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Retail CEOs Say Their Supply Chains Not Optimal

Volume 2, Issue 15
August 15, 2014
View/Print Entire NewsletterRetail CEO

In a recent survey of more than 400 retail industry CEOs, 83% said their retail supply chains are “not optimal” for today’s changing retail environment.

The poll conducted by PwC and Forbes Media for JDA Softwarefound that digitally-connected consumers have turned retail models upside down as omnichannel shopping has transformed supply chain from an important business concern to a mission critical one.

So profound is this change that 50% of CEOs recognize that their supply chain can be a strategic differentiator.

One of the biggest challenges facing CEOs is managing the transformation to omnichannel retail, JDA Software said. However, only 34% of CEOs consider the rise of omnichannel shopping to be an external threat, and only 22% said it will have a direct impact on their organization.
“The rise of omnichannel is one of the most transformational shifts that has occurred in retail in recent times,” said Baljit Dail, JDA’s Chairman. “Retailers who don’t understand the strategic alignment of their supply chain with consumer expectations are in danger of becoming non-competitive. This isn’t about making a tweak to the operating model, it requires a massive change.”

However, the CEOs say their top priorities are centered on more traditional areas of growth – entering new regions and markets, opening more stores, or mergers and acquisitions. These priorities highlight potential missed opportunities for more than two-thirds of CEOs who failed to consider enhancing distribution capacity and supply chain as a key contributor to driving growth, JDA asserted.

The CEOs pointed to three fundamental risks will have the most impact over the next three years: increasing competitive threats (41%), margin erosion and cost reduction (39%), and attracting and retaining customers (24%).

These answers reveal a potentially sizable gap between recognized risk and a strategy to address that risk, JDA said, noting that maintaining a strong customer value proposition is directly tied to supply chain proficiency. Some have learned this, however.

“Our Foot Locker supply chain is changing in the face of multi-channel shopping. We’re making it more responsive and faster,” said the company’s President Ken Hicks. “We are looking at new ideas and new ways to distribute goods, not just to get them to the store, but also to the customer.”

Opportunities Being Missed

Half the CEOs recognize that their supply chain can be a strategic differentiator. The survey also revealed that CEOs who focus on optimizing their supply chains have 15% lower supply chain costs, less than half the inventory levels and more than three times shorter cash-to-cash cycles.

Supply chain management has moved from the back office to the front of the store as consumers seek to seamlessly shop across virtual and brick-and-mortar channels, said Bruce H. Rogers, Chief Insights Officer at Forbes Media.

“Our research highlights both the opportunities and challenges today’s retail CEOs face in mastering this all-important discipline,” he noted. “To do it well, CEOs are shifting their capital investments and business priorities as well as applying innovations to drive a more strategic supply chain that’s aligned with their business growth.”

In addition, only 15% of the CEOs surveyed believe that their supply chain today is resilient enough to address the threat of external disruptions.

“Taking a cautious, incremental approach to this kind of market disruption can be a deadly course of action,” said Dail. “There seems to be a disconnect between what is required to make the transformation to today’s retail environment with what is being done by many of these companies.”

He added, “With speed as the new currency, accelerating time to market and responsiveness through an agile, connected supply chain must be closely aligned with growth priorities to successfully compete and defend profit margins.”

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