A new white paper commissioned by DHL, the world's leading logistics company, argues the retail and consumer goods industry must re-evaluate its approach to its supply chains and logistics to survive the 'butterfly effect' of disruptive consumers. It identifies today's digitally empowered consumer as a key source of disorder in supply chains and sets forth the case for building consumer-adaptivity and cost-effective flexibility into the industry's logistics, to manage such disruptions.
The 'butterfly effect' is a small change at a localized point in the supply chain which can result in much wider consequences for the business, such as loss of customers or brand reputation, and billions of dollars off their bottom line. "Consumer as Disrupter" - a report by Lisa Harrington, president of the lharrington group LLC, prepared in collaboration with DHL - identifies the key trends that are shaping the sector globally to help understand the need for the evolution of supply chains to protect against such eventualities.
Harrington is also associate director of the Supply Chain Management Center and lecturer of supply chain management at the Robert H. Smith School of Business, University of Maryland.
Lisa Harrington says: "We can see that rapidly changing and often unpredictable consumer-buying behavior - enabled by the internet, mobile connectivity and growing spending power - is now making volatility and complexity the norm rather than the exception in the retail and consumer goods industry. In the same way as the corner store gave way to the high-street and eventually larger retail outlets, the global telecommunications boom has revolutionized the number of channels open to consumers and given rise to highly volatile and unpredictable consumer purchasing patterns. The result is fragmented sales channels, escalated service demands, shortened product lifecycles, ratcheted up cost and margin pressures, and new production challenges for businesses."
Three major trends are reshaping the retail and consumer goods industry and the associated risks of each are identified in the report:
The Big Bang Disruption and the Cascade Effect. Quantum innovation and revolution in product cycles, fuelled by instant access to information and consumer power, which have the capacity to instantly disrupt or destroy existing product lines and markets.
The Digitally Empowered Consumer. By 2016, smartphones used as part of the online shopping experience could influence up to 21% of retail sales in the US alone. Online shopping channels continue to morph, adding more uncertainty and complexity to the retail and consumer goods business model.
Rise of the Global Middle Class. Income levels in emerging markets increased by 96% from 2000 to 2010, and are expected to grow 45% from 2010 to 2016, driving a wave of consumerism for all types of goods, from basics to luxury items.
These forces are driving tremendous change in the retail and consumer goods industry, particularly in supply chain networks and operations.
Tom Kimball, SVP, Global Consumer Sector, DHL Supply Chain, says: "In this sector, resilience is contingent on being asset light but having access to full scale and capacity on an on-call basis. It is clear that retail and consumer goods manufacturers should be re-thinking their supply chains with an eye toward one thing: building out a portfolio of options, risk tolerances and capabilities to support cost-effective flexibility. This enables their supply chain to be resilient enough to withstand shocks, agile enough to respond quickly to sudden or unexpected change, flexible enough to customize products and efficient enough to protect margins."
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