Transcript:
Peter Crosby:
Welcome to Unpacking the Digital Shelf, where we explore brand manufacturing in the digital age.
Peter Crosby:
Hey everyone. Peter Crosby here from the Digital Shelf Institute. Welcome to episode two of profitability month. Today we're taking a deep dive into the best practices to drive opportunistic innovation in the supply chain, as Dana Pearson, supply chain consultant at The Partnering Group puts it. She and her colleague, Jamie Dooley, from the Digital Commerce Practice at TPG, join forces with Lauren Livak and me to outline some significant opportunities for realizing growth and profit through deep cross team collaboration and supply chain optimization. So Dana and Jamie, we are so excited to chat with you both today and have you on as part of profitability month on Unpacking the Digital Shelf. Thank you so much for joining us.
Jamie Dooley:
Great to be here, Peter. Thank you.
Dana Pearson:
Thanks for having us.
Peter Crosby:
So this podcast is part one of a two-part series that we're doing with The Partnering Group team, or TPG, as you like to be called, where we'll be tackling two critical elements that affect profitability. You're here for supply chain, and then we'll be tackling revenue growth management next. So Dana, you are the expert in supply chain and operations and are actually coming to us, you're working the night shift at one of your customer plants. So thank you for fitting us in before you head out for your day of work or night of work. And so for brands, supply chain is proven to be unpredictable in the past few years. That's an understatement, and it's more important that supply chain and the commerce teams really work together. And so what are you seeing brands do to enable that deeper collaboration?
Dana Pearson:
Yeah, Peter, and I'm so excited you picked this topic, because I do think it's so incredibly important and very timely with everything going on in the past few years, we've seen unprecedented supply chain disruptions on the global scale and profits are under more pressure than ever due to everything from labor shortages, to rising material costs and more. But there are a lot of things that I think brands can do to be successful to partner with our supply chain team and combat some of these headwinds.
Peter Crosby:
And so when you think about-
Dana Pearson:
It's a profit-
Peter Crosby:
Sorry, go ahead.
Dana Pearson:
Oh, I was just going to say, so profitability and bottom line growth are taking up larger portions of earning calls, supply chain strategies increasingly being discussed as a top priority for companies. So it's on the forefront of every conversation these days. And I think while some are farther along in its journey than others, it's becoming increasingly clear that the most successful brands that we see are learning how to turn their supply chain from more of a afterthought and cost center into a competitive advantage that they use to grow both top and bottom line sales. And so I'd like to talk a little bit more on ways that I've seen brands be successful in doing that.
So two of the ways that I've seen teams successfully integrate their supply chain is one, create a multi-functional team where your supply chain members are engaged, early and often, in all of your business discussions, your innovation plans, things like that. If you give your supply chain representative a seat at the table in everything from strategy and master plan discussions to execution plans, it really helps bring profitability at the start. It helps you expedite speed to market. It just has so many benefits.
Secondly, if you can make sure this newly created multi-functional team has access to the strategies and corresponding data from each function, it really unlocks a ton of capabilities. And let me walk you through an example that I've seen recently to explain what I mean. So there was a leading TPG brand that had a problem. They wanted to utilize a direct-to-consumer execution and sales opportunity to really grow their business, but the execution that they had designed was missing out on almost every metric you can think of. So timeframe, order to shipment, profitability, you name it. And they were in jeopardy from senior leadership of having that discontinued.
So they decided to give it a last chance. They pulled together a small focus team. They had sales, marketing, research and development and supply chain. And they really just took a very focused approach at this one scale. They spent a week together, they aligned on what success really meant. They visited manufacturing sites, they worked on a solution together. As a result, the new execution saw almost an 80% cost reduction, 90% reduction in time from order to mailbox and over 500% increase in users. Most of those users being repeat. It's huge. You don't see yourself like that very often. So if we think about what the breakthroughs were, there's three main things that come to mind. One, the team's co-located for the short period of time and then afterwards have frequent meetings. There's something about really knowing your people personally and your team members that really just helps break down barriers.
