplier organisation is an extension of them. That would create one extended enterprise with every handoff, internal or external, creating value. Most organisations, brands, or retailers say that they value their relationships with suppliers but the spirit of that intention often does not translate into the operational relationships they have. Nor does it seep into their behaviour when the first problem arises from the demand side of the business. One of the main reasons for this is that the home office departments are in their own silos and information sharing is spotty, at best.
Another reason is that design, merchandising, product development, inventory, planning and sourcing are often on different leadership verticals with their own KPIs and priorities. In the absence of silos, information is free-flowing and problems are solved collaboratively. There are too many conflicting business interests even within an organisation so it gets more difficult to truly integrate external suppliers in an extended enterprise philosophy. The apparel supplier/manufacturer scenario is vastly different from that in the ’80s and ’90s. Even up to the 2007-08 recession when private label makers or brands had to have over a hundred suppliers because the manufacturers were small or only manufactured niche products. Today, world class manufacturers and suppliers with best in class facilities, designers, and product development teams are willing to engage, integrate and behave as an extended enterprise. This is common in the computer or automobile industry.
2. Developing and building relationships
Fashion supply chains often get a rap. They are one of the biggest players in the global economy. In some countries, fashion garment factory workers are probably one of the worst paid. Every time there is a factory fire or loss of life, it catches media attention. Then, the issue fades.
Every retailer, I am sure, cares about these issues, wanting to do everything possible for the safety of workers. The solution has always been to add layers of oversight, complexity and costs to address supply chain issues. The cost pressure always ends up at the bottom of the chain. The truly sustainable solution to this is perhaps the opposite. It perhaps takes new technology and new corporate structures’ time and pushes up costs to ensure better support downstream. This includes fair wages, better working conditions and more predictable quality and transparency.
You need to bring your supplier network closer. An extended enterprise helps with almost every challenge a brand or retailer faces including quality, speed, cost and transparency. How do you do this? In almost every large retailer’s private label, the 80/20 rule is quite true. About 80 per cent of the products in terms of volume comes from about 20 per cent of suppliers.
The change for the better starts with better on-boarding of primary suppliers and investing, training, and plotting the relationship growth you would like for your best employees. You would need to change how you buy, organisational changes and building discipline. Today, even the largest of a brand’s or retailer’s supplier partner faces seasonal unpredictability. More importantly, all seasonal planning will have even more limitations with the omni-channel transition since forecasts will be even less trust-inspiring than before. The answer can only be in making the supplier part of an extended enterprise, reorganising the buying process, moving to year round buying, reducing internal hand-offs and creating common and customer-centric metrics for all including the supplier network. If we can improve raw material planning, it would be half the battle. This will only increase flexibility in the system to respond to customer needs, not reduce it.
3. Leveraging technology for real-time visibility & collaborative solutions
In all the opportunities ahead, leveraging technology and real-time visibility becomes important. Demand-facing and supply-facing technologies have to come together more easily to find quicker collaborative solutions. There are two challenges that must be solved. Technology and information are still constrained by organisational structures. Many existing supply-side technologies (excluding logistics) like Product Lifecycle Management (PLM), merchandising software etc. will have events and measurements that must become defunct in the new process. Increased use and improvements in Vendor-managed Inventory (VMI) technologies should be part of the solution. All existing improvements and technologies in logistics, not excluding customs pre-approvals, cross docking, prepacks etc. should be seamlessly built into the value chain loop to improve customer experience. There is no valid reason with today’s technology not to have visibility throughout the process.
4. Trust and loyalty
In the seminal book Introduction to Supply Chain Management, Robert Handfield and Ernest Nichols JR wrote, “Trust is not something that simply ‘happens’. Partners must trust not only one another and also other members higher or lower in the supply chain.” Reliance and competence create goodwill. Goodwill creates trust and trust creates loyalty. It is important that the right level of knowledge exists in the right functions within the entire value chain. Every function that does not add value or is a duplicative function must go. The need for a specific function should not be defined by whether the role is internal or external to the organisation. All hand-offs and touch points must create value for collaboration to enhance. Interpersonal connections and relationships must be encouraged and a perception of fairness must prevail among all. As Handfield and Nichols pointed out, “It is important to remember that inappropriate behaviours such as shouting, ignoring the problem, or glossing over it can harm the relationship and result in deterioration in the supply chain performance.”
In a more mature phase, increased knowledge sharing among supplier partners must be encouraged. This can eventually lead to sharing best practices, conceptualising and cross pollinating new ideas and improvements and behaving as a true extended enterprise. As Jeffrey Dyer states, “Generating value from an extended enterprise takes time and the orchestrator of the enterprise must patiently put in place and nurture, the value creation processes.”
The global apparel industry is nudging US$ 3 trillion. With omni channel business evolution and the millennials coming into the prime income earning years, apparel brands and retailers have both a business and a moral imperative to relook at how they do things from end to end.