Bracing Your Supply Chain for Q4, COVID-19, and Keeping Up (Part 1)

We recently produced a webinar with the Council of Supply Chain Management Professionals (CSCMP) where we got to *virtually* sit down and discuss Q4, COVID-19, and the future of supply chain with several industry leaders.

Watch the full webinar, “Build Supply Chain Resilience into Your Strategy in Time for Q4”, to to learn more or read Part 1 of the webinar below. You can also watch the video on CSCMPtv.

Participants:

• Jenny Bebout, Co-Founder and Director of Product, Convey
• Matt Hertz, Co-Founder, Second Marathon
• Rodney Manzo, Founder and CEO, Anvyl
• Moderated by Dave Glick, CTO at Flexe

Questions:

• What are your perspectives on COVID-19 as a supply chain disruption? What have you seen so far? And what are your biggest takeaways?
• eCommerce has increased dramatically. How can companies catch up and keep up?
• What's the best way to manage uncertainties given all the disruption that's already happened this year?
• What are we seeing in terms of warehouse utilization? Are companies increasing their inventory in stock or trying to manage cash?
• Q4 was already challenging. How can retailers and brands brace for Q4?
• What are some new metrics being used to measure the performance of consumer satisfaction?
• Did retailers just skip a season? Are they skipping the summer and moving straight to fall and winter?

The following transcript has been edited for clarity and readability.

Dave Glick:

Our agenda today is pretty straightforward. We'll talk about COVID-19 which is on everybody's mind, the impact it's had on the supply chain, and where we are today. But, also our focus is around preparing for Q4. That said, I think we already had a Q4 back in March…

So, let's start with COVID-19.

What are your perspectives on COVID-19 as a supply chain disruption? What have you seen so far? And what are your biggest takeaways? #

Rodney Manzo:

This is a great question. And I'm sure it's top of mind for everyone right now.

There's a few themes that we saw. Number one is lead-time impacts, which led to number two, increased flexibility in the supply chain.

If you look at December in China, the lead-times delay increased from around 9 days to more than 20 days, but then quickly came back down and now they're finally below a five-day delay.

In the U.S. there’s a similar model—it just happened months later and we're still not out of it. So, we’re continuing to see increased lead times in the first mile.

The other takeaway was around cost. Shipments increased from below $10/kg leaving China or Asia in general to about $20/kg. Quickly it rebounded. So, people are probably spending less right now on logistics. But ultimately, that led to increased flexibility in the supply chain because people are adding different layers that they've never had before—layers that create more flexibility.

Dave:

It's fascinating to see, you started at nine days and ended up at five days and to see that when you have disruptions like this, you end up with innovation. That’s a great silver lining.

Matt Hertz:

The world has changed dramatically for literally every brand I know, and every brand that I'm a customer of or that we support at Second Marathon.

But, what's interesting is the dichotomy between those that have really been thriving and those that have been struggling. I've spoken to a handful of brands that are experiencing their best months ever. And some of these businesses are years old and typically used to having business slow down a bit in Q2. So, that’s remarkable.

And then on the other side of the ledger, you have brands that are struggling mightily—either their product is highly discretionary or they're having production issues like Rodney alluded to.

Some might be over-indexed to the offline or specialty retail world where a lot of those doors are closed, but, it has been really fascinating to see the spread between brands that are succeeding and those that aren’t.

All brands are really trying to understand what the world will look like when we come out of this, and that's the challenge. Very few are willing to throw a dart at the board and pinpoint when that will happen. It feels very much like a lost cause, but it’s the million dollar question.

Dave:

Do you worry about the rich getting richer? You said some brands are getting stronger. There's one down the street in Seattle that fits that. But, do you worry about that driving more division?

Matt:

I'm not quite sure if I worry about that. That’s a different philosophical question that I'm sure, Dave, you have strong opinions on given your alma mater. But, I think, given the amount of change and how quickly the change has happened over the last few months, eCommerce as an industry feels like a startup right now.

Some of the largest companies over the next decade are being born right now and the hundreds of us on this call right now do not know who they are. So, yes, on the one hand Amazon is getting larger and shipping more boxes today than they did a number of months ago, but there's lots of opportunity for everyone in that space.

Jenny Bebout:

I appreciate the creativity right now in these companies. So, the behemoths that have this enormous amount of red tape are able to execute on ideas really fast—in a matter of days and weeks. They're really being forced to.

