Explore why some retailers need to reimagine the backroom, hire a Chief Supply Chain Officer and get back to basics to optimize fundamental processes — not the latest SCM product.

Our guest is Gary Newbury, a retail supply chain strategist and serial transformation executive with an exceptional track record of clarifying mission critical challenges within the retail supply chain.

We explore why some retailers need to reimagine the backroom, hire a Chief Supply Chain Officer and get back to basics to optimize fundamental processes — not the latest SCM product.

Episode 36 of RETHINK Retail was recorded on October 11, 2019

TRANSCRIPTION

Julia Raymond:
Today, we’re kicking off another episode of Rethink Retail with my guest Gary Newbury. Gary is one of Canada’s top, internationally seasoned, end-to-end retail supply chain executives. Gary, it’s great to have you on the show.

Gary Newbury:
Great to be here, Julia. I’m very honored and privileged to speak to you today.

Julia Raymond:
Definitely. We love to have you, and I’d like if you could kick us off by just giving us a brief overview of your background and what you do.

Gary Newbury:
As you say, my name is Gary Newbury. I’m a retail supply chain strategist and serial transformation executive. I’ve an exceptional track record of clarifying mission critical challenges within the retail supply chain, developing new fulfillment strategies and a single-minded focus on rapid execution of business change resulting in development of distribution networks, which are scalable, rise consumer value and deliver success during periods of business transformation.

Gary Newbury:
One of the last pieces of work, which I did with GFS, was to onboard the M & M Food Market chain into their distribution network. I couldn’t help to spot some quite interesting disconnects within the retailer. They’re a fairly good quality retailer in their own right, but being up close and personal and seeing the disconnect between what we were, or what M & M were doing in their flyer, and what stock we had on the shelf, there was a disconnect there. It made me feel I must get back into bricks and mortar here. There’s so much opportunity in Canada to really jump start what we’re doing here, because it does sometimes feel that we’re in the 80s still in terms of retailing. Certainly as I go into stores here I still think, Oh my gosh, this is what I was used to in the U.K in the 80s. Where’s the technology? Where’s all this digital experience. Where’s this great customer experience thing I’m meant to be inheriting as I walk through the decompression zone? It’s not here.

Julia Raymond:
Exactly.

Gary Newbury:
That’s a little about my background and certainly my motivation to work with a particular retailer, to be named I guess, to really make big change here.

Julia Raymond:
Definitely. From your perspective, you said it’s crazy to see some of these retailers and it feels like we’re back 30 years ago in the U.K. in terms of the lack of digital experience offered in the store. How much do you think supply chain relates to that?

Gary Newbury:
I think that, this is just almost a jaundice view from outside. That when I talk to bunches of retailers, people in the supply chain, they all talk about technology, AI, internet things and all these great wonderful technology. But, they never really describe the process. They don’t spend time saying hey, we’re going to draw it up. Demand planning to our warehouse, to our transportation, to our e-commerce, whatever. They don’t seem to spend any time describing the process. Because the technology only works if you’ve actually got a process to base it on. Technology can only work on big data if we actually understand what each column heading stands for, so we can understand how to use that column of data. Because if that data is rubbish, guess what you’ve got AA on? It’s still going to come out with rubbish output. Garbage.

Julia Raymond:
Garbage in, garbage out. Absolutely.

Gary Newbury:
The key is that focus on process will help deliver the customer experience that we talk about, but we don’t describe how we’re going to achieve it. It’s out there, surely we’re doing it, because we’re telling everybody we’re doing the customer experience so it must be true. Technology is only there to speed up the process, but if we haven’t got a process that we recognize and we build, we put technology into what we’re doing today, all the technology’s going to do is open up how bad we are.

Gary Newbury:
We see that when we think about SAP implementation, people have a very disconnected view of how the actual process works. What improvements they want to make to that actual process to get them to where they want to be. They just short-cut it by saying well, I think that should work, configure it this way and see what happens.

Julia Raymond:
Right, and are you seeing, because I know you mentioned SAP and the technology they rolled out years ago but there were some hiccups. I did just see a report, a news report I think it was, from last week that IBM has a new supply chain suite product that they just released that is basically combining their Watson AI with IBM Blockchain.

Gary Newbury:
It often sounds to me like there’s a solution waiting for a problem to happen. The problem is we don’t think about process, IBM, SAP, whoever, can develop these great ideas in technology terms, but until a retailer actually sits down and says, what is the process we want to enable here. How do we get there, how do we get ourselves to use that process, and then get the technology to implement the technology to make us fast-track it. So we can create a competitive advantage even if it is in the short term.

