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Newest Supply Chain Paradigm Shift Hits Retail

In 1997, I had a half-day training with the leader of the multinational company I had just joined in Bangalore. He started with a story from Steven Covey’s book, The Seven Habits of Highly Effective People about paradigm shift:

One morning on a subway in New York, people were sitting quietly – some reading newspapers, some lost in thought, some resting with their eyes closed. It was a calm, peaceful scene.

Then suddenly, a man and his children entered the subway.  The children were so loud and rambunctious that instantly the whole climate changed.

The man sat down next to me and closed his eyes, apparently oblivious to the situation. The children were yelling back and forth, throwing things, even grabbing people's papers. It was very disturbing. And yet, the man sitting next to me did nothing.

It was difficult not to feel irritated. I could not believe that he could be so insensitive as to let his children run wild like that and do nothing about it, taking no responsibility at all. It was easy to see that everyone else on the subway felt irritated, too. So finally, with what I felt was unusual patience and restraint, I turned to him and said, “Sir, your children are really disturbing a lot of people. I wonder if you couldn't control them a little more?”

The man lifted his gaze as if to come to a consciousness of the situation for the first time and said softly, “Oh, you're right. I guess I should do something about it. We just came from the hospital where their mother died about an hour ago. I don't know what to think, and I guess they don't know how to handle it either.”

Can you imagine what I felt at that moment? My paradigm shifted. Suddenly I saw things differently, and because I saw differently, I thought differently, I felt differently, I behaved differently. My irritation vanished. I didn't have to worry about controlling my attitude or my behavior; my heart was filled with the man's pain. Feelings of sympathy and compassion flowed freely. “Your wife just died? Oh, I'm so sorry! Can you tell me about it? What can I do to help?” Everything changed in an instant.

When a paradigm shifts, everything changes. It’s a phenomenon that we are seeing in the brick and mortar commerce supply chain with the increased popularity of online shopping. Electronics OEMs and retailers are going to have to look hard at the tea leaves and react to these changes now, if they haven't already. 

Here are some indicators:

Shippers with powerful brands and products are thinking along the same lines. If more customers are flocking to on-line buying, there’s little need to showcase products in a retail environment. Instead, retailers want to showcase products and take orders online. 

Whereas Tompkins Associates, a consulting company is starting this new 3PL business called Monarch FX to address the growing business opportunity. Tompkins is putting skin in the game and building an e-commerce fulfillment network to provide “post-click logistics” to retailers. The new venture, of which Tompkins is chairman and CEO, is known as the MonarchFx Alliance, the alliance brings together a group of solution and service providers to offer more competitive distribution and transportation services than retail members could provide on their own. It will include industrial real estate partners who will own the buildings; three 3PLs to operate the facilities; a technology provider (in this case, JDA Software); process design and automated materials handling solutions (Tompkins International and Tompkins Robotics); and two transportation providers, including one last mile delivery specialist for packages, or what Tompkins calls a delivery destination unit (DDU). 

This points to a major shift in business moving from the retail store to the back-office warehouse operations. Many people would much rather sit at home and shop through computers, laptops, tablets, or mobile devices, rather than facing the inconvenience of going to a brick and mortar location. That’s going to change the distribution landscape.

Now, one and two unit orders will be downloaded into the distribution center (DC), and the systems that run the DC need to fulfill those orders faster. Amazon DCs are setting the bar, shipping orders in 20 minutes or less, compared to other retailers are running somewhere from five to 10 hours. There’s a  big opportunity for somebody like Monarch Alliance to offer such a service on par in efficiency with Amazon.

So what does this mean to the DC operators and other 3PL service providers? It means a shift in order profile. It means a greater number of smaller orders. Most of all, this new paradigm demands newly-designed DC design, infrastructure, processes, and tools.

This is not the first wave of the shakeout. In 2012 and 2013, Best Buy closed dozens of electronics stores and exited the European market, after they became the best showroom for Amazon. Now,  the focus more on in store services, such as Geek squad; offering mobile device services; and being a knowledge provider and trusted advisor for in-store customers. They have evolved to remain relevant—and that’s important.

Basically, retailers need to provide value added services. Consider Nordstrom’s—a store known for excepting returns at any time, even if they didn’t sell the product.  They know that service is what wins back customers.

Manhattan Associates (MA), a supply chain execution software vendor whose revenue comes predominantly from retailers, also felt the need for new direction based on the changing demadns of customers. MA’s main thriving business is warehouse management systems (WMS), their bread and butter for a long time. However, MA expanded into the retail segment after buying a point of sale (POS) system vendor Global Bay and deploying a distributed order management system. Now, retailers can route e-commerce orders to any store or warehouse within their supply chain network based on inventory availability and geographic proximity. 

How is this paradigm shift impacting your supply chain? How do you think electronics retailers will be affected? Let us know your thoughts in the comments section below.  

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