A lot of times what I've seen is, if you understand where other functions are coming from, what their metrics and goals are, it really helps you work more successfully together. The other one is better understanding the true hard-and-soft length. So a lot of times you'll see one function that creates something, whether it's dimensions of your box, or how you want the artwork to be laid out, things like that that really doesn't have a rhyme or reason. And maybe it's the way they think it looks best, but they're open to other ideas. But if you don't show share what those hard and both soft points are, it takes away degrees of freedom from the other functions to really give an optimal solution. So that was huge as well.
And then what it enabled them to do by learning what these hard-and-soft points were is the supply chain team could go and say, okay, well if you can tweak this by a quarter of an inch here, or if you can move your barcode from this side to this side, we can move it in-house. So that greatly reduced overhead costs as well as productivity savings, cost savings. It also allowed them, they had much more capability in-house than they did at their external manufacturer where their plan was to produce it. So they got to do a lot more things that delighted the consumer even more.
Lauren Livak:
And Dana, I want to make the point too of what you said about bringing those teams together. It can be as simple as a scrum meeting every week with the supply chain teams and the e-commerce teams. There's some really quick wins where you can bring the supply chain team into the conversation to be able to stay connected and make sure that they're in all of these discussions, like those examples that you provided are great and there's quick wins that you can really plug in.
Dana Pearson:
Absolutely.
Peter Crosby:
And Dana, are you seeing your customer, your client that achieved this with the one SKU, are they now turning that process and turning that attention to other key SKUs? Are you seeing them double down on this?
Dana Pearson:
They definitely are for sure. I think they're trying to be very choiceful to make sure that they pick the most meaningful SKUs for their consumers so it doesn't overwhelm them when they go to the digital shelf and the website, but they're absolutely looking to expand this.
Peter Crosby:
Those numbers are incredible.
Dana Pearson:
They are. I wish all of my projects had numbers like that.
Peter Crosby:
Make life easier, wouldn't it?
Dana Pearson:
It would.
Lauren Livak:
So because of the unpredictability of supply chain, which like Peter said, is an understatement, brands really need to be able to pivot and change their supply chain process as needed. So another buzzword of being agile in order to say, okay, we need to change this, or change shipping, or change the way that we're getting our products out to the consumers. And I imagine it requires a certain level of technology and digitization to do that. What are you seeing brands do from a technology standpoint to tackle some of the supply chain challenges?
Dana Pearson:
It definitely does, and we've talked the disruptions. I think as we look at the growth of the e-commerce business, it just adds a whole nother layer of needing this agility. So you tend to have more volatile orders, sometimes larger assortment, and it just compounds the issues that you see in a supply chain. I would add with agility, resiliency and resilient supply chains, those tend to be the two focus areas that a lot of supply chains are looking at. So I think it's driven the ones that can have very agile and resilient supply chains actually find that they can grow both top and bottom line sales again. So a lot of, I can't tell you how many times I see clients and companies and brands that they take advantage. If they have these agile supply chains, when their competitors are out of stock, especially in the digital age, you just go to the next available one a lot of time.And so they're really able to take advantage of that and grow disproportionately.
A couple of the digital areas that I've seen companies be successful in, they ask themselves questions, do you leverage AI to predict the vulnerabilities in your supply chain, including your top tier suppliers? So a lot of times people sometimes just focus on what's in the four walls of their manufacturing site, but don't think about the next level. And where now at that point where you have to go to the next level deep and where your suppliers that come into your building, where are their vulnerabilities and how can you mitigate those risks? Have you digitized processes and data throughout the end-to-end supply chain? Can you react in real time?
Honestly, a lot of brands would probably shock you that just aren't there. I think it's a focus that you'll see for a lot of brands moving forward. Everything's moving faster and faster these days. We just don't have time to collect data and react that way. We have to react faster. And I think e-commerce, again, only increases the need for that. As demand becomes more and more volatile, you have to be able to react fast.
Lauren Livak:
And Dana, oh, sorry, go ahead.
Dana Pearson:
I was going to say, so the last part I would say is synchronizing your supply chain, so making sure your suppliers, your shipments, your production, all moves at the same pace is very critical from an agility standpoint. And just as an example, so there was a manufacturer, a brand manufacturer, pretty large in the US, was having issues meeting customer sales. So their service levels were anywhere between 75 and 80%, which is pretty low compared to where most people want it to be. And so we've worked with them to look at what does it need to be for them to be profitable and to continue to grow sales, so to get more business, things like that. We looked at what are your priority SKUs? And what we were able to do is really help them change their mindset.
