Retail Rundown: The Road to Supply Chain Agility – With Paula Rosenblum, Gary Newbury, Liza Amlani

Paula Rosenblum:
Hi everybody. I’m Paula Rosenblum, your retail rundown host for the week. Joining me today are Gary Newberry and Liza Amlani. Gary is a senior exec on-call specializing in retail, supply chains, and last mile. He currently operates via retail AID consulting practice, helping businesses to become agile, that’s the A, innovative that’s the I, and D and is digital, through operational turnaround and strategic transformation. He created this practice early in the pandemic to help disrupted retail ecosystem great new successes, and get it back in order. Liza is the principal at the Retail Strategy Group, a consulting practice that helps companies in the retail space dramatically improve their profitability. She’s a respected voice on topics such as responsible retail and sustainability, the future of retail and the urgency of technology enablement in merchandise, assortment, optimization, and demand planning. Liza, Gary, thanks so much for joining the show today.

Liza Amlani:
Pleasure.

Gary Newbury:
I’m very honored to be here, to talk about retail and supply chains. It’s been a little bit of a bunk bed for many companies involved in retail or in supporting retailers and it’s worth us having an opportunity to share some thoughts.

Paula Rosenblum:
Agreed and it’s complicated by the fact that different products are sourced in different ways, which I think we’ll get into in a while. If there’s one thing that the COVID-19 pandemic has exposed more than anything, is just how brittle our supply chain is, and it’s brittle everywhere. It’s brittle close to the point of demand and it’s brittle when you’re producing items far from the point of demand. The 2020 global shutdown shocked the supply chain as temporary trade restrictions and shortages of pharmaceutical medicine, medical supplies, and other products demonstrated the world high dependence on China. I also have to add sporting goods, toilet paper, and other items. Beyond that and towards that, to that point, the part of the supply chain that tends to have production close to the point that demand wasn’t that agile either. Since then, we’ve seen shortages impacting nearly every industry out there.

Paula Rosenblum:
Maybe even more importantly, fundamental unpredictability, some orders come early, some orders come late. From computer trips to diapers, lumbers and meat, ranging from chicken to hotdogs. North America continues to see product shortages just as pandemic measures are easing up. Imported goods, including coffee, cheese, seafood, olive oil, and chlorine actually, being from Miami, I have to mention chlorine, are facing months of shipping delays. Here’s my first question for you lovely people from your perspective, how is it that the business world was so vastly underprepared for a potential break in the supply chain? The first question that Gary, this is for you, what’s caused such unpredictability in the supply chain in the local supply chain, if you will.

Gary Newbury:
Yeah, I think we’ve been following a completely wiped out concept, which is, we think we’ve been applying lean, we’ve been using lean technology, but we haven’t, but we’ve been dressing up what we’ve been doing for such a long time for decades under the heading of lean. What we actually mean is leaning down, and what that means is lean follows the principle of lets, for instance, drop the stock down, see what happens, let’s tackle the issues and let the stock drop down again, tackle the issues and let it continued to drop down. While we’re doing that, we’re also working on our production capabilities to be able to produce a batch of one.

Gary Newbury:
If we look at the modern-day retail supply chain, whether or not it is domestic or international, but let’s focus on domestic, we’ve been just chopping costs out, we’ve been taken inventory out. We’ve been doing it by KPIs, we’ve been incentivized to look at the stocks and go, “It needs to be low. Right, let’s let’s just reduce our stock.” Don’t worry about our problems, don’t worry about the fallout from business, just do it. We are able to achieve a lower cost of operating for divesting ourselves of inventory, which we might need. Reducing our headcount, which we might need. Reducing our size of the facilities, which we might need. And reducing our overall number of facilities, which we might need.

