Thought we’d start off the year on a light note, with some observations on the Christmas shopping season and the supply chain.
The most significant trend has to be what many observers are calling the "Google-ization" of the economy. Put simply, it is now incredibly easy for almost anyone with basic computer skills to search the web for the products – and more importantly, prices.
Looking for an Excalibur “New York Times Quiz Master,” as I was? Put the term in Google or Yahoo and find instantly not only individual e-tailers that carry the product, but sites like Tech Bargains, Price Grabber, MySimon and numerous other that compare prices across multiple vendors and merchants.
The E-Loan commercials have it right. What in effect is happening with the web is that on-line merchants are conducting a reverse auction for your business – and consumers are happy to go with the low price choice, moderated just a bit perhaps by how many stars the merchants have received from on-line consumer ratings.
Is it not possible - even likely - that soon even for individual consumer purchases, we’ll have web sites where a consumer puts in the product and obtains real-time bids from vendors for this specific purchase, right now? Why wouldn’t eBay eventually offer a consumer rather than seller-oriented model as well? We’re not far from this model right now, but in the end it may truly turn into an on-line reverse auction for that digital camera.
So what’s this have to do with supply chain?
First, we should see a growth in e-merchants who would like the manufacturer to drop ship the product on their behalf – manufacturers must decide whether they want to play that game. For those that don’t, we may see renewed action at the wholesale distributor level – but these will be part wholesalers, part 3PLs who hold inventory and perform direct consumer fulfillment, often for competing e-tailers.
The continued pressure on brick and mortar stores will be intense. For decades we’ve had the issue of more upscale retailers providing consumers with knowledgeable product information and broad selection, only for the consumer to then go buy the item at the low price discounter across town. Manufacturers have often done some things to try to protect the upscale merchant, and the issue has in a sense been limited by the dollars to be saved (which has shrunk over the years) and the hassle factor of driving around from store to store.
The web has changed a lot of that. The discounts can be substantial, and are simply a click away while sipping on a glass of wine after dinner.
So for supply chain managers, this means the aggressive, relentless focus on cost reduction in the Google economy will have to continue, as the web makes price more transparent and critical than ever before. Second, companies need to think very hard about what their channels of distribution – and service levels – are really likely to be over the next five years as they plan distribution networks and capabilities. New channels and requirements are sure to emerge – and even the most well-thought plans will turn out to be at least partly wrong. This means designing in supply chain flexibility will be more important than ever.
My second general observation on the season was that retailers were in fact playing tighter inventory games than ever before. Both in shopping and research I noticed many stores with out-of-stock items. By the end at one Best Buy, it seemed like half the digital cameras were OOS. Now maybe this was constrained supply or forecasting error or “lack of RFID,” but I suspect for many it was simply a decision to pare back inventories generally and hope to sell the consumer something else if one item is gone.
I was therefore really surprised when two local stores were out of stock on December 23 rd of $25.00 Apple iTunes gift cards. My first thought was, “How could you be out of these cards, they cost next to nothing to produce!” In investigative mode, I asked an associate at a Circuit City about that, and he told me that even though the cards are worthless unless activated at point-of-sale, Circuit City still pays for them upon receipt from Apple; hence, ordering is constrained. While I supposed this is good for Apple, it just seemed silly to me for a store to lose a $25 sale because they were out-of-stock on a small piece of plastic.
We’re out of space. Happy New Year from the SCDigest team – we’ll have a great year of information, tools and events for you in 2006.
What impact do you think the Google economy will have on companies and the supply chain? Did retailers play inventory conservatively in the 2005 holiday season?