I spoke recently with the head of strategy and architecture of a large distributor of industrial products about his company’s implementation of Oracle Supply Chain Management (SCM) Cloud and how its flexibility had enabled them to adjust their distribution network to cope with COVID-19 disruption. What struck me most forcibly was the contrast between his story and the main food retailers here in the UK, who have failed disastrously to adequately fulfill their core mission, despite heroic efforts by their frontline staff.
The distributor’s Oracle implementation improved service levels and reduced inventory — usually conflicting goals — by enabling branch staff to sell products from anywhere in the distribution network, based on an available-to-promise (ATP) quantity and date. In contrast, the supermarkets’ eCommerce systems look only at what is at that specific store at the time you place the order. My colleague George Lawrie wrote in 2016, “A binary ‘in stock’ or ‘out of stock’ status is neither accurate nor sufficient to meet the expectations of most customers.” Too few food retailers heeded that warning, and now the chickens have come home to roost (although, unfortunately, their eggs still aren’t available in stores). The impact is:
- We still can’t order many other basic staples such as flour and pasta, even though our delivery or collection slot is two weeks away, by which time the stores will have had several fresh deliveries and should have been able to allocate to our orders. Back orders (the ability to log demand beyond current inventory and get it when it’s available) are a basic capability in most other industries, so this is an exceptional, and dangerous, blind spot.
- Add this to the supermarkets’ inflexible systems being unable to ramp up supply in line with demand, and the impact is desperate people visiting stores more frequently, increasing the risk of catching and spreading the virus. For instance, in the UK, the BBC reported that from March 16 to 19, there were 42 million extra trips to supermarkets in just four days.
- It’s now too late to fix the fundamental problems, so the retailers have resorted to short-term measures that merely exacerbate the problem. For instance, Asda (Walmart’s UK subsidiary) chose to “fix” the back order problem by preventing customers ordering products until the day before delivery. Instead of finding out what customers want and replenishing stores accordingly, they force us to wait two weeks without knowing what food we’ll be able to buy. That uncertainty causes extra, dangerous trips to local stores and extra stockpiling.
Meanwhile, the distributor’s modern software-as-a-service applications have enabled it to reconfigure distribution flows to cope with radical changes to how its branches and distribution centers operate. It is continuing to supply vital maintenance parts to important customers such as hospitals, nursing homes, and supermarkets.
Bottom line: Reacting to this current crisis is an extreme case, but all companies will in the future need similar operational agility that our distributor case study showed and that most food retailers lack. To enable this, CIOs’ focus must shift from the digital experience front end to the digital operations back end. For the supermarkets, the bottom line is they’ll lose market share unless they learn from this crisis and add basic capabilities such as ATP and back orders — as sure as eggs is . . . out of stock.