Gary Newbury:
I’ve used parts of the SPSS, which is part of IBM, it’s all whizz-bang kind of technology. But putting that into the hands of people who can’t manage process is a challenging thing to think about to say the least.

Julia Raymond:
Totally. It could, in some cases, be a recipe of success because it sounds like you’re saying there’s so many facets of the organization that are effected by technology and you really have to have the process as your foundation.

Gary Newbury:
Yes. The thing that we’re kind of dodging around, and I’m surprised it hasn’t already come out are silos. Retailers are highly siloed. You got your merchandising silo, you’ve got your store operation silo, you typically have some kind of marketing silo depending on how prominent marketing has been within the organization. They seem to be the key things. Underneath it all, if you imagine a square with three vertical columns and the horizontal, the supply chain sits down the bottom somewhere, but it does touch all these different teams, these different silos.

Gary Newbury:
We only talk about this typically, we only talk about retail supply chain when it goes wrong. Oh yeah, I need to do something about retail supply chain, it seems to always surface as a big thing that we could either take advantage of, or we could do something to prevent it going wrong. More importantly, it’s something which can deliver a huge amount of consumer value.

Julia Raymond:
Well do you think that supply chain, when you’re talking about improving it and getting to that next capability level is more incremental, speaking in generalizations, or is it something where you sometimes these retailers need a complete overhaul of the systems they’re using?

Gary Newbury:
I think it’s the latter. The reason why I say is that, all the research I’ve done, reading loads of things, talking to lots of people including the people on the more marketing side of the retail spectrum, they’re all seeing that the place component of the marketing mix. You know I’m still brought up on a diet of 4Ps – the price, the promotion, product and the place. The place becomes increasingly more important to retail businesses. The place has traditionally been the store. As soon as you sighted the store, tick, has it given us a competitive advantage? Yeah. Say if we’re Target, oh we’re ahead of Walmart, we displaced Walmart from getting on to this junction. We’ve nailed it.

Gary Newbury:
Well, the place isn’t just a store anymore. It’s where the consumer wants to pick up their product, where they want to consume their service. The place is becoming increasingly more important. I actually want to encourage retailers to change it up a bit and put the supply chain as a vertical thing and the other functions as kind of horizontals alongside that, supporting the fulfillment of the organization. It’s going to be centered around how well it fulfills the requirements given to it. That is all the gambit of the supply chain.

Gary Newbury:
If we look at something like Target, to some extent they were quite disastrous in Canada. They had to change their management and they’re just my favorite retailer in terms of what they’re doing in the supply chain area.

Julia Raymond:
Okay. You’re saying Target does an excellent job?

Gary Newbury:
Yeah. Every time I read something about Target, I’m ticking a box. They’re doing exactly what I would do. The only thing I would say to them is you need to figure out a better way than in-store picking of e-commerce orders. Hopefully we may have a chance to talk about alternatives to that, in due course. How they’ve moved the stock towards the store. Let’s assume the store is correctly positioned, why wouldn’t the inventory be correctly positioned for supporting the local market with e-commerce orders? They’re doing a great job.

Julia Raymond:
Are you saying specifically, maybe where they’re warehouses are located?

Gary Newbury:
My understanding is this, when they receive an e-commerce order they process it by in-store picking. They send one of the store associates and go oh, we’ve got an order for Mrs Jones, let’s run around with your trolley and pick the order and get to the till”. I don’t know exactly how they do the tilling process. Then they probably call shipped, or they do some technology and ship turn up and they pick it up and organize a pick up and deliver it to a residential address.

Julia Raymond:
Extremely manual, right?

Gary Newbury:
Yes. If the truth be told, if they’d been getting 5% year over year comp store growth and they’re just heading into peak. Can you imagine the situation? You’re going down the grid format and you’ve got a ton of pickers in there and the poor old customer who still wants to come into the store and do there own shopping is trying to fight against all the store pickers. You’re going to run out of capacity, that’s what I’m trying to say. Things are going to get messed up, they’re going to get shop soiled, there’s going to be a whole range of things, but the major one is capacity. If you are picking in store you’re going to run into shop soiling, substitutions because the stock [inaudible 00:19:46] upgrade but they haven’t got what you wanted. This can compound itself very quickly. I’d encourage people going down that path, like Target have, to actually move to a different solution.

Julia Raymond:
Definitely. Can you rename just those couple of things you mentioned. You said that if you have a lot of pickers in the store it can lead to x, y and z.