Gary Newbury:
Why might we need it? We might need it for a rainy day, like a pandemic, geopolitical situation of a changing market dynamic or anything, any risk. We have become completely underprepared, under-resourced, under-talented in some ways for dealing with things out of the normal. We’ve been used to a world of two to maybe two to 3% growth, which is normally represented by population growth, more than anything. As long as the population keeps within a bound, we can cope. We can just put them, incentivize ourselves a little or find little ways of being more productive, but fundamentally we’ve been on a path of absolute destruction and it’s taken the pandemic to reveal how brittle and how fragile we are and how under-prepared we are to tackle major disruption.

Liza Amlani:
From a merchant perspective, I think just thinking about the way we plan product assortments, the way that we plan so far ahead in time and in season planning is pretty much non-existent unless you’re an off-price retailer like a TJX. All of that combined with shifting the way we’re working with our retail staff, going from customer service and product experts to fulfillment and logistics that they’re not even trained for, we were inherently unprepared for any sort of shift in the way we work.

Liza Amlani:
The wonderful thing about the pandemic, and sadly, there is a wonderful thing, which is it really sifted through retailers that did not allow for change in the way that they were working. Identifying things like how to enable digitization across your line plan, how to cut out some of those approvals that actually nobody needs and of course digitizing the way that product was created closer to market. That’s really what came out of the pandemic, it got rid of the players that didn’t want to play the game in the future, but also it identified many points of traditional ways of working that just were not working anymore.

Paula Rosenblum:
Yeah. I tend to look at it slightly differently. It’s close to what you both are saying, but it’s a little different and that is that we’ve sacrificed agility for the sake of efficiency. It’s really efficient to order big slugs of product from China if you’re buying clothes or Vietnam or wherever, and it’s not efficient to store big piles of rolls of toilet paper because it’s bulky. There’s not a lot of margin in it and it’s taking up expensive shelf space. The way I tend to look at it as on the North American supply chain, what we find, what I believe we’ve found, was fear of the bullwhip effect, which has that, oh my God, if we don’t do something, we’ll end up with piles of product in the supply chain.

Paula Rosenblum:
I just think the apparel industry doesn’t know what the heck to do anymore. It’s so used to these big slugs, you need a really good PLM system to be able to deal with alternate sources and that seems like it’s been a problem. One other subject that I think I really wanted to talk about is that in other industries, sales and operations planning is run by people in the supply chain. Because the items are typically replenishable, it’s certainly not like fashion wear where it’s one and done, or it’s when it’s hot, it’s hot. Then you’re watching it fall off the end of the table, it’s run by a different group.

Paula Rosenblum:
I’ve been an analyst for 20 years, and it’s really hard to get the supply chain vendors who may happen to sell planning systems to understand that in retail, particularly in apparel retailing, the supply chain is the tail and the merchants are the dog and the dog wagging the tail, the tail doesn’t wag the dog. Sometimes they’re lucky if they know when a shipment is showing up, what time if somebody calls for an appointment before 15 minutes. So is this wrong? Liza, what do you think?

Liza Amlani:
Oh my God, I’d love to talk about this because this just reminds me of my days, that when we had set up Ralph Lauren, Canada, and how the US system did not talk to the Canadian system. Then there was bottlenecks at NLS, which was our 3PL at the time. I didn’t know about it because I got the call that, “Oh, by the way, all of these goods are here.” I didn’t even know they were coming, they were early. They were in the beginning of that three-month ship window. So it all comes down to cross-functional teams that work in silos, and retail, they love to work in silos. We all know this we’ve all been there, and that is something that needs to change. Now, as we look at, how you said, merchants are the dogs, the dogs wagging the tail and supply chain is at the end.

Liza Amlani:
If you shift that way of thinking, which is what a lot of retailers are doing is they’re actually adding the customer into that model and the customers in the middle, and then everything should be driven from what the customer wants and when they want it and of course what they want. When you think about it, that way, you don’t think about supply chain being at the end and merchants and planners being at the beginning, you think about all of these people, all working together to serve that single customer. I think once you shift that way of thinking, you can start to change behaviors and the way retailers are actually modeled in their functional team, once you change that and you change the mindset, you can start to shift the way how cross-functional teams work together and how they should be working together.

