Operational Excellence Delivers Profit Optimization

In the first three blogs of this series, The Changing Face in Grocery (part 1) and The Digitalization of Grocery (part 2) and The Grocery Supply Chain of the Future (part 3), we have gone into substantial detail to describe shifting consumer behaviors – more shopping excursions for fewer meals, the drive to convenience with an emphasis on fresh and local purchases and the looming (and increasingly real) rise of digital shopping channels.  We have discussed a variety of implications to the supply chain required to provide scale and service, while effectively managing inventory and value add processes.  Elaborate solutions to these problems can undoubtedly be brought to the fore, but success will not likely be defined by effectively delivering point solutions, rather, it will be defined by the ability to deliver an agile and scalable framework of capabilities that can aggressively respond to emerging trends.

Developing a strategy to achieve this framework, will however, depend upon the effective design and sequencing of the strategic components while delivering incremental value to the business.  Focus areas will dot the supply chain landscape, while a holistic vision to integrate and orchestrate these focus areas collectively will ensure a comprehensive vision and roadmap will result in the future state, consumer centric approach to distribution.

Specific areas of focus can aggregate into disciplines to provide structure to this roadmap, and allow parallel initiatives to deliver the core components, while introducing a comprehensive strategy to align disciplines into a holistic strategy.  The disciplines of interest will include supply management, efficient order fulfillment, transportation and workforce.  Let’s look at these independently for critical capabilities and then revert to the holistic orchestration:

Supply Management

Effective management of inventory procurement and replenishment, especially in smaller footprints, will increasingly influence the consumer experience.  Intraday planning will be required to strike the delicate balance between preventing disappointed customers facing out of stocks and congested aisles resulting in a diminished shopping experience.

Optimal positioning of product to ensure availability with appropriate levels of freshness will affect consumer experience, on line order fulfillment and the ability to optimize ingredients to be used for prepared foods.

Order Fulfillment

Order fulfillment requires orchestration across the traditional disciplines associated with supply chain planning, order management and warehouse execution.  True optimization requires a harmonized and streamlined view across these disciplines, as the enablers of optimization must be pervasive across the supply chain that was traditionally disparately siloed.

  • Efficient Order Sourcing – As digital channels continue to increase in volume, grocers will need to embrace the newfound lead times to consider optimal sourcing mechanisms. Selecting the right product from the right place at the right time will continue to develop as a core competency.  Recognizing constraints in inventory availability and related demand, opportunity cost relative to freshness, and labor availability and cost will allow grocers to re-consider value added services and order fulfillment mechanisms that will continually evolve their supply chain networks and partner relationships.
  • Operational Excellence – A stalwart of a best in class operation has been efficient warehouse management, simple algorithms optimizing storage and selection locations and processes are complimented by complex orchestration mechanisms balancing task priorities, warehouse associate and equipment availability and proximity of the tasks to be performed to have a dramatic impact on reducing unneeded travel times and increasing labor utilization. Engineering programs further measure and reinforce best practices to ensure tasks are performed safely and efficiently.
  • Automated and Traditional Workforces – Next generation solutions focused on anticipatory task optimization will soon lead to improved orchestration across automated and traditional workforces, with the potential to revolutionize warehousing operations while maintaining the core capabilities.

Transportation Optimization

Transportation optimization is largely driven by a few key objectives: Consolidating shipments into as efficient routes as possible, minimizing travel while meeting service levels, minimizing the cost by leveraging private assets where possible and using external carriers to supplement where appropriate. Some key considerations related to best in class transportation programs are iterative optimization, exploiting backhaul opportunities, last mile delivery and emerging technologies.

Workforce Optimization

In addition to shifting consumer behaviors, shifting employee behaviors also pose a tremendous threat to reliable and scalable supply chain operations.  Decreasing levels of loyalty, changes in management approach, rising wages and an aging workforce all contribute to very valid concerns around not only optimizing labor performance, but retaining a qualified and reliable staff in general, and especially during peaks in volume.

  • Workforce Retention Programs – Grocery was an early adopter in engineered standards and highly capable from a performance measurement perspective. These programs have improved visibility into the causes behind underperformance, and allowed the initiation of coaching programs to ensure employees are positioned to excel. Incentivization programs are undeniably effective in motivating employees as well.  With the rise of the millennials, though, these programs must be nurtured, with additional flexibility built into their work life balance. For example, portal based scheduling mechanisms offer transparency and flexibility that will be a differentiator when looking to attract and retain talent.
  • Balancing Workload – Balancing workload is a unique challenge as well. Improved focus on pushing inefficiencies upstream will be needed to shortening order cycle times and re-stock times once product hits store shelves. Store ready pallets are already viewed as critical to minimizing store disruption and ensuring productivity, but better mechanisms for load building and pick sequencing can further facilitate efficient operations in the store or in the DC.  Visibility of labor constraints may eventually be used to shift the balance of inefficiencies between the two.

End-to-End Optimization

Best in class capabilities in each of the previously mentioned areas will certainly improve productivity and profitability, improving service levels and top line revenue while driving efficiencies, continuous improvement, and bottom line revenues. But, more opportunity remains.

  • Iterative optimization offers the coup de grace in efficient supply management and order fulfillment while optimizing warehouse productivity and ensuring service level expectations are met. Through increased visibility into performance vs forecast and inventory availability vs demand projections, real time decisions regarding replenishment plans can improve out of stocks and increase customer satisfaction, and simultaneously drive revenue.  Generation of efficient loads and even the optimization of pallet creation to account for load utilization, warehouse travel patterns, and store re-stock implications can produce a holistic approach to best in class operations.
  • Constraint based planning also offers improved visibility up and down the supply chain of when decisions in one area will detrimentally affect operations and degrade performance in another. Whether limitations on warehouse space, dock space, labor availability, transportation assets or storerooms, proper recognition of optimal utilization in these areas can drive a more holistic, harmonized supply chain and again improve performance and profitability.

How JDA Can Help

JDA is the only software company named to the leaders quadrant in all five Gartner Supply Chain Magic Quadrants.  Our best in class solutions and experience delivering unparalleled value to customers in each of these areas have instilled a drive for excellence in our area and familiarity with industry benchmarks related to what can be achieved through a best-of-breed (BoB) implementation and program.  Our intelligent fulfillment vision, coupled with depth in experience across the integrated supply chain planning and execution landscape, can help to partner with you, identify a vision for supply chain transformation through our Strategic Opportunity Assessment and provide a plan and justification for tactical steps through solution oriented Value Assessments to achieve that vision. Contact JDA today to learn more.

Learn more about this topic by downloading the eBook, “The Digitalization of Grocery.”