Monday, June 7, 2010

Top 25 Supply Chains and a Quarter of a Trillion Dollars Jackpot for Retail

AMR’s top 25 supply chains list for 2010 is out: In Kevin O’Marah’s weekly newsletter, First Thing Monday Morning, he lists “retailers in general” in the “falling” category for supply chain top slots. The data bears this out. In their 2007 top 25 list, there were five retailers: Wal-Mart (6), Tesco (8), Best Buy (9), Lowes (19), and Publix (23). This year, Lowes and Publix have dropped out from the top 25 and others have slid - with the exception of Wal-Mart rising to 4th position, Tesco (20), and Best Buy (24).

Given that retail contributes almost a third to the national GDP, it shows that there is a lot of opportunity remaining in the system to extract supply chain efficiencies.


How large is the opportunity? A report published at (see Good to the Last Drop) says that, “Opportunities still abound for doing more with less, according to a new study of the 1,000 largest U.S. companies (in terms of sales) by REL, a division of The Hackett Group. Indeed, the study concludes that those companies could wring a total of as much as $709 billion in excess cash flow from their supply chains by adjusting their inventory levels, getting their customers to pay their bills on time, and managing their accounts payable carefully…”. Assuming the 1/3rd share of retail in the economy – that would translate to a neat $236 billion for retailers. That is almost a quarter of a trillion dollars – not a bad chunk of change! But, since retailers have typically lagged in leveraging supply chain efficiencies, the actual share of retail in the potential savings of $709 billion may be even bigger!

Another noteworthy feature from the report - there is a newcomer in the Top 25: Amazon now appears in the 10th spot with the following comments from AMR, “In years past, this online-retailing pioneer was omitted because it was too small for inclusion in the Fortune Global 500. But in 2009, with the success of its Kindle e-book reader as well as continued growth organically and through acquisition (e.g., Zappos, for shoes and apparel), Amazon not only made the cut in terms of size, but it demonstrated the deepening vertical integration trend seen elsewhere among leaders. Amazon is pushing some critical frontiers in its value chain strategy, tapping and shaping online demand as the iconic brand of consumer Internet retail and developing an increasingly full-service IP value chain, including e-books, cloud-based movie sales and third-party brand support.” I believe this trend will continue – the online retail as a segment has grown at a healthier rate than conventional retailing and there is still room to grow. As a result, multi-channel retailing will continue to be an opportunity for conventional retailers to leverage, assuming of course, that they have the inclination and the will to integrate their supply chains across channels which can provide them with benefits that online-only retailers lack.

© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my book on Enterprise Supply Chain Management at Amazon. You will find every supply chain function described in simple language that makes sense, as well as see its relationship to other functions.