ModusLink Sees Changes in Retail Evolution Impact as Holiday Approaches

ModusLink has an interesting point of view on what is actually happening in the evolution of retail, and it sees the relationship between stores and their suppliers changing fundamentally.

Those changes have become particularly evident as the holiday season approaches. Today, most product sold at major retail chains, outside of food, is sourced overseas, and ModusLink supports the global supply chain with the communications and other technology it manages. Lorcan Sheehan, ModusLink senior vp of marketing, noted in an email interview that critical changes include the growth of vanilla products and the capacity to drive goods into the market promptly when demand calls.

Vanilla products are those that are created conceptually and developed with the notion that retailers will have the final say on finished items that are customized to their particular needs. Retailers who are trying to differentiate their operations from those of the competition want a core of unique products, which customization helps provide. The ability of major manufacturers and distributors — Sheehan refers to them as brand owners — to source and move products to market in timely collaboration with retailers has developed to serve store operators who don’t want to carry a lot of inventory when faced with wary consumers and uncertain demand.

To deal with uncertainty in the approaching holiday season, retailers have become more systematic in gauging demand even as they rationalize, or purge, to put it simply, assortments and inventories of slower moving products.

In part one of a two-part posting, Sheehan discusses just how the development of vanilla products is helping suppliers and retailers cope with current market realities.

Bnet: What is different in how retailers are approaching the holidays this year versus 2008 and 2007?

Sheehan: Every year, the holiday season involves a high degree of coordination between the retailers and the brand owners. In 2008 much of the weakness in consumer demand wasn’t felt [until] after the start of the planning season, which for most retailers and brands occurs in July, resulting in a significant mismatch between the initial expectations and the final reality of 2008 holiday season demand.

This year, we are seeing a number of differences in how retailers and brands are approaching the holidays:

• Some contraction in the number of brands that are being carried to reduce the risk associated with a very broad product selection. Many of these changes would have occurred early in the calendar year, well ahead of the holiday season.
• Additional focus on forecast collaboration with key suppliers. This was always a key priority for the holiday season but the experience of last year has provided renewed impetus for both the retailer and brand supply chains. There may be some conservatism in the forecasts but there is a lot more focus on planning for potential variations in demand.
• Impact is felt throughout the end-to-end supply chain with brands looking to build more agile supply chains with an increased use of postponement — build of vanilla products with in-region configuration capability — and scenario-based discussions around maintaining capacity to be responsive to changes in demand. Where in the past inventory may have been the primary buffer, the industry is looking more toward building flexibility and capacity, which can be applied to whatever products are in most demand.
• Supply projects and changes that can be scheduled outside of the retail season are scheduled in that manner to ensure that retailers have a secure supply base capable of delivering against their requirements.

Bnet: What new demands are retailers putting on suppliers and how are the suppliers reacting? What trends have become particularly pronounced as goods start flowing into stores for the holiday season?

Sheehan: The move toward a more flexible supply chain model that is centered on the production of a more generic product — with packaging and customization performed in response to demand — is a positive for the industry as a whole. It has been written about for a number of years by AMR Research as part of its demand-driven supply networks and by Professor Hau Lee at Stanford as one of his “Triple As” in leading supply chains: Agility, Adaptability and Alignment.

It is when you get a market shock such as we experienced in 2008 that the benefits of this flexibility really become apparent.

Sustainability has not gone away. Wal-Mart and other retailers continue to push for more visibility into sustainability reporting and improvements in sustainability performance. This is supported by real consumer sentiment, even in a depressed economy, and the more enlightened manufacturers are embracing this consumer demand. In many cases these projects also yield economic benefits with the elimination of waste, improvements in recovery on returned goods and the design of more efficient and sustainable types of packaging.

In the flash memory storage market alone, we have worked with clients to convert more than 100 million packages from plastic clamshell to a more sustainable, trapped blister packaging. This equates to saving more than 1,800 metric tons of greenhouse gas, or more than 3,800 barrels of oil not being consumed, and 306 cars not driven for a year.