In the late 1990s, then Gartner analyst Art Mesher wrote a very influential piece on supply chain management titled "The 3 V's of Supply Chain, Visibility, Variability and Velocity."
The article had a major impact on supply chain thinking, helping to expand the focus supply chain management from primarily one with a cost reduction emphasis to how supply chain can help drive profitable growth. This shift in philosophy from cost focus to growth continues to be a supply chain imperative among leading retailers today.
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| There are many sources of supply chain variability in retail, but vendor performance is certainly a major one. |
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With that, let's review the 3Vs of supply chain and why they remain extremely important to the retail practitioner today.
Visibility: "Data rich, information poor' is a common theme among retailers of all shapes and sizes. While core execution systems create reams of data never once imagined 10 years ago, retailers are challenged more than ever to aggregate the data to support informed business decisions. While supply chain visibility means different things to different people, most supply chain experts will tell you it's the ability to see problems before they occur.
How does this impact the supply chain professional? There are too many ways to list in this short post but examples include: anticipating late shipments before they occur, understanding which suppliers advance ship notices are accurate or not, and what merchant presents us with the most trouble shipments. Understanding the answers to these questions before they occur gives the retailer a strategic advantage in today's marketplace. Another example of supply chain visibility discussed in this column is the value of monitoring the purchase order lifecycle which provides us the perfect segue into our next V, variability.
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 Variability: One of the immutable laws of retail states that in the presence of variability, there will be safety stock. Safety stock has negative ramifications across the entire retail enterprise. While of course some safety stock will always be needed to meet demand fluctuations (more variability), excess safety stock to the chief merchant means the dreaded "m" word - markdowns; to the CFO, potentially higher capital requirements and a lower return on invested capital (ROIC); to the SVP of supply chain, higher transportation, warehousing, labor costs and trouble shipments. To the CEO, it means lower overall profitability which translates into lower bonuses.
While excessive safety stock is a major issue, the flipside is worse. Out-of-stocks obvious result in lost sales and a dissatisfied customer.
There are many sources of supply chain variability in retail, but vendor performance is certainly a major one. On-time and fill rate performance are the obvious factors, but so are labeling and other issues that slow the flow of goods to the store floor – and poor ASN accuracy that causes inventory errors at the store.
Whatever the causes of variability, one of the casualties will no doubt be velocity.
Velocity: The paradox of today's retail supply chains is that they are getting faster and longer at the same time. While seeking low cost manufacturing options in Asia, retailers are working hard to reduce the time it takes from product concept to store shelf.
Reduced order-to-cash cycles generated improved operating cash flow, which drives shareholder value. But lack of visibility and persistent variability are the enemies of velocity – and again here vendor performance is at the center of the equation.
Visibility, variability and velocity are now more important than ever as it pertains to the retail supply chain. The truth is that they are highly interconnected. When a retailer increases its supply chain visibility and velocity while reducing variability, a more consistent, predictable and ultimately profitable supply chain results. To do that inherently requires improving vendor performance, which comes from measurement, communications, and the right blend of carrot and stick.
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