Liza Amlani:
As a buyer, even when I was in England, I was working for EMIA, Ralph Lauren EMIA, and I had to say yes to ERC decisions if product wasn’t going to make that ship window. But I wasn’t getting contacted from my supply chain people, because I didn’t even know who they were. I was not in contact with them. Because I had to go through for other people to understand, okay, do I need to approve this air sea shipment? Is it going to come off of my bottom line, is it going to come off the supply chain? There’s just too many layers, we just need to stop and simplify.

Paula Rosenblum:
Well, it’s actually gotten worse because of the ascendance of marketing in the last decade and a half or so. Now it’s not just supply chain and the merchants aren’t talking to each other, but marketing will run a promotion and not even tell merchandising they’re doing it, and somehow you’ve got to find the product to work for that.

Liza Amlani:
Oh, I have lived that life. [crosstalk 00:12:21] I have lived it and it’s awful. It’s awful to chase product when marketing is also hoarding insights from data that merchants are not even getting. Again, it’s those silos working together and thank you for bringing up marketing, because I didn’t even think to go there because it’s just like, “What about those air-sea decisions?” But yes, promotional material, so important to talk to marketing and them understand, “Okay, what are we buying in the first place?” Before putting things on promotion or in marketing material.

Paula Rosenblum:
Right. Gary, what are your thoughts on this matter?

Gary Newbury:
Well, when we think about retailing and retailing has been around for centuries, but more recently in the last 100 years, it has always been merchandising in stores has been the most important to black printers or merchandising and stores, this is where the adult work goes on. The supply chain has been well, it wasn’t even called the supply chain until about like 10, 15, 20 years ago, it was like distribution, and that really sort of put everything in its context. You just get on a truck and send it to the store, get on with it.

Gary Newbury:
To imagine, in that world of somebody from distribution who run the trucks coming along and saying, “Hey, I’m going to help coordinate the business and bring it all together.” Understand the constraints, understand the bottlenecks and pick up collaboratively, work through this to get to a much better position of service, of margin of our brand, it is very hard to actually understand within how we’ve been doing things, but much of what Liza said, if there’s any good things that might come out of this pandemic and there’s been a lot of unfortunate things that have happened along the way, is that we have a chance to…

Gary Newbury:
The lockdowns and restrictions have been very much at pause, and what I’m looking for is a reset of our organizational structures, our cultures, what we choose to measure. People have been talking about just-in-time systems, and it sounds very neat and tidy, we would just deliver stuff just in time. I think anybody sitting around in this forum will say, “That’s absolutely not the case.” We have not been producing just-in-time containers of stock into our distribution center to respond to our customers. What it is, is a blooming great forecast. We place a great order, we get a number of containers on various ships, give them into our DCs, rack them, pick them and send them out to our stores, they will sell it.

Gary Newbury:
Now, it’s very hard to imagine that a supply chain person will try and put a halt on that and just say, “This is a push strategy.” It’s very hard to organize an SNOP situation when we’re actually running a push situation, rather than a pull situation, which lean and agility to an extent, relies on. It’s not a surprise that the SNOP systems are probably more fragmented than say, in a manufacturing concern, and how they may have found a way into world of merchandising because on many situations in each retailer is very unique in this.

Gary Newbury:
There isn’t a clear model that applies generally within a category. Certainly not across the whole of retail industry of how we do things around here, so we can actually just develop a tool to actually unravel that and make the supply chain much clear, much more clear, much more transparent. That it’s a horizontal process that run from here, which might be the farm, through the manufacturing, maybe for a wholesaler, but certainly for retailer out to stores, out to people’s porches as such and horizontalize that. The job of a merchandiser in that world is to sort out the assortment plan, work out demand, whether or not that’s pull or push, and leave it to a supply chain to get on with it. Until we achieved that, supply chain will never run the SNOP procedure within retail.