So they were running about seven changeovers a week. So again, we talk e-commerce, increase assortment, you're going to have more changeovers from one product to the next. Each changeover for them was anywhere between four and eight hours. And that's just how supply chains had always been designed. So from a profitability standpoint, decades before, it was, "I'm going to have few SKUs. I'm going to run them for very long periods of time and it'll be very efficient." We just don't have that luxury anymore. So what we worked with them on is they spent about $75,000 in their plant and they moved from the four to eight hour changeover time to 45 minutes. So now they had all of a sudden about an extra 30% production that they could go sell in a year. Their payback period was less than a month. I don't know about you, but not all of my investments have a payback period of 28 days.
So a lot of that is just changing your mindset that you can't make small improvements. You have to start at what is your lighthouse vision, where do you need to go? And then how do I get there? And take off it one bite at a time, but really focus on seconds and minutes, not hours. It's not about these, how do I improve my supply chain, it's how do I redesign it?
Jamie Dooley:
And Lauren, to add onto that, another area for digitalization that sounds really simple is data sharing. We've seen probably only 1% of the brands we work with actually effectively share data across functionally to their supply chain partners. So real exciting examples. We've worked with a number of brands where they're using artificial intelligence solutions to inform the planogramming decisions and category management. So category management is making recommendations for planograms in stores which have now become the shelves from which e-commerce sales are fulfilled for 90% of their omnichannel sales through curbside pickup and click and collect. There's very little sharing of sales data to inform how the planogram should probably be rethought for that fulfillment, or even just from a forecasting standpoint, understanding how much more do we need on the shelves to support omnichannel.
So it's technology like that, it's simple technology, just sharing dimensional weight and cutoffs for what's going to be more profitable for e-commerce specific packaging for home delivery. Those are just really simple examples, where only a small handful of the top 1% of brands we're seeing are sharing that data with their supply chain teams and vice versa with other cross-functional teams.
Lauren Livak:
And Jamie, I think you make a really great point about the planogram element, because it's taking years, sometimes hundreds of years of expertise in the brick and mortar space and actually applying that to e-commerce. So when we talk about bridging the gap between in-store and online, getting your supply chain teams engaged, getting your planogram teams engaged in these conversations, you're bringing knowledge together that exists in your organization to really help you grow overall on both channels. So I just wanted to call that piece out, because I think another really quick win, getting those teams at the table, having those conversations, you're pooling together all the great data you have to make better informed decisions on both channels.
Jamie Dooley:
Exactly, exactly.
Peter Crosby:
And I would imagine, Dana, you spoke at the top of this section about the need for agility. And I'm imagining that, and you tell me if this is true, it's important for the e-commerce side and the digital side to add their voice to the need for agility. Leaving that to the supply chain team to prioritize and figure out, may not get things to change as quickly as if they're getting encouragement, and data, and I'm sure there are other nouns we could use to get them to take action. Is that right? Or are they-
Dana Pearson:
I think absolutely. And we hint at this again, and then so many of these things tie together. So the way I look at it, if you can share information between functions, it only helps you. So if you can really help your supply chain team understand why and what your goals are, is your growth goal to have more SKUs? Is it SKUs in tax sizes, or product differentiation, sizing, that type of thing can really help them master plan their facilities, their work, to be more agile, to meet the needs of the business.
Peter Crosby:
So supply chain really includes all elements of the product, from the ingredients, to the packaging, to how the product gets to the consumer. When it comes to packaging for e-commerce, there are often specific elements that must be accounted for to avoid those nasty returns and even worse fines. How are you seeing brands tackle that specific area of e-commerce ready and hopefully optimized packaging?
Dana Pearson:
Yeah, I think the most successful brands that we're seeing have, again, a multi-functional approach, where they have a very clear, "I'll go to market strategy for e-commerce." So they're very clear on what does it take to delight their consumer. They don't over-delight their consumer and have waste and things like that. They don't under-delight their consumer and miss out on sales opportunities. So they're very clear on what that means. Is it important for my consumer on how they receive the package and what it looks like? Or do they just care about that it comes intact without leaking? So what are those priorities and success look like?
