Make Perfect the Enemy of the Good

March 14, 2017  by Jane Chero in Business Strategy, Industry   

It is difficult to change how things are done when the process is ongoing.  If the industry has the ability to have a “do over” how would the supply chain be changed to reflect the realities of today’s world?

The discussion of how we move raw material and products around the world to end up finally in the homes of the consumer presents a chain of events that must be executed precisely in order to avoid either losing profit or disappointing the stakeholders, suppliers, retailers, or consumers along the chain.  What would we change?

While the future may be 3D printers that produce that piece of furniture of your dreams, reality must contend with the economics.  The most efficient supply chain minimizes the number of nodes (handlings) of the product.  This would dictate a collapse of the distribution channel.  In other words the producer would supply directly to the consumer.  This would require, at least initially, the move from mass marketing – everything for everybody – to a more focused strategy of designing, producing, and retailing product for a specific consumer type.

At the manufacturing level, with the introduction of offshore production which removed the restraint of needing to own the plant, manufacturers became suppliers.  The result was a proliferation of product categories offered. What was at one time a focus on a single product or product category that was manufactured, has now become a pursuit of volume.  With this change we added an additional cost as well as a loss in control of quality.

At the retail level smaller retailers expanded stores to present more products in a wide range of price points. While increasing the revenue to allow a more specialized management process and more potential profit, there was a loss of focus on the consumer that was sold.

Filling this void has been the lifestyle retailers who focus on their consumers.  These retailers are curating their product, their advertising, and their services to satisfy their customers.  To accomplish this, the lifestyle retailers source their own product from the offshore producers.

The etailers have established the ability to communicate effectively to “their” consumers across the nation.  The largest of these etailers are establishing their own transportation system including distribution centers.  According to Wayfair, 69% of U.S. households will be covered by their distribution centers by year end.  Couple this with their agreement with their “Premier” suppliers to ship containers directly to their distribution centers without branding, is a major step toward consolidation.

The threat of tariffs is the next storm cloud.  What would a 35% tariff do to the economics of importing?

I could go on, but the point is that it is difficult to change.  However, the entrepreneurs will always probe the status quo looking for a better way.  Existing manufacturers and retailers must be open to the possibilities.