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SARS and the growing need to be first to market are boosting the web’s role in the supply chain.
To win customers in a world saturated with places to shop, merchants can’t escape a traditional rule of retailing: Give consumers something other retailers don’t have-and serve it up while shoppers are hot to buy.
That requires an effective supply chain and logistics system. And much of retail’s technology investments the past few years have been in supply chain technology-especially in web-enabled supply chain technology. Many retailers and CPG manufacturers have become convinced of the efficacy of the web in sourcing and procuring merchandise. But today global concerns about terrorism and SARS are making the Internet more attractive to more businesses who have to deal with distant suppliers. “SARS has truly created a supply chain shock,” says Paula Rosenblum, supply chain analyst with AMR Research Inc.
First, the efforts to curb terrorism, then the sinking economy and now the outbreak of SARS have restricted executive travel. Where some buyers in the past would not have given a second thought to hopping a plane for the 23-hour flight to China or Singapore, today they’re staying closer to home. Business travel this spring was 2.5% lower than a year ago and 16% lower than two years ago, reports the Travel Industry Association. The U.S. Commerce Department reports that overseas business travel was down 7% last year over the year before and with the development of SARS, analysts expect a similar drop when Q1 numbers come out for this year.
Add to all these recent developments such long-standing concerns as tougher inspections for products that may be carrying parts made from endangered-species animals and suddenly web-based supply chain collaboration that retailers thought they could take their time developing has acquired new urgency. “These challenges will drive significant demand for international logistics systems that combine the ubiquity of the web with global shipping intelligence and analytics tools,” says Mark Vigoroso, senior research analyst for supply chain management at Aberdeen Group.
The good news is that the increasing demand for web-based supply chain and flexible global logistics systems will pay off in the long run by creating an infrastructure of business processes that will allow retailers and their suppliers to overcome disruptions in supply chains, by quickly changing seasonal promotions or sourcing replacement goods. “Those with better logistics management software solutions will be better able to handle any disruption,” says Kristian Steenstrup, research director for Gartner Inc. “An agile and resilient supply chain will survive better than one based on velocity or volume only.”
Indeed, more retailers and their suppliers are looking for ways to improve their supply chain processes with web-based systems, particularly as they bring employees home from the SARS-troubled Far East and prevent staff from traveling there, says Renee D’Ouville, vice president of marketing for QRS Corp., a provider of web-based supply chain systems to retailers including Lands’ End, Nordstrom Inc. and Federated Department Stores Inc. SARS-severe acute respiratory syndrome-has been afflicting people in China and other areas with no known cure. “Companies are pulling people out of certain geographic areas and using web-based supply chain systems to share design ideas,” D’Ouville says.
An extra push to use web-based systems is coming now from the Sarbanes-Oxley Act of 2002, which requires companies to fully disclose their financial operations. D’Ouville notes that the law is causing retailers and suppliers to use web-based systems to provide more visibility into their supply chains to prove, for instance, how they sourced a particular product as evidence of how they reached sales and profit figures.
A key component
Into this new reality comes the web, which companies are using in myriad ways to address the problems. Some retailers are using web-based product lifecycle management software, such as Windchill from PTC, to collaborate with product development on the Internet instead of in person in overseas facilities, AMR’s Rosenblum notes. Others, she says, are relying on supply chain visibility applications, such as New Generation Computing Inc.’s eSPS, to keep track of inbound orders without relying as much on personal meetings with suppliers. In addition, GlobalNetXchange member retailers are relying more on online auctions in lieu of trips abroad to work out the specifications of an order. “Web-based supply chains are a key component in doing whatever needs to be done to get the right products on the shelves at the right time and stay on top of customer expectations,” says Kent Allen, Aberdeen Group analyst who specializes in the way supply chain technology fits into overall corporate strategy.
At retailer Neiman Marcus Group Inc., a particular pain point was getting past tough new U.S. Customs rules that can put a major crimp in the shipment of imported fashion-products like Prada sandals from Italy and French-made printed skirts from designer Jean Paul Gaultier-that typically have short selling seasons. Neiman’s merchandise buyers scour the world for the latest in designer products-other brands include Chanel, Gucci and St. John-but post-9/11 Customs rules require importers to classify the ingredients of all foreign-sourced goods, such as by country of origin for each material that an imported product is made of, resulting in disruptions that can have the virtual effect of putting imports on a slow boat back to China.
No one knows the pain that this causes more than Jimmy Howell, who’s charged with the task of getting Neiman’s imports from Europe and other markets delivered to stores on time-before the same type of products appear in the growing number of boutiques that compete for Neiman’s fashion-seeking customers.
“Our toughest competition are these same people we do business with, because every designer has their own shop right outside our stores,” says Howell, vice president of transportation and logistics. “All of our merchandise is extremely time-sensitive. If our merchandise buyers see products they’ve ordered in these shops first, they’re on the phone with me demanding: ‘The competition already has it on the floor. Why don’t we have it?’”