Gary Newbury:
With a chain that’s growing billy-ho rate and they’re going into peak they’ll run into issues generated by stock accuracy and potentially shrink, but that will manifest itself by substitutions. There will probably be some shop soiling, so stuff that you’re picking from the shelf where people have picked it up and put it back down and it’s been in the back room a few times, backwards and forwards and put back on the shelf. There’ll be substitutions. The most important thing, from a logistics poin of view, how many people can you get out on the shop floor picking away, selecting customer’s order, before you run out of people and space? There’s some real, it’s great that Target, for instance, are moving down this path. It’s great that they’re almost a pioneer at a large scale, however they must recognize that there’s a physical limit to what they can do in-store, when they think about selection.

Julia Raymond:
Certainly, and how it impacts customer service. I wouldn’t necessarily immediately come to that conclusion, but after you just explained that potential scenario, very likely during the holiday season, increased demand, definitely.

Gary Newbury:
You’re going to have lots of pickers, because they are recruiting, I can’t remember the last figure, something like 120,000 extra people or some very large number. Some of those are going to be in the DC itself, but some of them are going to actually be an expansion of individual store staff. The view of that will be, some of those will be added to the selection team. You’ve got lots more customers coming in, and you’re going to have lots more sales associates who are actually doing selection. That’s not going to be a particularly great customer experience when I’m trying to wrestle past the selectors for a loaf of and bread. Also, if you’re looking at a superstore layout, if you’ve got 100,000 square feet, 150,000 square feet, you can lose selectors for 15, 20, 30 minutes quite easily. Especially when you have more traffic in the store.

Gary Newbury:
You then have to start thinking about, if you’re going to carry on with the in-store picking selection method, you’ve got to say okay, Bill, you’re going to go out and you’re going to pick all the tomato sauces and bring them back to me and I’ll do a secondary sort somewhere in the store, and I’ll pick out all these tomato sauces and push those into individual customer orders. You introduce more complexity or more potential errors in the whole process. I would be strongly recommending that people following this path, if you’ve got a small volume of e-commerce you can do it. But at the scale that Target are doing it, it’s time for them to start to reimagine what that might look like.

Julia Raymond:
Beyond a doubt. While we’re on this topic we’ve talked a lot about Target, obviously Walmart is the huge player in the space, but their more value focused. They have a huge increase in people using their buy online pick up in-store feature for grocery. Do you think that will eventually become an issue? They have so many people doing, where they just pull their car in and the Walmart employee loads their trunk?

Gary Newbury:
It very much depends how they organize that. If they’re doing it in-store, they’d run into the same problem. They’ve got lots of selectors running around manually assembling orders, putting them into a certain place and, of course, for any mass-merchandiser, including grocery, they’ve got temperature control issues as well. It’s not just all hard goods that’s all the same temperature, don’t worry just pick it. If you’ve got freezer, cooler and dry you’ve got to now do three separate picks and keep the two of them in temperature controlled conditions until the person comes up

Gary Newbury:
If they did it at what I call the back room, in the back room, if they think that okay, if our stock can be split between. Let me just step back from that. If we think of expanding the back room, and I know that’s not everybody’s cup of tea. If we expand the wall from being say 10% of the whole building area and moved it to 20 to 30% because we will have less stock in the store, because it will all be in the back. In the back room we could have an automated system for receiving a big truck load once and week, twice a week. There’d be algorithms which may set say, put that on the shelf and we’ll actually have a routine to pick it from the shelf sometimes, or put out that[inaudible 00:25:28] because we’re running a promotion. But the rest of it will be broken down into either cases, or into singles, and the purpose of this is then you have a three way split. You can fulfill shelf replenishment orders on a daily, twice daily basis, so you’ve always got full shelves at certain points in the day.

Gary Newbury:
Second thing is you can pick singles for home delivery and thirdly you can actually set the algorithm to prioritize click and collect orders.

Julia Raymond:
Sure. So do you foresee, it sounds like this is probably happening with the good amount of retailers currently, expanding the back room and having a smaller format retail space for the in-store shoppers. Is that something you see increasing over the coming years?

Gary Newbury:
It’s one alternative that retailers should consider. As one of the things, very much like omni channels, over talked and still struggling to see actually do retailers really understand the customer journey and can they track the customer, literally across that journey, from off-line to on-line back to off-line, whatever it might be.

Gary Newbury:
One of the important things that, again got a bit over talked, was the store of the future. The store of the future for me was, the way a retailer would transition from, effectively let’s call it the analog age, into the digital age. In that recognition we would, perhaps deploy, once we had understood the process we want to follow, we would deploy technology and we would probably have less stock in the store. We would have the variety available but not necessarily physically positioned in the store. It would be scanned or whatever from QR code or looked up on the kiosk. All the activity would be in the back room.

