Chain of Thought

Being Sold on Supply Chain Mind Games

With schools just re-opened and the holidays around the corner, we consumers will be exposed to a lot more marketing sizzle in the coming days and weeks. Retailers will rely more and more on colorful store displays to grab our attention and convince us to spend more. As someone who’s more sensitive than the average consumer to the logistics challenges of executing these mind games effectively, I thought supply chain psychology would make an interesting topic for today’s blog.

Let’s face it, some of the biggest logistics challenges are in dealing with the people in our supply chains, from consumers to retailers to suppliers to material handling systems providers. As humans we all share complexity, and those complexities multiply as we play out our respective roles in the supply chain.

Consumers want variety. Retailers want to provide variety without holding a lot of inventory. Suppliers want to supply the right inventory without incurring the costs of technological complexity. Material handling and logistics system providers want to provide flexible solutions at the most affordable cost without shrinking their profit margin.

Let’s take those in-store displays I mentioned. All of these supply chain desires ultimately affect the consumer’s in-store experience and what he/she pays for that experience. I spoke with Frank Pellegrino, vice president of machine products for Intelligrated, a material handling systems provider. He did a good job explaining the supply chain complexity associated with creating in-store consumer excitement.

“The nature of these store-ready displays has been changing in several fundamental ways,” he said. “This includes a drive towards less packaging material, more eye-catching graphics that are visible to the consumer at point of purchase, greater variety (in flavors, colors, sizes, etc.), and mixed loads and/or mixed packs to provide even more variety to the consumer.”

This desire for less packaging is both environmentally and economically rooted. But this is where supply chain managers need to be aware of unintended consequences. Product is more easily damaged if there’s less secondary packaging to protect and support it. So while these displays are incorporating fewer disposable materials, manufacturers have to protect them from in-transit damage by adding more tier sheets between layers, using more stretch film, and even adding corner-boards. Sometimes dunnage has to be inserted to separate loads in the trailer. So the desire to be greener is often compromised by supply chain complexity.

That’s evident even before these displays are loaded into trailers. Pellegrino says material handling systems must be designed to compensate for products with less protective packaging. They must also accommodate a wider variety of products without creating change-over down-time but still contribute to adequate load stability to withstand over-the-road transport. Oh, and do all this without making the equipment prohibitively expensive or complex.

Creating the in-store experience with packaging extends even further up the chain, and so does the relationship complexity. Rich Sherman, author of a new book titled Supply Chain Transformation: Practical Roadmap to Best Practice Results, says that packaging plays more of a role in forecasting than most people think.

“Your packaging strategy can often be a lever to increasing demand and/or direct product profitability,” he writes. “It can also be a loser, if you proliferate SKUs by adding new packaging options. As a best practice, leveraging packaging for consumer convenience, different sizes for different demographics, can increase pricing options; however, … big box retailers don’t want a lot of variety in size SKUs. Shelf space is gold and they are more interested in variety of brand offerings at an extreme consumer value point than variety of size and choice for the consumer.”

So how can manufacturers plan for the right mix of products to load into those eye-catching displays? It’s more about who the supplier talks to on the retailer buyer side—and how. Sherman tells of one strategy meeting he was involved in during the early days of the Collaborative Planning, Forecasting, & Replenishment (CPFR) movement in the 90s. He was working with a secondary brand in a category and the manufacturer’s operations manager was having trouble getting a retailer’s category manager to share information that would help the manufacturer plan what it would supply. It came down to bringing simplicity out of the complex.

“I asked the category manager if they received a suggested purchase recommendation from their ERP system,” Sherman writes. “Yes. And would they share the next four weeks’ planned purchases for the manufacturer’s products? That’s all we would like to see. The category manager leaned forward and says, ‘That’s all you want?’ I replied, ‘Yes, if we can get a rolling four-week plan of what you are planning to buy, we can compare that with our forecast and reconcile the quantities ensuring improved service and gross margin return on investment.’ As the category manager was leaving the room, he turned to the manufacturer’s sales manager and said, ‘Kelly, you know that up-sell plan you’ve been wanting to present to me? Call me Monday and let’s get it scheduled.’”

The next time you’re wowed by an in-store display, remember it was made possible by Monday-morning phone calls like that one.

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