Paula Rosenblum:
I guess there are a couple of things that I wanted to mention. One is that people do what they’re paid to do and the operations guys, the guys who run the logistics and the supply chain, they’re paid based on what their percentage of sales is period, full stop, right? Merchants are paid on turn, there’s a tweak in the mathematics associated with term that really encourages them to bring in big slugs of product at the beginning of the month, because they have then the longest amount of time to sell it, there are some definite issues there. Beyond that, I just think it’s not… We’ve been studying, doing this research for years. Some of it is a technology issue, and some of it is just they’re not even physically in the same building in the case of large retailers, you know? How can we get to where we are now, which is a world of efficiency, have our cake of efficiency and eat it too, which means agility.

Paula Rosenblum:
What kind of actions do you think that companies need to take to make their supply chains more agile apart from the obvious of everybody talking to each other? I would tell you, in this case, nobody had a clue how long this was going to go on so we could have talked forever and we wouldn’t have come to any… If you would’ve told me, I would have been locked down for 14 months, I’m like, “Come on.” You know?

Paula Rosenblum:
Liza, what actions do you think companies should take to make their supply chains more agile?

Liza Amlani:
I think what they need to start to do is look at their assortment planning and how they plan for different seasons and change the way they do that. Because I think if we started to infuse more seasonless product, we wouldn’t be dependent on drops, like at a minimum four drops a year to four drops a month in some cases with the fast fashion retailers of the world. I think if we look at the way we plan our assortments and remove that season category, that way we can actually overbuy less, produce less, have less markdowns.

Liza Amlani:
I think that when we look at assortment planning and what a merchant’s role is and how data and analytics and predictive analytics and AI and machine learning, how all of that could help us predict what the customer actually wants and when they want it and in which channel they want it, I think that will help not only reduce the strains on the supply chain, but also the dependencies of certain categories, like what we saw with toilet paper or how everyone of course stopped buying formal wear because people were stuck in their homes. I think that there’s definitely a lot of work to be done in that space.

Liza Amlani:
I’ll give you another example in Canada. A lot of us are still under locked down and stores are slowly beginning to open. When they do open, I know from a lot of my merchant friends, that they are going to do [fall 00:20:18] flips as soon as the store is open. They’re sitting on all this spring, summer inventory that didn’t get a chance to be sold because they didn’t set up curbside, they couldn’t, even if they did, they didn’t sell enough, but they’re going to be sitting on all this excess inventory and they’re going to mark it down right away. [crosstalk 00:20:41]

Paula Rosenblum:
I guess one thing I wonder, and there are some things that people have been talking about for 20 years, and one of them is reducing the… You talk about four flips through the stores, well, it really should be that way, even if it’s the same product, the problem is it’s all brought in, in these huge slugs which means you’ve placed big bets. That leads you to the same notion of maybe finding alternative sources and to do that, do you think PLM type systems where you can have a pretty fixed build material and a design of how you want it made can help improve the situation?

Liza Amlani:
Yeah, absolutely. That ties right into digital product creation and automation of parts of your tech pack. You don’t need to recreate the wheel.

Paula Rosenblum:
Exactly.

Liza Amlani:
There’s a lot of work being done around materials’ management and to manage those materials better so that you’re not developing new stuff every single season. That’s a big problem, huge problem. Let’s talk about how the shipments from parts of China, they’re not getting through, that’s what stuck in LA in the ports and India, I mean, awful. What’s happening there and how that’s impacting the garment industry because nobody’s working. What’s happening with, number one, all that product that’s sitting there, but all the orders that were placed beforehand and then of course, all the orders that were canceled when the COVID started, it’s a challenge and I think it does start with thinking about how you plan your assortment.

Paula Rosenblum:
Where are you going to get it, as well [crosstalk 00:22:22] and when you’re going to bring it in… The staging of receipts.

Liza Amlani:
It is about optimizing that vendor based and supply chain and suppliers and where your raw materials are coming from, and you should have contingency plans in place that are localized, because if you don’t, then you have goods stuck in the Suez Canal, and you’re not getting those bike parts. We know a lot of companies are stuck because their bike chains are on a boat.

