Retail Still Playing Catch Up in Supply Chain Visibility
H&M's CEO called out that the retailer is in the midst of a digital transformation, but recently H&M was the latest victim of a lack of supply chain visibility, reporting a 61% drop in quarterly profit due to bloated inventory. That 61% drop in profit stemmed from a 7% increase in inventory. Enough to drive down shares of H&M 6.4% in one day. That digital transformation initiative is going to need to ramp up as H&M now finds itself playing catch up to get a better handle on inventory management. Being reactive - instead of proactive - is a losing game.
“2018 is a transitional year for the H&M group, as we accelerate our transformation so that we can take advantage of the opportunities generated by rapid digitalization,”
-H&M Chief Executive Karl-Johan Persson
H&M is not alone in this race to catch up. Research from Hackett Group indicates that 94% of supply chain leaders say digital transformation will fundamentally change supply chains in 2018, yet only 44% have a roadmap in place to do so.
More and more, retailers are recognizing the importance of investing in supply chain management software. They know they must evolve the supply chain from a cost center, into a competitive weapon that provides impeccable customer service. Unfortunately, transforming global supply chains is no easy task. It’s the industry’s dirty secret that millions of dollars of inventory decisions are being made daily based on data that is inaccurate and unreliable.
Every single retailer in the world tracks inventory and shipments, and most receive signals and updates in formats like EDI that were built before the modern internet. These signals, that form the basis for every supply chain decision, are confusing, non-standardized, and are often late or never arrive. Here lies the problem preventing digital transformation: dirty data. A prerequisite to turning any supply chain into a competitive advantage is to fix the underlying data problem.
Meanwhile, AI and machine learning continue to draw attention and interest across the industry, but they are predominantly applied to analytics and insights. A significant opportunity exists to apply AI and machine learning to the underlying data - to get it clean, accurate and reliable. Machine learning can bring data standardization to the supply chain at the point in which it enters supply chain management software. Creating a solid foundation for a digitized supply chain through accurate data should be the very first step to bringing enhanced visibility and transforming the supply chain.
We attend and present at supply chain conferences around the world like the EFT Retail Summit in New York and RILA conferences and every agenda covers key initiatives like inventory optimization, logistics strategy, and transformation. These are all important topics for discussion, but again, what’s missing is the data story. H&M is actually ahead of the game with a supply chain transformation initiative underway but nearly 50% of all companies don’t even have a roadmap!
Retailers should heed the missteps of H&M and others of late and make sure that their transformation initiatives start at the root of the problem, data. Under massive pressures already from consumers, Amazon, and Wall Street, the last thing they need is to become another headline.