In an amazing twist, technology is rendering the old fundamentals of supply chain management obsolete.
In Russia, Adidas increased sales in Moscow by double digits in 24 hours, thanks to a supply chain initiative. At the same time Amazon is now looking at using drones to deliver products, a very expensive move, but one the company says will increase sales.
Experts would usually claim that supply chain management is about delivering the right quality at the lowest cost, with the agreed service level, right? Well, not anymore. As the two examples above show, it is also about increasing sales and profits; the supply chain is no longer just about efficiency, working capital reduction and inventory management. So, what happened?
Adidas is the leading sports’ shoe brand in Russia with more than 1,200 stores. As part of its strategy to please customers, Adidas is implementing an omni channel strategy, allowing people to buy in a number of ways (on-line or in the physical store) any product that is available anywhere in Russia (whether in an Adidas shop, distribution center or warehouse), and for it to be delivered in any way (at home, at the store or at a pick-up point). This is possible thanks to the use of RFID identification chips, “ship from store” tools, a digital “click and collect” solution and “endless aisle” technology.
Initially, Adidas implemented a trial of click and collect in Moscow expecting that just a few consumers would choose this option – to buy on-line and collect the product at a store. They expected around 10 to 20 orders per week, but consumers embraced the idea and orders reached 1,000 per week. Adidas was forced to stop the experiment and build the supply chain infrastructure needed to support such demand. Today, up to 70% of online sales are through click and collect.
For Adidas Russia, the supply chain is no longer about reducing costs: It is – more importantly – about increasing sales. All of this is possible thanks to the technology being used in the supply chain. Most of these technologies belong to Industry 4.0, a high-tech strategy promoting the computerization of manufacturing. Adidas applies these technologies to the supply chain rather than just to manufacturing. This is why we call it Supply Chain 4.0, a term initially coined by supply chain professional Anne Wyss.
Something executives always knew
Executives have always known that improving supply chains ultimately improves sales. However, because the impact was very difficult to evaluate, companies traditionally approved investments in supply chains based only on the expected reductions in costs and working capital. The digitalization of supply chains, with the breadth of sales and ordering data available, now makes it possible to calculate by how much supply chain improvements are increasing sales and profits, and the numbers are often amazing.
In the case of Adidas Russia, one executive was both head of IT and supply chains – one executive with a holistic view of the business and with the goal of pleasing consumers and increasing sales. This combination made possible these developments. He justified investments by increased sales.
Source: Supply Chain Digital