Paula Rosenblum:
It’s funny because I did some work with a group called the American Apparel Producers Network, and they’re all focused around Central America and South America and they can really turn stuff around fast and they have grown, there are a goodly number of companies that are working with them now as alternative sources, but I think not nearly enough. That’s one way to hedge your bets, which is to say, instead of having to wait four weeks, can we get it done in two weeks because we cut out the ocean trip?

Liza Amlani:
Exactly, exactly.

Paula Rosenblum:
Gary, you got some thoughts? I’ve gone

Gary Newbury:
Yeah, I’ve got a ton, but I don’t think we’ve got enough time.

Paula Rosenblum:
Go for it.

Gary Newbury:
I’m just going to skate over some of them and some sound to people trapped in the traditional way of thinking somewhat dubious. One of the two basic concepts in agility, one is to develop capabilities and the other one is to develop capacity. I’m just going to focus on the latter because it’s probably easier for people to visualize capacity, expansions. Here we’re talking about… Capabilities is horizontally, how do we develop things which we can adapt as customers progress our own individual journeys. We can adapt these capabilities to do that, but that’s a more cerebral discussion, but capacity is much more straight straightforward. I’ve had this kind of conversation with many, many times and I bump into the same objections and almost defensiveness.

Gary Newbury:
What we need to move is to a world where instead of our single sourcing to get the bulk discounts get over minimum orders, we need to get to a world where we’re pricing different. Also, that we collaborate in a very different way, I’m not saying, we have a chat. We actually, technically, collaborate with multiple suppliers, may be in different regimes, different countries, in different tax regimes, different political regimes so we have capacity and we have to hook in our systems to have very clear visibility of capacity.

Gary Newbury:
When we’re having our thoughts about our demand plan, we can actually set these supplies in the same room, now that’s a bit of a hurdle for most people to even get their mind around, but we have multiple suppliers all sitting in the same room, obviously virtually. We’re saying we’ve got 2000 things that we need to be made and we can look into each other’s systems and find out what is the best way through this, for this month.

Gary Newbury:
We need to have those flexible options and we need to test them frequently because part of agility is to be able to move from one state to another effortlessly, but also to learn how to do that on depression and to learn from that and to adapt. If we have a primary supply chain design, which is, we get the stock to the port, let’s say we’re in China or Vietnam or somewhere in the far east, we’ve traditionally find a container, fill it up, get it on the road, get it to the port, get on the ship, get it to a West coast port, get it onto a road or rail head, get it to somewhere in the vicinity of a DC and then transport it by road to the DC and then the normal thing takes over. We need to try different things all the time.

Gary Newbury:
We need to have been pricing different with our suppliers so we have the price set, very close to the pricing. We are indifferent about which supplier. We’re looking at the capacities of a supplier in the short range, so we can actually place it with the best supplier at that time to give us the best service, so we don’t need so much inventory. We don’t need to take bets, we can actually get that inventory to us a lot quicker without the liability of bringing a whole numbers of containers across.

Gary Newbury:
When we think about agility, we need to really test our assumptions. Let’s put it this way, the traditional assumptions upon which we have been buying in the past and how we interact with our suppliers, we’ve typically had a prime supplier, good discount rates and so when we go to another supplier and normally in a bit of a rush, we ended up paying over yards. We often might say, “Oh, fly it.” We don’t know how connected they are with air traffic flows, we don’t know anything. What we’ve seen in a pandemic is a complete and utter breakdown of everything, because we’ve never tried it before. We’ve always thought that this is going to work. It’s going to work, we’ve got our supply chain design that’s working. Oops. The pandemic borders are sharp. Things are disrupted. What do we do? We shout loud.

