Ice storms, labor shortages, port strikes, power failures—there are plenty of good reasons why a given item's not on the store shelf at a given moment. But the customer who's looking for that item doesn't want to hear any of it. If it's not there, that's it. They're gone, and so, probably, is your chance for a sale.
Consumers today are notoriously difficult to please. Gone are the days when they would wait a week or so for a product that's temporarily out of stock. Gone are the days when they willingly waited a month for a product to be customized to their exact needs.Whether it's duct tape or computers, golf clubs or razors, if you can't deliver what they want, you've lost. And you probably won't get a second chance.
Even companies that sell customized goods aren't getting much of a break. Trained by the likes of Dell to expect almost immediate gratification, consumers of customized high-end goods are looking not only to have it their way, but to have it their way right now.
Consumer-goods manufacturers as diverse as Nike and Gillette are wrestling with these new expectations. And not surprisingly (given that these are supply chain problems), they're looking to the supply chain for answers.
Though Nike and Gillette have come up with radically different approaches, they're most assuredly working toward the same goal: ensuring that their products are available to customers when and where they want it. Athletic gear giant Nike recently hired third-party logistics provider Menlo Worldwide to handle light assembly and customization in order to get its golf clubs into consumers' hands as quickly as possible. Billion dollar conglomerate Gillette has purchased 500 million radio-frequency identification tags to track individual items in its Venus line of women's razors in hopes of eliminating stockouts. Though both initiatives required the investment of some serious money, the two manufacturers clearly have decided that not making the investment will cost them a lot more.
Let's get this (third) party started
Nike Golf 's agreement with Menlo Worldwide, signed in December, calls for the third party to handle not only traditional third-party tasks like logistics and distribution, but assembly management—or light manufacturing—for a wide variety of product categories. This represents a unique expansion of core services for Redwood City, Calif.-based Menlo,which will manage the actual assembly of build-to-order golf clubs for Nike Golf,as well as providing distribution services such as component inventory and finished-goods exportation for clubs.
Under a second agreement, Menlo is customizing and staffing a 234,000-square-foot distribution center in Memphis, Tenn., and will manage North American distribution of Nike Golf apparel and accessories. This spring Menlo will also assume the distribution responsibilities for the golf clubs it customizes.
Light manufacturing isn't entirely new to the company. For years, Menlo has been doing light-duty assembly and packing for Hewlett-Packard's line of printers at its DC in Memphis. But the Nike Golf deal is the first one where Menlo is doing actual materials requirements planning (MRP).
"This is starting as an in-line facility, meaning the assembly we are doing is based on stock product, but over the next five to six months we'll move to custom assembly," says Claude Kramer, Menlo's director of operations. "Customers can order over the Web or at a pro shop, be sized for grips and shafts, and we'll build to order."
Though it may look like Nike is bucking an industry trend, the idea of shifting product completion tasks from Asia to the United States is expected to catch fire. U.S. companies may save money when products are manufactured overseas, but they often suffer due to poor supply chain forecasting in Asia and Mexico, which can lead to poor inventory management in the States.
"A lot of manufacturing is moving into China these days, and given the length of the supply chain, it's very hard to forecast finished goods several months in advance, "says Steve Hill, senior solution manager for Menlo. "One way to help offset that is to have generic products manufactured in China, then shipped to North America to do the product completion function closer to the customer. This is just an example of that."
Like Nike, consumer-goods giant Gillette is making a big push to satisfy unrelentingly demanding consumers while shaving millions from its supply chain costs. But it has chosen a different path. Gillette recently announced that it had purchased 500 million auto ID tags—composed of tiny dot-sized microprocessors with antennas attached—from Alien Technology Corp., at an estimated cost of $25 million to $50 million. The radio-frequency identification (RFID) tags will track products from the manufacturing line, through the DC and the shipping process, right on to the retail shelf, providing real-time inventory control and helping assure that product is on the shelf when and where it's needed.
Though Gillette is spending a lot of money, it hopes to save even more. Billions of dollars are lost in the supply chain not only from the theft of product en route to its final destination, but also from the loss of revenues when a product is not in stock when the consumer wants it. That's why Gillette sees its multi-million dollar investment as a "multibillion dollar opportunity," according to Paul Fox, Gillette's director of global external relations. "Clearly, we believe the investment behind auto ID technology is justified because the downstream benefits and solutions to current supply chain issues could be significant."
This year Gillette will begin the first large-scale testing o f the RFID tag technology, which was developed by researchers at the Auto ID Center at the Massachusetts Institute of Technology in Cambridge. The company will start by placing tiny RFID tags on products sold at Wal-Mart and at Tesco, a leading U.K. based food retailer. If the trials are successful, up to half a billion tags could be put on Gillette products in the next few years.
Gillette expected to have its distribution center in Fort Devens, Mass., fully equipped with the technology by the end of March. But the company isn't stopping there. It is taking the field test a step further by installing "intelligent shelves" in a Wal-Mart store in Massachusetts and at a Tesco outlet in England.
Using RF technology, intelligent shelving constantly monitors products on the shelf, and sends an immediate alert to store management when inventory dips to a predetermined level. "Often, store shelves remain empty because the staff is simply unaware that a product needs replenishing," says Fox. The combination of RFID tags and intelligent shelving could also serve as a major theft deterrent, alerting store management when a large quantity of product is removed at once.
Tag sales to rise?
As Gillette runs its RFID field trials this year, the consumer and retail worlds will be paying close attention. Depending on the project's success, widespread adoption of RFID tags could be right around the corner, especially if the technology's price continues to drop.
When MIT's Auto ID Center began researching the technology in 1999, the price of the tags (more than 20 cents apiece at the time) prohibited their use commercially. The price has dropped by at least 50 percent (Gillette declined to disclose the per-tag price it paid, but the company had indicated earlier that it would be interested in using the tags if they could be obtained for 10 cents or less), and an anticipated increase in volume should make the tags even more affordable.
And that could happen at any time. Research is currently underway to replace the RF tag's antenna with an ink that can duplicate the antenna's function. The ability to use the ink contained on packaging as an antenna would further reduce the cost of RFID technology, making it available to a wider variety of users. As that user base grows, we'll likely be encountering radio waves at local stores with greater frequency.