Complicated? or Complex?

complicated

Beware of those who try to simplify, rather than illuminate wholesaling, warns Nick Shanagher

Wholesalers bring order to the complex world of independent retail and food­service through their decisions about what ranges to promote and items to stock, and by efficiently partnering with major suppliers. There is room for improvement but the industry needs to be careful about what it promises.

The challenge will come from local operators, impressed by the consumer-facing, supply-chain wizardry of Amazon, and from a new generation of marketers weaned on ideas such as the following from Retail Prophet founder Doug Stephens: “E-commerce will rapidly reshape the entire economic model of retail, spelling the end of wholesale.”

What appears logical may not be. The trend towards ‘pay for performance’ in joint business plans is built on the idea that what gets measured gets done. However, academics are increasingly warning business of the danger of choosing targets purely because they are easy to measure.

In the mind of a manufacturer, ‘pay for performance’ is about attaching margin to an item that is sold. This is an idea that may work in the complicated supply chains of larger retailers, but is likely to flounder in the complex supply chain behind local shopkeepers and café owners, where it is difficult to predict from where the item was sourced.

Poundland_front_There is money to be squeezed out of efficiencies. Palmer and Harvey is promoting planograms to retailers with the promise that they ‘can increase sales by up to 20%’ and ‘bottom line, [they] could increase your profitability by up to 30% by reducing the amount of cash invested in the display and avoiding slow sellers.’

These numbers are plausible but may be too ambitious for a supply chain to independents. Even in the complicated world of multiples, technology companies see fertile ground in tools to unlock these benefits, partly because there are many data items to consider.

For example, a white paper from Quantum Retail Technology examines 10 weaknesses with retailers’ operations. It highlights challenges such as the difficulty in understanding what consumer demand really is.

Historical sales don’t represent true potential because they are limited by the inventory received. Were sales lost because an item was not in stock, never in stock or supplied in such small volumes it immediately sold out?

To understand demand, software needs to analyse all situations where an item reaches zero and across short timescales – for example, if a retailer trains shoppers not to expect something, they won’t.

Quantum says another widely used tool that builds in error is cluster analysis. The assumptions behind why clusters are created need to be challenged.

If you cluster stores based on the delivery routes of your trucks, how does this marry with what consumers are doing? “Store behaviour always changes,” says Quantum. This means clustered data will quickly be out of date.

A third classic area of complexity is replenishment and allocation. Replenishment is about keeping items in stock; allocation is about getting items onto shelves. While both tasks require getting a product from A to B, the decision-making behind them is completely different in each case.

Replenishment requires hard thinking initially, but then the numbers can be run every week.

However, allocation is easy to start but needs weekly (or daily) oversight of multiple lines of data: item; price; channel; time; location; promotional support; margin; channel agreements; and so on.

Stephens says: “The days of stacking it high and watching it fly (to invoke Sam Walton) are gone forever.”

Not in the UK. Here, even the largest wholesaler faces competition from entrepreneurial white van drivers. Software developers have some work to do to help wholesalers more. But first they need to understand the difference between complicated and complexity.

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As managing director of Newtrade Publishing Nick has over 20 years’ experience of covering retail markets, Nick helps shopkeepers and wholesalers of all sizes to think about what questions are important for themselves and their businesses, and to find answers that work in their shops.

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