Gary Newbury:
My version of the future of retail is that we are going to have smaller footprint stores, the back room will be expanded if that makes viable sense to actually have the stock holding in, literally, in the space that used to be sale space or it would be positioned somewhere very close, a collection of stores. If we follow that logic, that means that if the store gets smaller it can be deployed as a weapon into small communities more effectively.

Julia Raymond:
What do you mean exactly by that?

Gary Newbury:
What I mean by that is that when I think about the U.K. and Marks and Spencer, a brand you may recognize, they’ve just been through a huge store rationalization program. Being an M & S shopper for a long period of time when I was over there, it kind of broke my heart because both the brand itself but, more importantly, from a logistics point of view, those locations that they’re rationalizing, and some may be out of date in which case they have to rationalize those rents are too high, it doesn’t reach the market correctly. But say their store net worth was 700, I don’t know precise numbers, and they said, we’re going to take out 350 of those. Suddenly, if I’m a customer, I have to actually go further to actually go to a store on average.

Gary Newbury:
Now I actually think differently about the store of the future. If we can miniaturize our store and bring technology into it so we have a high service experience and logistics is key in delivering the fulfillment bit, but it’s done slightly differently to what it is now, we can actually have a fairy small format, which can be driven into small neighborhoods. We could have a lot more of them, broadly the same sales area footprint nationally, but we’d have a lot more stores where we could capture more market, I believe.

Julia Raymond:
That’s an interesting idea. Especially in the big cities that need smaller format stores because there’s simply not enough space but they are high revenue fluent economy in that area.

Gary Newbury:
We can pop into a mall very easily. We can have a 2,000 square foot store pretty easily and we can actually offer the whole range of what would be effectively, a small super store’s range or assortment could be, but we would have just key elements. Maybe if we’re in a grocery we’d have some fresh and the rest of it could be dealt with by the logistics. If people want to come in and squeeze a tomato, whatever it might be. They want fresh food, so you want to see that. But the rest of the hard goods and the freezer could actually be handled through home delivery or click and collect kind of operation.

Julia Raymond:
Totally. I have to ask, now that we’ve talked about this topic, what is your view on, Walmart has a lot of press around their potential Walmart Pantry. Futuristic solutions where your pantry is basically tracked by Walmart and they deliver those non-perishable goods. They restock and they actually have someone come to your house. This is the idea that they’re putting out there for the future. Is that something, I mean how would that effect the supply chain?

Gary Newbury:
I think you’re talking about they come into your house and put it in your fridge for you.

Julia Raymond:
No, they have. It’s similar. They have a patent that they filed for their connected pantry. I don’t believe it’s rolled out yet but, the idea’s that they would install these pantries in consumer’s homes that have censors that allow them to tell when things need to be restocked.

Gary Newbury:
They’d be using that as more or a predictive measure to organize the supply chain to, just as it’s just about to run out, they just make sure that a delivery’s made so the consumer doesn’t run out.

Julia Raymond:
Then if they had a larger back room they could dedicate maybe more space to the refrigerator, temperature controlled food items versus the non-perishables if in the future we all had these connected pantries, hypothetically.

Gary Newbury:
Yes. The whole thing’s up for grabs. I think even just a small example shows how many options there are, outfits that are dealing with this. But if we just carry on with what we’ve got and just introduce small initiatives and say okay, Mr or Mrs Supply Chain running this, we’re going to add this into your thing, get on with it, we’re never going to actually get beyond traditional bricks and mortar retail with a few initiatives. I think that the time is ripe here, in Canada, and to an extent south of the border, to actually do a massive re-think about or supply chain, our distribution networks and think firstly, how are we going to create continuance competitive advantage. Because technology may give us a competitive advantage but if we’re taking stuff of the shelf and implementing it, our competitors can come in and go ah, they’ve bought xyz’s software. We’re going to do that and get as good as those, but actually, I’ll tell you what, we’re going to do a little bit of customization. They’ll lose the competitive advantage.

Gary Newbury:
The distribution network, or the design of dynamic distribution networks, linked in with certain aspects of technology has to create a framework for continuous competitive advantage which really is, sub-phrased, continuous relevancy.

Julia Raymond:
That’s so challenging. Just thinking about your actual network, your physical stores and changing that to support something that can be really competitive, not just the software.

Gary Newbury:
I think you’ve raised a really interesting point there, Julia. Because most people, if I went to a retailer and said hey guys, I’m the new supply chain guy on the block. I think your stores are part of my logistics network and I’m going to do a network planning strategy and actually, I’ll probably end up closing a few and moving them around and all the normal stuff that logistics guys do. Can you imagine how difficult a conversation that might be, and I’m sure there’d be some expletives included in it.