They ask questions all the time of what does the product and packaging fit for purpose, like we said. How will your package design strategy be used to delight the consumers? Do you want them to have this great unboxing experience where you, it's more like a pizza box, you lift the lid and it's this amazing experience walking them to your brand, or is it just, "I get this." We've also had that experience where you get your box from a store like Amazon and you have, call it a pack of pencils in this huge box with a bunch of dunnage and things like that.So what kind of experience do you want them to have? What role does sustainability play in your portfolio? I think about things like personalization.
So you can go to M&M on their website and you can add your own image and really get a customized product just for yourself. If you buy Native deodorant when it ships to your house, you open it up and there's a little postcard, calls you out by name, and welcomes you to the Native family. All of those things, if you get clear on what that strategy looks like, and share it with your supply chain team, they can really help you create the package and supply chain that you need at a very affordable cost. It's when we don't work together that I see we are forced into external manufacturing multiple times. So sometimes I ship it somewhere else, I have it produced, I ship it somewhere else, and I have to put it in a bag. [inaudible 00:18:41] clear on what that is.
We had one brand that I was working with not long ago that was shipping, they were producing it, their site. They shipped it to a third party site that opened the case, took it out, put it in a bag, resealed it, put it in a new case and shipped it, all because they were getting fired, crazy. Not even mentioned sustainability and the implications of scrap, and waste, and things like that. And what it came down to is two things that drove this.
One, it's very important when you have the multi-functional teams, like we said, to share data. So they hadn't quite integrated yet. And so you had an e-commerce team that saw the data on the fines that they were getting and chargebacks, the supply chain team had no idea. So they didn't even know this was an issue and that they needed, they couldn't fix it. So when the team got together and we said, "Okay, here's the issue. How do we solve it together?" They're like, "Oh, well, I have this equipment on the line," or "I can put a tamper-evident around the cap and it won't leak and you won't need a bag around it." But we had no idea until we brought them together and put the data on the table as a multifunctional team.
Lauren Livak:
And Dana, when do you encourage teams, like supply chain and e-commerce teams, to get together to have those conversations? So let's say we're innovating on a new product. I am always of the mindset that supply chain and e-commerce should be in together from the beginning. But where do you see the sweet spot to bring those conversations in before the packaging even gets designed, created? What is best practice there?
Dana Pearson:
Yeah, I think there's definitely, I would say as early as possible, but there's definitely a too early sometimes, because you don't want to distract them either. So I think as soon as you have a vision, you don't want to wait until your vision's fully baked, so then they don't have time to influence and help. But as soon as you're at that stage where you're like, "Here's the direction that I want to go." I maybe know it's kind of this kind of that, as soon as you have the direction and somewhat focus area is when I think you should bring them in. And I love this question because I'm so passionate about this. I was working with a brand, and we called it opportunistic, was the phrase we used, opportunistic innovation. And so they were trying to launch this refresh of their product and package and they just couldn't afford it.
There was recapitalization cost, hits on productivity, all of this stuff. And they got with their supply chain team, which historically, supply chain team was coming in way later, the way they were functioning. It just so happened that they had built a relationship with one person who said, "Hey, I have to increase my capacity on the line next year. And so if you wait until then I can buy equipment and produce it with no added cost to you, but I can design it so that you can run your new product as well." And so they then had almost no capital cost. They had no increased appreciation, and they basically got to launch their initiative for free, all because they had that conversation and shared their data. So they said, "Hey, we'll do commercial innovation this year and our product innovation next year," and it was basically free. How cool is that?
Lauren Livak:
And it was just a conversation, I'm just-
Dana Pearson:
Just a conversation that they didn't know that they were already going to spend these millions of dollars to increase capacity and things like that and refurb molds and whatnot. And just by having that conversation.
Lauren Livak:
Everybody get in the room together, have the conversation, this is your call to action.
Dana Pearson:
Exactly.
