Recently, I had the pleasure of exploring Supply Chain opportunities with a smallish tech Start-up about to ship it’s first products to market. The company had done its initial market assessments and decided to launch in two markets simultaneously. What struck me was, though they knew where, and how they were going to sell it, they had little idea of the decisions around the getting it to the sales points (a well-known online marketplace), and even less on how they were going to handle returns. Apparently, all they wanted was “someone to do the day-to-day moving of the product”. This led me to reflect on the visibility of Supply Chain as a “make or break” function for Start-ups with a physical product.
1. Decisions early in the development of product supply can have lasting impacts down the line
Just focusing on the tech, anyone who has worked in supply chain a corporate environment knows, IT and data handling systems legacy are the two greatest challenges when trying move to an efficient or digital way of working. In his article ”Technical Debt may be hindering your digital transformation”, Ken Wong, President of Lenovo Asia Pacific, backed up by an Accenture survey states:
“… C-suite executives say technical debt— the cost to rework IT to ensure the business thrives—severely limits their IT function’s ability to be innovative (70 percent), greatly limits their ability to migrate to new technologies (72 percent), and makes their IT function much less responsive to changes in the market (69 percent)”
So, why if you are a Start-up is this important? Easy, the company won’t always be a Start-up, and the Supply Chain IT decisions it makes early on, will impact on the ability to seize new opportunities as they arise. Decisions on how and where data is held and manipulated, will impact on linking together data-sets in the future and making sure that the company is in the best possible shape, should the founders choose to sell it 5 – 10 years down the line.
Another trend that is apparent in Supply Chain is, that the speed of new technology introduction is tremendous. Currently, some are little more than buzzwords being tested with proof-of-concepts, but others, such as Big Data, Machine Learning and Intelligent Sensor Technology (IoT) are taking off in a big way. The skill is to opt for solutions that make accessing new technologies an option, if not easy. This leads me to one of my favourite subjects, Distributed Ledger Technology (DLT), frequently called Blockchain. As the Harvard Business Review puts it,
“Blockchain is not a ‘disruptive’ technology, which can attack a traditional business model with a lower-cost solution and overtake incumbent firms quickly. Blockchain is a foundational technology. It has the potential to create new foundations for our economic and social systems.”
As far as Supply Chain is concerned, the shift in doing business will be fundamental, it may take time, but not as long as you think. So, if a company is starting out today, then thinking about how these technologies might impact, and how to make best use of them, is advisable. After all, with smart contracts, there should be no billing, invoice reconciliation, transport documentation, unexpected fees etc outside the blockchain, and this represents a significant manpower saving.
2. The handling of returns is often an afterthought
Anyone who has worked with Lawnmowers and sellers who offer “no-quibble returns” will tell you: Returns can make or break your bottom line. Few things are more impressive and depressing than a warehouse full of returned lawnmowers, bought on Friday, used on Saturday, and returned on Monday. The bottom line impact alone can be quite impressive, given the short seasonal sales window. The big question is, how to handle returns effectively?
As part of the Sheffield and Cranfield University “Reverse Logistics Group” working on updating the original Reverse Logistics Toolkit for an omni-channel environment, it became clear quite quickly, that in most organisations the subject has been handled as an afterthought, until quite recently. Only 4 of the 25+ had a management function dedicated to it, and of those 3, two were 3PLs doing order fulfilment. If this is the case for established companies, how far is it off the radar screen of the average tech start-up?
Following some investigation, it appears that average customer returns in the online sales business can vary quite significantly. According to one source at Amazon, they can range from 2-5 % for books, to 5-15% for housewares and electronics, to 25% or so for clothing and items where there is an element of fit. Add to that the supplier returns of 3 – 5%, and it all soon adds up. Whereas, Khalid Saeh, CEO of Invesp and Amazon specialist, states that “up to 30% of all products ordered online are returned, as compared to 8.89% in brick-and-mortar stores”, though he does not give category breakdowns. From these figures alone, it is apparent that if returns are not handled well, it can very easily sink a company in costs alone, quite aside from any reputation and customer experience issues.
3. Supply Chain decisions impact on customer experience
Every decision a company makes in how to physically get the product into the hands of a customer or user is a Supply Chain decision. Having a well thought-out, documented and defined process reduces the impact of “nasty surprises” further down the line, both on the company’s and the customer’s side.
Statements such as: “They charge me for every little thing” “I didn’t know that XXX was chargeable” “Why are there additional charges on top of the airfreight rate?” etc. are not unheard of. The cold hard truth of the matter is: the more you define your supply chain, the fewer nasty surprises you will encounter. This includes sorting out service level agreements, standard work instructions, rate agreements, returns policies, outline forecasting and planning processes (S&OP) and such items. Start-ups are notoriously short on cash, so, defining processes and services upfront can save heart and headaches in the future.
4. Supply Chain data coupled with good Market data can target and optimise inventory / capital exposure
This should be a no-brainer, however, if the way that the data is structured makes it difficult to merge the data sets, then forecasting and optimising inventory flow can become a real time-sink and bone of contention. Optimally, the distributor, customer and supplier data should also be included, for a 3D view. The data should be in lakes or “schema-on-read”, not silos, so that best use can be made of both structured and un-structured data. If in any doubt, then please review what Lora Cecere and her Supply Chain Insights team have to say on the matter.
For tech start-ups with a physical product, this is all about using data to make the smartest use of available capital.
5. The best solutions are scalable, if they are designed with a future state in mind
Ever heard the statement: “We can’t afford a system, and a complex solution at the moment, so we’re using Excel.”? It may be a geographical thing, but here in Germany everyone automatically thinks SAP when they think of business systems. Whilst SAP, or any of the other large business systems, has many good points, when implemented well, the cost of implementation is often beyond most, if not all early start-ups.
Newsflash: in the age of SaaS systems do not have to be expensive, the best ones are modular and scalable. The snag is, the company must have a vision of where they want to be in a few years and make sure that the selected solution will carry it forward. There are a number of systems that have both user licence and monthly charging models, whose initial data requirements for set-up are small when compared to systems such as SAP, INFOR etc. The trick is to look for low start-up costs, interoperability/interfaces, scalability and how data is stored, owned and retrieved.
So, with all these points to bear in mind, why not start out well, by seeking assistance from a trained professional, rather than settling for “someone who’ll do the day-to-day work” for the time being? The future is defined by our day-to-day actions and choices. In Supply Chain, if these are not directed with a clear vision and strategy, it could well cost you your business, literally. If you can’t afford a specialist full-time, then how about hiring one a day a week, or one week per month to support, mentor and develop your team and its progress?
Elizabeth Coggins-Hill is a free-lance Supply Chain Transformation Leader. She works with companies facing significant changes to their business environment, or just starting out in the big, wide supply chain world. If interested, please feel free to get it touch.
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