As an entrepreneur, I appreciate being able to see them be nimble and act quickly. I think they realize more of these things are actually possible without the red tape. So, I'm curious about how that will continue—how the prophecies will continue after COVID.

eCommerce has increased dramatically. How can companies catch up and keep up? #

Dave:

Survival leads to innovation or the need for survival leads to getting rid of a bunch of the bureaucracy. So, the move to eCommerce has been substantial. I think we saw 6% to 16% market share in eCommerce over the last 10 years, and then 16% to 27% in the last 10 weeks.

Jenny:

We saw 40% more shoppers using eCommerce for the first time ever. And growth is projected to leapfrog like two years. So, it doesn't appear that eCommerce volumes will slow down at this point. I think what's interesting is a segment of new shoppers of older generations. They're being influenced by their family and friends so they can stay nice and snug at home. Some of those people will continue to shop online post-COVID.

Dave:

Do you think there will be a reversion to the mean? Well, I don't know when post-COVID is, but I guess the longer it lasts, the less likely it'd be a reversion to the mean.

Jenny:

That's the uncertainty right now. We don't know how long it will last, or what it will do to our economy. So, I think that's another factor that definitely ties in.

Dave:

Matt, you work with a lot of high-growth digital natives. What's your take on the move to eCommerce?

Matt:

Up until a few months ago when we were talking to prospective clients, our spiel is always around working with digitally native brands. Now, the message is changing because we’ve started working with more brands that aren’t digitally native. Instead, they’ve had a stronger offline presence and are now moving online.

So, the digitally natives were already there, but even more so now with different platforms that really enable commerce like Shopify. But what's really fascinating is seeing a lot of the traditional brands that sold into Dick's and GameStop and Barnes & Noble, and doors that were challenged over the last few months as states were shut down. These are the brands that are now going online.

These brands are finally like, "Well, maybe now is the time to spin up that Shopify store, or that eBay or Etsy store, that Kickstarter to actually take advantage of the infrastructure. The technology that has come a long way in eCommerce and technology that makes selling online really darn easy."

The friction now, the final frontier friction in eCommerce is that physical side—the logistics. It's the side that all of us on this call are the ones that are really solving a lot of these challenges today.

Dave:

The traditional brands that you mentioned are learning that putting inventory close to the customer is the only way to survive. And to do that you need a multi-node network, which is complex.

What's the best way to manage uncertainties given all the disruption that's already happened this year? #

Jenny:

Prepare for constant change, right? Not surprising. I think one great way to be nimble is through partnerships.

I realize how this sounds coming from me, a technology provider, but I'm thinking the same way in my own role. How do I deliver to Convey customers more value quickly? I can't take a year to build something. Having great partners, it gives you flexibility, it gives you access to experts and really the power to move quickly.

Secondly, what I've been thinking about is just gaining control of your data. So, your inventory, your customer, your transportation, your invoice data. And this problem is really challenging because we know every supply chain has its own nuances, but really reducing the risk in the decision-making—especially right now—is really important. So, we're seeing a lot of our customers upgrading their core platform systems like the DOMs, the ERPs, the TMSs, and the CRMs.

Rodney:

I think you need a multi-pronged approach here across the physical and eCommerce. I come from both environments. Just as you see physical going digital, you also see eCommerce going to brick and mortar. It's about having flexibility into what you can do, how you're approaching your customers.

And what the future holds, is more of that. You see enterprise brands like Procter & Gamble going to eCommerce and acquiring customers, and then you see eCommerce going into brick and mortar retail. So, there's a multi-pronged approach here that inherently makes you more flexible.

What are we seeing in terms of warehouse utilization? Are companies increasing their inventory in stock or trying to manage cash? #

Full question: Inventory equals flexibility. What are we seeing in terms of warehouse utilization? Are companies increasing their inventory in stock or trying to manage cash that they're increasing the stock? Are there slow-moving obsolete goods (SMOG) that will need to be discounted? Jenny, do you have thoughts on that? I'm going to have to weigh in as well.

Jenny:

Our customers are using inventory from stores. Rather than delivering from their warehouse, they're trying to use the inventory they have and deliver from the store. That's also challenging because stores aren't built for delivery. But because they’re closed, some are being used as warehouses. So that's another way they've been using their resources and being more nimble with their inventory.

Dave:

We saw Kroger had opened what we call a dark store in Cincinnati because they didn’t want customers in their store “screwing up the inventory.” And so they closed the store. And I don't know how they're expanding that or not, but it seems like people are moving that direction.

Q4 was already challenging. How can retailers and brands brace for Q4? #

Dave:

I joked that folks start January 2nd working on Q4 and Black Friday, and this year Black Friday came on March 12th and everybody was caught flat-footed. And now what we're seeing is we're at Black Friday volumes every day for many of the big online retailers.

