ModusLink 2: Holiday Highlights Retailer/Supplier/Consumer Collaboration

As its works with retailers and suppliers in managing worldwide logistics, ModusLink – which provides supply chain services for technology companies — has a real-time view of how retail is evolving. In the first of a two-post interview, Lorcan Sheehan, senior vp of marketing for ModusLink, noted that the evolution of vanilla products, designed by manufacturers but tailored to retailer specification, are providing the basis for flexible supply chains that can readily adopt to changing demand. In this post, he discusses how the beginnings of economic recovery are impacting the movement of holiday seasonal merchandise and, from a broader viewpoint, how current circumstances are impacting the relationships between retailers and suppliers as supply chain partners.

Today, supply chains that are evolving to better meet demand are extending through to the consumer. Rather than the ultimate end of the supply chain, consumers are becoming active participants especially as their online interactions with retailers alter how information and product flow through the system. As they explore new ways to more effectively serve consumers, retailers and suppliers are becoming more collaborative, with the pressure of the holidays reinforcing the trend.

Bnet: We know at least one major financial institution heavily involved in retail financing, CIT, has had problems lately but are other institutional underpinnings of the supply chain adversely affecting the ability of retailers to get their goods on time and on shelves?

Sheehan: The economic challenges faced by suppliers have resulted in significant capacity being removed from both the manufacturing and the transportation links of the supply chain. This is a combined impact of restructuring activity in response to reductions in demand and the exit of some smaller suppliers from the industry.

[So] 2009 has seen transportation prices drop in the logistics sector in response to the drop in demand. We could see some pressures emerge as we get closer to the critical shipment dates for the holiday season, especially if there is a significant upsurge in consumer demand. Price is typically the first response to these pressures and, in the medium term, we expect that prices will return close to previous levels as supply and demand moves more into balance.

We have seen some indications from European air cargo providers of increasing price levels in the near future.

Bnet: Have the past couple of years affected how retailers have stocked up for the holidays and do any or all of those changes look to have a lasting, even structural affect in the market?

Sheehan: Even before the low profits of last year’s holiday season, retailers were beginning to shift their supply chain models to follow the shopping preferences of the consumer. As the convergence between the online and retail channels continues, we are going to see more and more cross-channel functionality become standard. Customers want to be able to go online to check inventory at a retail location, make a purchase that they can pick up in-store, and they want to be able to return a product purchased online at the local outlet. Equally, they may have the opportunity to select a variation of a product in-store and have the product shipped directly to a destination address.

As retailer concentration increases - especially in the U.S. and Europe - we have seen an increase in the development of direct relationships between the brand owners and key retailers. This direct relationship facilitates closer collaboration around promotions, with many retailers working directly with brands to create promotional products with a particular profile at a target consumer price. This allows the brand owner to gain economies on these products that can be shared with the retailer and ultimately the consumer.