ROI Justification for Product Development and Sourcing Automation
Retailers around the world have increased investments in retail technologies such as omnichannel retailing, digital wallet, RFID, and inventory software. On the other hand, investments in global supply chain technologies, particularly technologies related to product development and sourcing operations, have been lagging.
At the recent Supply Chain 360 Conference in Hong Kong, Michael Hung, CEO of CBX Software, presented real examples of how leading retailers have applied technologies to make significant improvements in cycle time, cost savings and profits.
Hung began his presentation by outlining some of the key product development and sourcing objectives in today’s retail world: “On time”, “Shorter cycle time”, “Lower cost”, “Fewer issues” and “Do more with less”.
“Sourcing and Product Development teams are being tasked to achieve these challenging goals. But without the right technology, it’s like trying to go faster and win a race, without the proper equipment,” Hung offered.
“22 years ago and we started this business and we were working with the same type of companies: retailers, buying offices, trading companies, and agents. Back then, our customers tell us that they have processes issues, lots of spreadsheets and data entry, errors, etc.,” Hung said. “22 years later, by large, not a lot has changed!”
“Where are my quotes, is this the right version, where is that sample, we hear this all too often as we manage our sourcing on a scattered system,” Hung added.
Hung also suggested that there are five key drivers for change in the global sourcing industry:
Fast isn’t fast enough – speed-to-market is one of the most important KPIs that retailers are looking at today.
Assortments are a lot more dynamic – days are gone when container loads of the same thing are being shipped. Today’s consumers demand more choices.
Increased demand for quality and compliance.
Retailers are placing smaller, more frequent orders.
Costs keep going up – supply chain costs account for 33% of the total product cost for most retailers.
“There are certainly a lot of driving factors because the world of retail is changing. The demand for supply chain improvements is there. But technologically, many of us haven’t really changed,” Hung said.
A typical merchandise concept-to-delivery cycle includes a number of key stages including Plan, Spec, Source, QA, Order, Make, Inspect and Ship. For merchandise to move through these stages, many activities need to be conducted by different internal and external teams. Hung believes that at least 33% of the activities in this process are redundant, lead in, lead out activities.
“We estimate that a significant amount of wasted cycle time is spent on redundant activities. Activities such as keying and re-keying of information, finding the correct version of the document, chasing for samples and related documents. Activities that add no value to the supply chain,” Hung explained.
Hung then shared how leading retailers like as Kmart, Target and El Corte Ingles are automating their product development, sourcing and pre-production, and order and supply chain operations.
“None of this is rocket science. There are a lot of technologies out there to help automate this process and uplift your efficiency,” Hung said, “At CBX, we were fortunate enough to work with a number of progressive retailers that have embraced technology. And we were able to help them to achieve significant cycle time reduction.”
Below are some typical cycle-time improvements that CBX Software was able to achieve for clients:
“By automating and tightening the product development and sourcing processes, our clients have seen significant cycle time reductions,” Hung said.
Hung then spoke about the three key principles in implementing any enterprise system: “Simpler”, “Faster” and “Scale”.
“You can’t implement a system with the current necessary chaos. You need to simplify your process by centralize and standardize all your information,” Hung said, “by simplifying your process, you can make the process faster and the business can scale.”
Hung also presented an ROI analysis model which illustrates ways in which sourcing optimization can have a direct impact on the retail bottom line.
“Sourcing and supply chain performance can have a direct impact on profit,” Hung said, “by automating your supply chain, you are lowering your product cost, which ultimately translates to higher margin.”
“For a one billion dollar retailer, we believe that by making things simpler, through automation, we can achieve 30% improvement in operational efficiency. By making things faster, you can increase sales volume and reduce markdown. And by helping your business to scale, you can expand your private brand by 33%. These add up significantly to the retail bottom line,” Hung added.
Kmart Australia is a leading Australian discount retail chain and has been a CBX client for almost 9 years.
Hung used Kmart Australia as a case study to illustrate how technology can play a vital role in a retailer’s transformation strategy, which ultimately led to significant improvements in business performance.
Kmart Australia went through a phase of rapid transformation. With help from CBX, the company achieved 350% growth in sourcing volume with minimum increase in headcount, reduced cycle time, increased shipment on-time rate, and lowered product cost.
As a result of its transformation, Kmart Australia is now one of Australia’s most successful and profitable retailers.
Hung summed up his presentation by giving some practical tips for when implementing a Product Development and Sourcing Automation Solution:
Standardize your processes;
Don’t over engineer;
Change management and user adoption are crucial;
Conduct thorough due diligence in technology partner selection;
Don’t expect to find everything in one solution
Do it in phases and avoid big bang
To learn more about how a Product Development and Sourcing Solution can potentially optimize your business? Schedule an obligation free consultation with one of our Consultants.