Matt:

You hit the nail on the head. Because I'm a bit of a dork, I'm always talking to my local FedEx and UPS drivers and asking, "What's happening?" And as you suggested, it's literally Black Friday, Cyber Monday volume every day since mid-to-late March.

It's just exceptional to think about what volumes will be, you know, for the final six weeks of the year. It’s something that a lot of brands may not be fully appreciating. This Q4 is not going to be like last year plus, you know, 10%. It's going to be significant. And then you have to layer on COVID-19 and what will happen there. It’s a whole other variable.

I assume COVID-19 won’t be a whole lot better, although I wish I was a little more optimistic on the situation. So, Q4 is going to be massive.

Brands are really trying to understand what the world will look like. I had a conversation a few days ago with a brand that we support. They sell cookware and kitchenware online so they're definitely in the right place at the right time right now.

They are finalizing their holiday buy and wondering how much should they purchase? I'm certainly not a merchandiser or a planner by any means, but my general feedback to them was, given the product is manufactured overseas, take your most bullish-case scenario and multiply that by a factor of probably 1.5 to 2X.

Forecasting is really challenging. But, what you don't want to happen, and what I think will happen with a lot of brands, is selling products and then waking up December 1st without any inventory left. You’ll miss the final four weeks of crunch time sales where you generate a lot of your business. This eCommerce season will be extraordinary, and for brands it's really understanding that balance of buying too much versus buying too little. And what happens if you buy too much, how do you potentially discount that early next year? But all these uncertainties are adding to an already, or, I should say, is exacerbating an already challenging time of year.

Rodney:

Matt nailed it. Sales operations planning is the backbone, but when you have a disruptive past and you're not sure what's going to happen for the future, what do you do? What we're seeing a lot of brands are taking different inventory strategies and position strategies.

They may be increasing what they're producing, making sure they have capacity and excess capacity in factories, and then they'll position this differently around the country. That's why companies like Flexe are so helpful to these brands. And it's a different approach than they’ve taken in the past because they truly don't know what the future is. So, I wouldn't throw out your planning model, but it's about really thinking heavily about how accurate past strategies will be going into the future.

Working capital is a problem as well. If you're spending all of your money, you don't have working capital and that can sabotage your business.

Dave:

I've always studiously stayed away from forecasting in my career because forecasting is hard. [Laughs]

As Matt said, you might want to double down and order more inventory in case you run out of stock. But you also don’t want to wake up on January 2nd not having sold through your products and be out of cash. It’s a difficult equation and I don’t know what the answer is. It’s a good time to be long on cash.

What are some new metrics being used to measure the performance of consumer satisfaction? #

Jenny:

Measuring the satisfaction of customers is hard right now. It’s hard to set a promise. So it really starts with the data. You need that to set any kind of promise and then to measure customer satisfaction.

Some metrics to start are understanding if the shipment was on time, or how customer care handled a transaction. Most of our customers can’t tell us how delivery impacts satisfaction. So you need data in one place so you can begin to understand what customer expectations to set, and then meet or exceed them.

Dave:

Customers have been willing to change their expectations in this crazy time, but it's good to set the expectations first. If things are going to take five-to-nine days instead of two days, if you tell them upfront, they'll understand at least in the short-term.

Did retailers just skip a season? Are they skipping the summer and moving straight to fall and winter? #

Matt:

I'm somewhat handicapped by not being a merchandiser or a planner necessarily, but I think that comes down to an element of seasonality. Food and beverage, and even fashion, are probably dealing with some of that seasonality because they have varying shelf life.

Going back to that brand that I mentioned earlier that sells cookware, there's really not a whole lot of perishability there. What we are seeing, depending on the product is, selling out of something faster. I don't think it's so much a case of skipping over the season. I think it's that the season is happening in far less time than the traditional three months.

Dave:

You mentioned the parallel. I have heard statistics that companies are selling lots more shirts, but not very many pants these days because we all see each other from the chest up. Rodney or Jenny, do you have thoughts on skipping a season?

Jenny:

I wouldn't fear that we're skipping a season. But some of our customers like home improvement retailers—their season is always summer. Now, because everyone is home, there are so many projects happening and patio updates happening that there’s definitely a survey. For a lot of retailers, it's like every season for them is just on steroids.

You may also like: #

• Article: Supply Chain Disruption Q&A: A Bias for Action
• The Wall Street Journal: The Rush Is On to Secure Holiday-Season Warehouse Space - The Wall Street Journal
• Article: Bracing Your Supply Chain for Q4, COVID-19, and Keeping Up (Part 2)