Lauren Livak:
And Jamie, I know we were talking about packaging and when you think about e-commerce packaging, some brands put the same product together, versus creating a bundle. What do you see from an e-commerce packaging standpoint to be that best practice? And what should brands be thinking about trying?
Jamie Dooley:
Well, I think one, I want to echo what Dana's talking about, as early in the process as possible, and as the brand team's thinking about the core packaging and the core price pack architectures that they're going to design for a new item, thinking about e-commerce during that initial process is usually best as opposed to an afterthought where they've already done their initial run for the first year worth of product, and then they're thinking, "Oh, well, we should think about e-commerce packaging," after the fact. So early is better. From a bundling standpoint, what I've seen common that a lot of brands do is they tend to only think about, "Okay, well I need a multi-pack of two, or three, or four of the same items together," whereas the really sophisticated progressive brands are thinking about kits or variety packs where it's multiple related items together.
I'm thinking of one of the brands that we worked with, they put together a variety pack early on. They made it e-commerce friendly, and it became the number one item on three of their different biggest retail customers sites. And that's all just thinking through in advance, how do we approach the e-commerce aspect of assortment planning and bundling. So I think a lot of the brands out there think about that and they're worried, okay, well, that it costs a lot. There are high bars to hit to be able to produce enough for that to be profitable for us. So I think what I've seen a lot of brands do well is they start with virtual bundles, they get the sales data to see, "All right, do these items work together," and then move on and incubate that to full multi-pack bundles that they're able to create. And then that becomes an incremental SKU that's driving a much higher basket size than average selling price for most of their key customers.
Lauren Livak:
And you can bundle multiple products together that maybe one of them's not profitable on their own. So another way to look about profitability a bit differently, right?
Jamie Dooley:
Yeah, it's so many different ways. The testing and learning, if you have a new sample that you want to send out, that becomes a value add. It's a great way to differentiate against your competition as well. So yeah, lots of different ways beyond just putting two bottles of something, or a three pack of the same item.
Lauren Livak:
So Jamie, let's talk about dropshipping. Another option for brands who are experimenting, and testing, and learning to get products to their consumers faster. Do you see it as an advantage for brands? Is it hard to implement? How are you thinking about dropshipping and how are you seeing brands use that in their strategies?
Jamie Dooley:
It's absolutely an advantage. I think there are a lot of brands that still don't have dropship capabilities, but the ones that do are finding a way to leverage it and it's differentiating themselves with their key retailers. So is it hard to implement? Yes, of course. I think I had an SBP that I used to work at babiesrus.com, and he used to say, "Hard work's hard." Yeah, hard work is hard, but I think there's, let me level step first and say there's different types of dropship that we want to make sure we're defining. So there's really three ways. So there's the 1P dropship, where if an item goes out of stock on your retailer's site, it automatically defaults the order to, instead of be fulfilled by the retailer who's gone out of stock, it goes to the brand's DC. And it automatically has the brand dropship.
What a lot of brands don't know is the retailer still pays for the dropshipping. So that is not a significant cost. So as we're talking about profitability week, everybody's thinking dropship is unprofitable. It depends on the type of dropship. And 1P dropship is a more and more prevalent request that retailers are asking their brands for where they don't have as much capacity to carry as many items in their DC. So it becomes a way for a brand to extend their aisle. The retailer would never have carried it online in their own DCs, and they don't have the store space to do it, but it becomes a way for them to show the item if they're able to dropship it on their own. So there's 1P dropship, there's online marketplaces, or 3P, that's another fantastic way for brands to extend the aisle.
And also it's been a tactic that, I have so many brands who have problems with unauthorized resellers on different marketplaces where they're seeing tens and hundreds of millions of dollars of sales of their product happen through resellers, that it's messing up their pricing. It's disrupting their ability to win the buy box so that these are all areas, this is another area where online marketplaces can help.
And then the third, which I think is still something that a lot of brands don't know how to do profitably or they think they don't as D to C, or direct-to-consumer. It can be a great way for a brand to gain CU customer insights, but it's testing and learning and it becomes, again, a really big capability where you can go to a retail customer and tell them, "We already know what's working. We already know the copy, we know the title. We know what's going to convert. We know how to drive traffic to it."