Paula Rosenblum:
I mean, it certainly was a singularity, but it also was an accelerant. I think it exposed things that were out there already. As we talked about before, we’ve been whining about these large slugs of product coming in all at once, particularly on the apparel side forever. I think that there are companies and people at very high levels who’ve talked about the bullwhip effect enough so that those selling commodities are afraid to make too much because they’re afraid they’re going to have it stacked up over the supply chain. Now, what do you think, Lisa, that when you think about the cadence of when product is coming in, is that part of assortment planning or do you see that as part of just open to buy and management?

Liza Amlani:
It’s definitely part of assortment planning. What we do generally, if you work with a bigger organization like a Ralph Lauren or Club Monaco, such as I have, you work with your sourcing partners, but at the end of the day, you are driving your assortment as a merchant. You work closely with planning and sourcing, but you are determining when you want the goods, how it’s going to fit on the shop floor, you work with your visual directors to understand, what does that look like.

Liza Amlani:
I would say absolutely from a merchant assortment perspective, but I do think that you need to involve these other players because if there’s no capacity in the DC, when you’re expecting those goods and you know it’s an important flip and it’s for fall and it’s going to be featured in a few magazines. Then of course you need to tell your supply chain, your DC counterparts, but that’s not really happening as much as it should. I’m not saying it doesn’t happen at all, but I think that it’s not happening as much as it should, because you do have to plan with your partners so that they can make space for the goods.

Paula Rosenblum:
I think for professional product, for sure, we’ve been studying for years and the problem of lack of cohesive planning with cross-functional teams has always been an issue. I think for the shorter supply chain, what we’ll call domestic, depending on the country you live in or close to domestic suppliers, I actually think it’s a collaboration issue. If I go back to the great toilet paper shortage, which was blamed on everything from boarding to people are not going to work anymore. What I attributed it to was that the manufacturers didn’t want to get stuck with piles of toilet paper. If they had worked with the retailer, they could have put some sort of satellite distribution points, containers or trucks are just really inexpensive, and then get them to the places where they were needed. Instead of shipping 36 packs, which was the first thing that became available, start with fours and eights and limit one or two per customer. I feel like collaboration is really a key in those products that are replenishable.

Gary Newbury:
When we talk about collaboration, Paula, there’s a certain amount of inconvenience around collaboration as we currently execute it. We can’t say, “Oh, we want you as a partner and here’s our demand. We’re sharing that with you, and we’re sharing the POS information with you. Let’s collaboration in it, or can I have a discount? I don’t want to change the spec.” It’s not, real collaboration. Collaboration is opening your books. This is the profit we’re going to make on this. We want to share this profit between us equitably so that we both win. If we’re working together and you’re able to deliver the demand that we want you to deliver, and we pass it out to stores and it’s successful, we both win. Until we moved to that situation of open books, we can talk about collaboration all we like, but reality is we’re still in conflict.

Paula Rosenblum:
I think we do a lot of research on the subject and we’ve found that consistently, this is a problem. We tend to separate retail winners, which are those who over-perform on comparable sales from everybody else. We find that winners are definitely better at collaborating with their vendors, but I don’t think the grocery industry had any idea, what was coming to it, or the sporting goods industry, for that matter.

Gary Newbury:
Here in Canada, we did actually have a glimmer of collaboration in that first few weeks because we have our major big food companies like Kraft and Lesley, Canungra and they couldn’t meet the requirements from Costco, Walmart, Sobey’s, et cetera. Guess what, they actually all had to sit down together and say, “What SKUs can we get rid of?” Because they had like two specialists and they use too much capacity in the production, and how do I get 2000 units into each door of whatever it is. We have to actually work together.

Paula Rosenblum:
I know. I think we’re out of time now, unfortunately on, we could definitely do this for hours because it’s a really interesting topic. I think in summary, we’re saying, definitely there needs to be more collaboration, definitely smaller slugs of product, alternative sources are a good idea. Honestly pray something that we never have to live through something like this again, really, push comes to shove. I wanted to thank both Liza and Gary for this pretty stimulating discussion that could have gone on all day, I think.

Liza Amlani:
Thanks Paula. Thanks Gary.

Gary Newbury:
Thanks Liza. Thanks Paula.