Rethinking the Supply Chain: The New Model for Cross-Channel Markets
In an omnichannel world, nimbleness is more important than scale
Remember when Target used to be a mass merchant?
The major retailer, which for decades has specialized in stores of 125,000-plus square feet carrying 100,000-plus products, is reevaluating and reimagining its longstanding business model. Among the more notable moves undertaken over the last year, Target:
- Announced plans to open hundreds of "flex-format" stores as small as 20,000 square with reduced product assortment tailored to local needs.
- Began cutting down SKU counts of packaged goods staples to allow for greater focus on priority categories that provide differentiation. “We will never be famous for selling bottled water or laundry soap,” chief executive officer Brian Cornell told Wall Street analysts in New York.
- Rolled out a line of 50 exclusive board games in conjunction with a variety of product manufacturers. Category vice president Nik Nyar said the initiative reflects a desire to become "a go-to retailer for toys and experiences other stores don’t have.”
- Optimized more than half of the store base to handle fulfillment of online purchases this past holiday season in an effort to revitalize sluggish e-commerce sales growth.
- Unveiled the Chobani Café, a 1,100-square-foot portion of a 45,000-square-foot downtown New York store that sells yogurt-based dishes and other meals to improve its appeal with Millennials.
- Continued a plan to spend $5 billion over three years overhauling its supply chain and technology infrastructure. Target hired two former Amazon.com executives to spearhead the changes.
The goal of these business disruptions is to increase Target’s back-end and in-market flexibility to drive responsive, tailored engagements with shoppers. These steps are critical for any company that hopes to survive the rapid evolution of the modern retail market.While Target is proactive and leading the charge in addressing these shifts, other retailers are expected to soon follow.
Scaling back on scale
Like Target, many national retailers devoted much of the last 70 years to building out massive, product sourcing and distribution systems at scale to service their myriad of stores.
Meanwhile, consumer product manufacturers were in lockstep—creating increasingly efficient supply chain operations designed to deliver mass quantities of branded products and promotional displays in a cost-effective manner.
For manufacturers, the end goal was as a simple as moving the product to the right place at the right time for the lowest cost. As a result, primary packaging became increasingly streamlined
However, the advent and growth of the internet afforded consumers almost unlimited choice in retailers and product offerings. Brick and mortar stores found themselves squeezed between the convenience and unmatched diversity of online ordering.
Adding to these disruptions, are new challenges at the distributer level as well. As retailers align with the new market, distributers are finding that order numbers are increasing as order levels decline and, as consumers continue to adopt and leverage online and mobile shopping, distributer fulfillment models are put under increased pressure to operate rapidly and in real time.
To remain relevant in the new market landscape, retailers need to offer exclusive products and unique experiences that cannot be replicated online. As e-commerce finds its home in sheer quantity and selection, retailers must invest in the quality of their offerings—providing the right product at the right place at the right time.
The New Model for Modern Retail Markets
The hard truth is that the old supply chain is no longer relevant. Manufacturers must reassess their operations to meet changing consumer demands. Not only must they deliver the unique products, pack sizes, displays and product assortments that service the modern retailer, but they must also have massive, single order fulfillment capabilities for today’s online shopper. The entire supply chain must be restructured to address industrywide disruption and meet the need for rapid delivery.
Future supply chain success requires a flexible system that can handle the robust manufacturing and distribution demands that are needed to quickly move products into the hands of consumers. Industry analyst RetailNet Group labels it the "personalized supply chain”—a reflection of the growing need for tailored supplier solutions.
Such a transformation of the supply chain will first require a substantial investment in reengineering the tangible assets of organizations. Second, it will call for a rewiring of bureaucratic mindsets that are tied to an outdated supply chain structure.
Unilever serves as a recent example of such a reorganization effort: In July, the company acquired Dollar Shave Club, an online subscription service for razors and other grooming products. While Dollar Shave Club’s $200 million in revenue is attractive, Unilever’s acquisition also serves a functional purpose, as Dollar Shave Club’s subscription service affords deep insights into new market interactions with a Millennial population of over 3.2 million young-male members. This fresh infusion of digital market insights and modern supply chain needs will be integral to Unilever’s success in coming years.
On a broader scale, manufacturers will need supply chain partners who play an integrated role in transforming old operations to meet new market standards. Manufacturers need partners with a full suite of solutions, partners that can do everything from leveraging regional distribution centers with digital printing capabilities to make cost-effective short runs of secondary packaging and product displays,to providing on-site engineers who can deliver technological expertise and solve immediate and emergent supply chain disruptions.
To meet these diverse needs, WestRock has actively secured a robust portfolio of products and services to provide display design, manufacturing, co-packing, fulfillment and distribution in one integrated offering.
Called "Concept to Checkout,” WestRock’s comprehensive supply chain solutions equip manufacturers and retailers with versatile and customizable capabilities. By consolidating the supply chain within one provider, clients can transform with the market and make integrated decisions with continuity from first concept through point of purchase.
At WestRock, evolving supply chain capabilities to meet these new, modern needs is viewed as an opportunity, not an inconvenience. The old supply chain has lost relevance. The future is immediate. The future is responsive. The future is integrated.
Target, Chobani Café, and Unilever are trademarks for their respective companies. Concept to Checkout is a registered trademark for WestRock Company.