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4 Questions About Supply Chain Illusions

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Image by trialsanderors/FlickrAn illusion is a false belief not in accord with the facts. An illusion is a false perception of what one sees, feels, hears, smells or tastes. So an illusion happens when there is a distortion of our senses resulting in our brain not obtaining an accurate view of reality. Interesting, but SO WHAT? Well think about these questions:

  1. What is the definition of a retailer?
  2. What is the definition of a consumer products firm?
  3. What is the definition of a B2B firm?
  4. What is the definition of a B2C firm?

These four questions were very easy to answer 2-3 years ago, but today are not easy to answer.  As examples consider these questions;

  1. Are Wal-Mart, Target, Amazon, Costco, Kroger, and Kohl’s retailers or consumer products firms?  Today’s answer is they are both. Yes, originally they were retailers but when they began selling private label products they also became consumer products firms. Wal-Mart has 36 different Private Labels, Target has 3, Amazon has 3, Costco has 1, Kroger has 7, and Kohl’s has 5. But, be careful with these numbers, for example, Costco’s 1 “Own” Brand- Kirkland Signature, has over 300 products.
  2. Are Uggs, Crocs, North Face, Maybelline, Nike, Adidas, Clinique, Ray-Ban, Mattel, and Gillette consumer products companies or retailers?  Today’s answer is they are both.  Yes, originally they were consumer products firms, but when they began selling direct to consumers they also became retailers.
  3. Are WW Grainger, Fastenal, HD Supply Holdings, and MSC Industrial Direct B2B or B2C firms? Today’s answer is they are both. Yes, originally they were B2B firms but now they are also sell B2C.
  4. Are Staples, Amazon, Home Depot, HP, and Cadillac B2C or B2B firms? Today’s answer again is they are both. Originally these firms were focused of B2C, but over time they have evolved into being both B2C and B2B.

So, the illusions are:

  • Wal-Mart, Target and others as retailers but they really are retailers and consumer products companies.
  • Uggs, Crocs and others as consumer products companies but they are really consumer products companies and retailers.
  • WW Grainger, Fastenal and others as B2B but they are really B2B and B2C companies.
  • Staples, Amazon and others as B2C but they are really B2C and B2B companies.

So we see thousands of Wal-Mart RETAIL STORES and thousands of products for sale at the RETAIL WEBSITE and since RETAIL STORES and RETAIL WEBSITES are categorized by our brain as being associated with RETAILERS we are under the illusion that Wal-Mart is a RETAILER. This perception that Wal-Mart is a retailer in spite of the fact that since 1991 when Sam Walton introduced his first consumer product under the private label Ol’ Roy (yes, named after Sam’s dog, a great line of dog food) that Wal-Mart has been also a consumer products company. Since 1991 Wal-Mart has introduced 35 more private label brands and thousands of product offerings that are produced for Wal-Mart, the consumer products company, and we continue to think of Wal-Mart as a retailer. These same types of illusions are in our minds with consumer products companies that are now retailers and the blurring of the lines between B2B and B2C.

So YOU SAY: Interesting discussion about illusions Jim, but again, SO WHAT?  Ok, hang on!  You see as our minds first associate the label Retailer, Consumer Products Company, B2B or B2C to a company and then despite what these firms morph into, our mind still holds onto the illusion of our first labeling of the firm. As the organization morphs from one business model to another so to must the supply chain of that firm. By us having an illusion of the business model of a firm we will also have a false perception as to how the firms supply chain should be designed, should operate and should perform. For example, let’s say a world-class food & beverage consumer products firm has inventory turns of 18 and a world-class grocery retailer has inventory turns of 32. If we have the illusion that this firm is a grocery retailer but in fact they are a grocery retailer and a food & beverage consumer products company what inventory turns should we expect?

As a company morphs from one business model to the next so to must their supply chain. Designing operations and benchmarking the supply chain must be based upon the reality of the firm’s business model and not an obsolete illusion of what once was.

Here is a related question for you: I have already said in this blog that Amazon is a retailer, a consumer products company, a B2B company and a B2C company, but aren’t they also a 3PL?   How does this impact the Amazon supply chain?

Think about the business model illusions you have and the impacts these false perceptions have on your supply chain illusions.

Jim Tompkins