Julia Raymond:
Yeah. Yes.

Gary Newbury:
But the reality is, in the design of dynamic distribution networks, the store is a logistics asset. It must be seen to be this. All these sort of paradigms around I’m managing the store, the store does this. Because many of the tasks we’re asking the stores to do are of a extreme logistic content. It’s surprising to me that not all retailers have Chief Supply Chain officers in their C Suite [inaudible 00:35:55] and the stores still continue to run as stores.

Julia Raymond:
That is surprising considering the Amazon effect and the fact that consumers in the developed world are expecting one, two day shipping from every retailer.

Gary Newbury:
Yes. That should be a big trigger point. I’ve been advocating that, not only should Prime go from two to one day while they’ve got all this stock they’ve invested into their system to allow that to happen. They actually should just see, if I just put a little bit more stock into my system, can I actually get to same day. How possible is it to get? Certainly some of the assortment could be same day and that would really scupper. Target are already on same day, Walmart gets there in various ways. If Amazon could get there, not just in the high urban areas but more widely even, maybe not in the remotes and the rurals, but certainly some areas with a choice assortment.

Gary Newbury:
Many retailers would say, how do I get to same day, I have to really re-think my business, I have to reimagine every element of this, because the silos, the way we’ve organized since 1927 and the model that was put out there. It’s not going to serve us well in the remainder of the digital age. These paradigms are trapping retailers into, if you look at Forever 21 and Sears and Toys R Us in the U.S and whatever, I think that there are some financial factors that, when you scratch the service and say, okay they were sometimes over-leveraged with their finances and whatever, but I actually think that, fundamentally, they haven’t seen the problem properly.

Julia Raymond:
It’s interesting you brought that up because our guest the other day on the show said the same thing. He said that Forever 21 encountered a lot of inventory issues and I’d have to assume that’s in part with supply chain issues.

Gary Newbury:
Yes. It’s a bit like Rent the Runway. I don’t to speak badly of anybody, but in the space of less than a year they had a supply issue and they had a return to process in getting it back out to people issue. That’s not merchandising. That’s not store operations, well they don’t have store operations, but that’s absolutely the supply chain. The supply chain wasn’t either capable or wasn’t well designed, wasn’t able to understand the expectations and deliver something against that. I think they implemented a new warehouse management system and maybe there were some cogs which, didn’t quite mesh very well.

Julia Raymond:
Is that common? Or do you think it’s because their model is different where they’re accepting so much back all of the time and then restocking?

Gary Newbury:
I think from a process point of view all retailers have to handle returns. It’s just that that Rent the Runway received a lot more returns proportionately. For every one that went out one came back kind of thing. Whereas sometimes with a retailer you sell some in your store, sell some on e-commerce. Some of it comes back, some of it sticks. With Rent the Runway they would have to, not only receive it, but have to process it, clean it, polish it up, re-box it and put it back on the shelf. There were a few extra process steps, but nothing more than if you could describe that, lay that out, that a normal well-configured warehouse management system should be able to cope with. It shouldn’t be beyond the wit of man for the provider to say ah, so you need x, y and z. Okay, thank you very much for describing your process, now we’ll configure the software to sit on your process correctly and speed you up.

Julia Raymond:
Again, it circles back to what you were saying at the beginning of our conversation about how important process is when it comes to these things.

Gary Newbury:
Absolutely.

Gary Newbury:
The whole supply chain, if we imagine that, people have different views about the supply chain. My very simple definition, it’s all the individual logistics activities. Demand management, warehouse shuffling around, the transportation planning and routing, execution of transportation. It’s all those things that are organized in a aligned process deliver value to the consumer. The supply chain is delivering value to the consumer. The supply chain doesn’t exist if it doesn’t deliver value to the consumer.

Gary Newbury:
If we just follow that logic through from a more business orientated point of view that, this is your process for delivering value to the consumer. No matter what kind of assortment you have, if it’s not on the shelf, or if you don’t deliver it on your home deliveries, your brand promise isn’t being delivered. This is why I’m saying that it’s time for retailers to really get a grip of their supply chain and elevate its importance as a competitive weapon to win the retail way.

Julia Raymond:
Absolutely, I couldn’t agree more and I definitely foresee a lot of changes in that space in the coming years with potential quicker delivery than we’re already seeing. But I know it’s bigger than just deliveries, there’s a lot of complexity there.

Julia Raymond:
Gary, it was lovely to have you on the show today and I hope to have you back in the future.

Gary Newbury:
Excellent. Thank you very much. I really appreciate the opportunity to share some views.