Preparing for the Marketplace of the Future

Parts 1 and 2 of this blog post in this series, The Changing Face in Grocery (part 1) and The Digitalization of Grocery (part 2), discussed the shift in consumer behavior including where, how often, and indeed, how we shop is setting in motion an unprecedented time of uncertainty and opportunity for the grocery industry.  A shift to proximity shopping, increased focus on fresh and wellness, increasing levels of prepared foods and snacks and the rise of e-commerce in grocery are fueling a transition state with supply chain as a critical element in defining the leaders of the industry in the years to come. This blog post will dive deeper into the implications of those shifts on supply chain capabilities, discussing increasingly flexible supply chain models, order processing operations (both in store or in DC), the incorporation of manufacturing as a critical component of an integrated grocery supply chain and the increased emphasis on freshness/quality visibility and management across the supply chain.

Changes to Supply Chain Models

Increasingly, the traditional flow of goods from supplier to DC to Store, with the occasional direct to store vendors for snacks and fresh items, is giving way to a far more integrated and complex connection of sourcing, production, product transformation, regional and local distribution – culminating in a diverse set of consumption points, including in store pickup, in store order processing and even home delivery (via couriers or private fleet).  Consumer experience differentiation is shifting from the store experience to a more challenging experience, requiring the orchestration of inventory availability, value added services, order fulfillment and customer ready packaging.

This orchestration, the effective manipulation of a multi-variable supply chain process, is sure to have impacts on the brick and mortar supply chain elements that feed fulfillment, and will be inclusive of grocer-owned assets, as well as the supplier community delivering localized food in a hyper-fulfillment future.

  • Sourcing may be the area of greatest opportunity, where a shift to online channel provides more options to prepare the appropriate source/inventory from which to process the order request. Likely, this request could include fulfillment from multiple sources, including selection of dry goods from a DC or perishables direct from the store.  The sourcing of prepared goods could initiate a specific production order for those products in the store, or alternatively be added to a batch of production orders for like product from a centralized processing facility.  Visibility of product freshness and quality can be considered while determining the source location as well, over-riding store level product of limited availability and initiating a direct source centrally.
  • To address increasing numbers of customer pickups and home delivery orders, fulfillment operations must be considered not only in the store but upstream. Managing multi-source order fulfillment will require the support of order processing capabilities as well as the orchestration of these activities in recognition of the lead time required for transport to, and consolidation of the orders in the stores.
  • Transportation elements will also be impacted by these changing models. Increasing frequency of shipments and pickups to address challenges with fresh and local products (from the source) and smaller store footprints in more highly concentrated population centers (at the destinations) will change the face of private fleets and the reliance of grocers on contract carriers.  The increased number of stops must interact with intraday replenishment cycles to optimize routing and minimize transportation costs without disrupting the availability of inventory.  Eventually, local pickups and home delivery bring a broad and challenging environment which will also require considerations around asset management, appointment times and last mile delivery considerations, such as property access and temperature-controlled drop-off locations.

Order Processing Capabilities

Increasing numbers of online orders will require increasing numbers of associates dedicated to order picking within the store itself – increasing congestion and diminishing the customer experience.  Combine this impact with the inefficiencies native to in store picking, and there will likely be an aggressive shift to first improve these processes and supplement staff on off hours, and second to drive these order volumes to upstream processing, where location and shelf life can be better controlled and improved efficiencies can be gained through economies of scale.  To adapt to the aggressive service level expectations driving cycle times down, local fulfillment centers will likely begin buffering the demand between the DC and the store while providing a more nimble and efficient processing mechanism. Find examples of this in the eBook, “The Supply Chain of the Future.”

Incorporation of Manufacturing into the Supply Chain

In addition to the many manufacturing operations developed specifically by grocers to lower the cost of their products, the incorporation of supplier collaboration and manufacturing into standard supply chain mechanisms has been in practice for some time, with leading retailers recognizing the opportunity to partner with their supply networks to drain inefficiencies out of integrated business processes, end-to-end across the value chain.  These programs have had tremendous impact on lowering consumer costs and improving limited margins for those organizations with the appropriate focus.

Leading experts have long foretold the blurring of lines across organizations, and as collaboration programs encourage information sharing, operational visibility allows trading partners to begin planning as one for the benefit of the customer.

However, recent shifts suggest that the historical focus on long term planning horizons will soon give way to a far more responsive supply chain, capable of recognizing risks and exceptions and rapid response mechanisms that will minimize disruption to product availability, protecting grocers and suppliers alike. Driving to the vision of a supply chain without boundaries, whether functional silos between planning and execution, or the more recognizable divisions between organizations, will reduce the number of constraints and allow unprecedented responsiveness to consumer demand.

This is true of a variety of relationships extending supply chain beyond the traditional boundaries of a grocery organization, and it increases the importance of having a core capability for manufacturing planning. Learn more about the capabilities and which areas they’ll impact specifically in the eBook, “The Digitalization of Grocery.”

Visibility and Freshness Management

Visibility and freshness management is about more than simple waste reduction – if well executed, it is the foundation of the contract between grocers and their customers, critical to ensuring a positive customer experience, and at the heart of customer loyalty.  And, it’s getting more complex at the same time it is increasing in importance.  Examples of this complexity, and the challenges facing grocers:

  • Increasing interest in local sourcing, with a wider variety of FDA, organic and animal welfare programs provide logistical and pricing challenges.
  • Enterprise level traceability from farm to fork is also a necessary objective, especially for fresh products with special sensitivity to consumer health and safety. Transparency into the origins of these products will increasingly become a mechanism for grocery differentiation, while the ability to effectively contain and recall product at risk will determine whether impacted companies maintain their brand and associated abilities to charge a premium for their products.  One need only think about Chipotle’s challenges to see the potential impact of failure to effectively contain product safety concerns.
  • In store pickup or online sourcing of fresh vegetables will become a customer relationship issue – through improved communication methods judging customer satisfaction and behaviors, grocers will be able to mine data to better understand expectations for remaining shelf life and drive down to consumer specific tolerances for shelf life on delivery.

Pivoting to the Next Generation

Recognizing the likely impacts to grocery supply chains is the first step to successful action.  However, the options and alternatives to address these impacts can be oppressive.  Beginning with a simple process of risk/reward for the related opportunities, along with a high-level understanding of the complexity to implement solutions to address the challenges is a starting point.  As is usually the case, limitations on resources and ability to truly transform your organization will require the ability to make bets and drive organizational focus to deliver solutions.  Likely, corporate culture and brand differentiation (as perceived today and in the future) will help prioritize tangible steps to achieve the most important transformations.

How JDA Can Help

As the leading supplier of end to end supply chain solutions, JDA is uniquely positioned to assist our customers with industry specific thought leadership, and well established methodologies to evaluate opportunities, risk and rewards.  Through our Strategic Opportunity Assessment process, JDA can guide your organization to appreciate the impacts that consumer behavior shifts will have on your business, while providing a point of view on your maturity relative to your competitors (current and future).  Program level prioritization and roadmap sequencing, with built in justifications, can build organizational consensus on a clear path forward with the detail required to set organizational expectations on ROI, ultimately delivering an organizational outlook to be implemented with the leader in supply chain transformation programs. Contact JDA today to learn more.

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