Allen Saunders: Life is what happens to us while we are making other plans. —Readers Digest, 1957
By Bill Scott, president, StoreReport LLC
The interesting thing about evolution is that it is a slow progression of minuscule occurrences that can only be evaluated when viewed through hindsight. ‘Technology Impact Analysis’ is the armor against a surprise attack, but very few business executives know what it is, or they do know, and have no plans to implement it. While the frequency of these changes are coming at an alarming rate, the tendency to wait and see is proving to be a costly mistake.
Torben Rick, an experienced senior executive and an authority in the field of ‘Change Management,’ cites ‘denial’ as the first response to unwanted change, and it is at this critical juncture where we tend to seal our own fate by giving into our emotions and peppering it with our own assumptions, many of which may have been disproved by something we missed along the way. Between denial and acceptance, the transition includes anger, confusion, depression and ultimately crisis. The deeper we sink, the more determined we become at proving we are right, and too often the results end up being catastrophic.
Convenience Store Suppliers and Providers of Goods to Other Small Retailers are Venturing into Unfamiliar Territory
In recent years we have witnessed this phenomenon taking its toll in other areas, including the oil marketing industry, as fuel and oil distributors were suddenly faced with inflated contracts, debilitating restrictions and unfair competition from their suppliers. The actions of major oil companies’ resulted in the destruction of the very industry it created. If history has taught us anything, we should see that something similar is about to happen yet again.
Manufacturers Would Love to Shorten the Supply Chain and Steal the Profits for Themselves
The point is that we can’t afford to take our eyes off the ball for a single instant. Amazon is more a tool than it is a business and has been extremely successful in crippling suppliers and their retailers in a number of departments, including toys and games, electronics, cameras, books and clothing. Netflix killed Blockbuster, and Kindle, DirecTV, Dish, and a plethora of others sent Borders & Long to the trash bin. The rate of change occurring in retail, long ago surpassed our desire to keep up. We have the capability. It’s beginning to look like we just don’t give a damn.
Aversion to Change
Our aversion to change has impeded our progress since the time the Pilgrims landed on Plymouth Rock. Advancements made in the internal combustion engine should had put an end to cars powered by steam. Yet die-hard automobile manufacturers continued to experiment with steam engines until 1973. (I didn’t know that until I looked it up). We have the technology to design a nuclear reactor that will fit into an automobile, but the anti-nuclear energy crowd will have collective heart attacks if we even suggested such a thing.
Just over the last decade, many products that showed great hopes have become (or are in the process of becoming) obsolete; from BusinessInsider.com, examples include: PDAs, paid email accounts, dial-up internet (very few left), film processing, brick and mortar movie rental stores, paper maps, newspaper classifieds, landline telephones (I still have one), long distance fees, pay phones, VCRs, FAX machines, phone books, dictionaries, encyclopedias, ‘411’ telephone information, CDs, floppy disk, bills by mail, push buttons, paper, record stores… new products continue to be added to the list daily.
Has the Middleman, and Middle-Woman, Become Unnecessary?
Will suppliers and wholesale distributors soon become extinct as manufacturers are scheming behind our backs to go directly to retailers and their consumers? The way things are going, I think the question is not “if,” but “why is it taking them so long?”
Imagine this: a soda, pop or coke is sold in a store in Nebraska, a message is relayed to the manufacturer, and UPS, FedEx, or an Amazon drone, picks up a replacement item and takes it to the store. Ridiculous, right? Wait a minute. If someone had told me in 1960, that I could write an article at 8:15am, and have it in front of 100 million people a mere 15 minutes later for free, how hard would I have laughed?
Suppliers are Relying on Their History to Save Them
A conveyor of goods within a supply chain has, and always will be valued by what they add to the process. If the supplier ceases to have value, or the value they provide falls short of the needs of the chain, their future is in jeopardy.
Every day suppliers’ costs are increasing. The main reason is because they continue to send too much inventory in too many trucks, and the contents of the trucks is decided more on what they need to move out of their warehouses than what the retailer is capable of selling. Why? Because they invested in too much of the wrong inventory to start with, and rather than take a loss, they must dump it in places where they can put it without it being noticed.
The convenience store channel is a sitting duck, and they receive a great deal of that overstock, because the people working in those stores assume that management condoned these deliveries, and management doesn’t even know it is there.
The Failed Promises of Category Management
Category Management provides an excellent environment for this type of activity to flourish, because the focus is based upon appearance instead of value to the retailer. For the life of me, after 35 years in dealing with the industry, I have yet to figure out how a store filled to the brim with inventory relates to profits.
Suppliers on the other hand have become convinced they are doing the retailer a favor, because in fact, this is what the retailer expects them to do. The suppliers live in fear that a store will run short of popular products, so they just keep bringing more stuff until the retailer screams “enough.” It’s a terrible practice that must be stopped, but I have seen no indication that it will be stopped, and that’s bad news for suppliers.
It is not likely that retailers will make the first move, because they think this situation is normal, and suppliers don’t want to make the first move, because this may result in a retailer running out of something, and God forbid, get mad and switch suppliers. It’s a deadly embrace the supplier must end before something happens to bring the whole thing crashing down.
In order for suppliers to stay in the game, they will need to do something that will solve the problem, while at the same time providing a compelling reason for their retailer to participate. The supplier (or a third party) must take the reins and take control of the process. A good start would be to base deliveries on actual sales rather than on the current contents of the stores, and do it in a way that will increase profits while decreasing the use of the supplier’s and the retailer’s working capital.
Watching convenience stores being turned into restaurants won’t help suppliers either. Aiding in increasing already non-profitable traffic with promotions works against retailers. If suppliers want to save their industry, they need to save their retailers. These are the topics we need to be discussing
I remember an old saying from the 70s that goes, “If IBM doesn’t eat their own children, someone will eat them for them.” Translated it meant, ‘IBM needs to eliminate their non-profitable inventories or someone will steal their market away from them.’ I think we all know what happened after that.