So having all this learning becomes a category leadership, a category management play that helps the, helps the brand become almost the category advisor digitally to their retail customers. And then also D to C, by the way, from a profitability standpoint, subscription refills cannot be, I cannot undersell how much more profitable that can be. Subscription refills. You don't have to ship in two days. You have a built, built-in annuity of income coming where you can ship that two weeks in advance via the slowest method possible, because you already knew the demand was going to happen. So these are the three ways that dropship is really helping to differentiate brands. So I see it absolutely as a big capability that brand should be embracing.
Peter Crosby:
I would say we are in profitability month. So I have to talk about it from that perspective. I know a lot of brands, they're afraid of it, because it can be super expensive. But it sounds like you're seeing places where it can become a real center of profitability and of revenue. And so just expand on that a little bit, maybe give us an example.
Jamie Dooley:
Sure. So I think a lot of brands are afraid because they don't think that they can profitably overhaul their distribution center. They don't have the ability to pick and pack each is, it would require a significant technological overhaul of their warehouse systems as well as their processes just to be able to dropship. But that's not the only way that brands have the ability to execute that. So we've seen brands, we've helped brands develop dropship programs using 3PLs, or third-party logistics companies.
There are retail fulfillment services like Amazon, FDA, Shopify, Fulfillment Network, Walmart, Fulfillment Services, that are going to do that for brands, or for D to C, or for online marketplace sellers. So those are just some ways where it doesn't require a complete overhaul and investment in instilling the dropship capability within warehouses, within the brand to be able to still do it. And I think that's another option, which can become more a profitable initiative for them. Let the 3PL, let companies who have been doing this for decades do it and do it for you. And there's ways to implement that in as little as three months, four months versus waiting two years to try and implement dropship through the brand zone DCs.
The other thing I would say yes, about a case study Peter or success story, I think online marketplaces, dropship, I'm thinking of a TPG leader we were working with in the food and beverage space, and their Fortune 500 companies, multi-billion dollars in sales. And when they launched one key dropship in combination with online marketplaces, they were able to add literally almost $100 million a year in incremental sales that were profitable within the first 12 months. And I think that is just one of the many success stories that I'm seeing where it's incremental sales. This brand, literally the e-commerce team made their bonuses that year because of the sales that they were able to generate through online marketplaces and their 1P dropship program. And again, they did it in four months, so they launched it in four months. It's not something that has to be done over the course of years where it requires multimillion dollar investments in your own DCs to be able to do it.
Peter Crosby:
I love that phrase that Dana used, opportunistic innovation. That really is what you're talking about really throughout this episode, I think, is how to do these things in a way that drives value more quickly than one might expect when you talk about a supply chain. Does that capture it?
Jamie Dooley:
I think absolutely. But I would also say as much as it sounds opportunistic and advanced, retailers are asking brands to do this now, 1P dropship is the number one thing that I'm hearing e-commerce teams being asked to do for their buyers now, because they're out of space in their stores, they're out of space in their DCs. So you have a lot of the major retailers asking for it. And then again, online marketplaces is another area where I have so many brands that breathe a sigh of relief that they have an alternate plan on online marketplaces if they get de-listed from the retailer, or if they go out of stock, or if the account just gets frozen for different reasons.
Peter Crosby:
Well, Jamie, thank you so much for sharing these insights. And Dana, I know you have to start working now. It's nighttime. But seriously, this is a topic that I think Lauren and I will freely admit, we have not tackled sufficiently on the podcast. And to have you on here who spend literally you're on the floor, making it happen with these clients is just such valuable insight though. So thank you both. I want to say to our audience with any more questions, you can certainly reach out to the folks at TPG. They have a general email box, tpginfo@tpg-mail.com, or certainly you can go to thepartneringgroup.com and just reminding you that we'll be back next week with part two, tackling revenue growth management with Jamie and another expert from TPG. So thanks to you, to both of you for being part of us. We really appreciate
Jamie Dooley:
It. Oh, it's our pleasure. Thanks so much for having us.
Dana Pearson:
Yeah, thanks
Peter Crosby:
Again to Dana and Jamie next week, more from TPG for profitability month. Share the episode with your colleagues. This topic is on everyone's mind. Thanks for being part of our community.
