Host Mike Graen concludes his conversation with Dr. Matt Waller, Dean Emeritus for the University of Arkansas ­- Sam M. Walton College of Business, as they discuss the state of the retail supply chain industry in 2024. Topics of this part 2 conversation include:

- Store-level implications of case pack quantity management.

- Supply chain management and customer expectations.

- Retail supply chain trends and opportunities.

Well, maybe transition maybe transition. And

by the way, just a reminder for any of our attendees, if you

have a question that you would like to ask me, then please let

me know. We've got some other questions. I've got structured

here. But you're more than welcome to throw a question in

the chat if you'd like me to answer it. And if we can get to

it, we certainly will. Talk about you know, the whole idea

of on shelf availability, you mentioned, buy online pickup in

store you mentioned, Dr. Hardgrave is a big one on

"ROPIS", which is research online pickup in store. So

people literally getting online and going does that store have

it? does that store have it? Well, that one has it. I'll go

to that one. Right. And being able to have enough confidence,

you're on hands to do that. But talk to me about the on shelf

availability, the implications of supply chain, because if the

store doesn't have it, can't sell it. There's no way to sell

it. So forget about the stuff happens inside the store? What

are the what are the opportunities that you see in

terms of the role that supply chain will play in the future

for making sure products available for the customer?

Okay, I will do that. I would also like to talk

about the store at some point.

Absolutely.

But so, when you look at the supply chain,

there's so many variables that affect on stock in stock at the

store. Everyone jumps to transportation, and I'll talk

about that. But there's a lot of others for example, case pack

quantity. You look at how do how do suppliers make case pack

money decisions? Well, how many will fit on the shelf? I mean,

fit on the on the pallet? How can we cube out the truck? What

What can our packaging equipment do? This is now case pack

quantity of the decisions are made. But in reality, case

packed often becomes the defacto store level replenishment

quantity. Right always cause you sometimes enter packs, and

sometimes they do replenish and each is but many times the case

pack becomes the multiple of ordered quantity at the store

level and I won't get into it right now. That has a huge

impact. I've done it, I've done studies on this. It has a huge

impact on in stock and inventory levels in the store. So you have

a disconnect. I'm going to use this just as an example. You

have a disconnect between a variable that really has a big

impact on store level efficiency and how those decisions are

made. totally disconnected. Great point. You can find those

kinds of examples all over the place. Another another example,

in transportation. You know, you take something like intermodal,

a lot of shippers don't want to use intermodal because the lead

time is longer. In some cases, the lead time variability is

longer or I should say the lead time uncertainty is higher,

longer lead times higher longer lead times and a higher

uncertainty in lead time leads to either more safety stock

being required or more stock outs or both. And so but if you

look at intermodal, the price is a lot lower. I mean, the freight

rates are much better, especially on long longer hauls.

Now, on short hauls, that's not true. But on longer hauls.

That's true. But a lot of times, they're not. And yes, it is

true. You could you might have to hold more safety stock

possibly, right. That's not always uncertainty. But maybe

the cost difference is worth it. Especially when you're in a

situation where you have inflation, you know, maybe maybe

instead of making the quantity and then the package smaller,

like giving, making 10 ounces instead of 12 ounces for cereal

or something like that. Maybe we just need to switch to

intermodal, just this is just one simple example.

Yeah, for sure. Well, you mentioned you want to

talk a little bit about the store. So let's go there. Let's

take that example. You just said most retailers will actually set

their shelf holding capacity based upon the case pack. Right?

Not based upon what sells. But for example, I'm going to set

this up. So I know let's say the case pack is 12. Well, I'm going

to set my case pack to 18, into my shelf capacity to 18. Because

I want the full case to fit on the shelf. And I want to be able

to run down to six before I ordered the next one and deliver

it. So the whole thing should fit on the shelf. That's utopia.

Right. But is that the right level of shelf capacity for that

item? Maybe not maybe doesn't justify holding 18. But that's

where you set it out, because it's a case of the pack and a

half. So that is certainly one issue. There are obviously other

reasons as well. So you said you wanted to make you mentioned the

store? Go ahead and give us your thoughts on what the store level

implications of this are?

Yeah. So. So for one thing, I mean, right? If if

a supplier increases the case pack quantity, their sales to

the retailer will increase for a time. Yeah. Right. Because it

will have to fill up the time the pump, if you will. And, and

so as the pumps being primed, you're going to see an increase

in sales from the suppliers perspective, not from the

retailer's person, surely, you might, if the product is a

impulse item, you know, with impulse items, there is

relationship between demand and inventory level, the more you

have, the more you sell. But for most items, you don't see that

and you take something like Similac it's, it's a destination

item, it's not an impulse, so many items in the store aren't.

The other thing is that, you know, if you look at different

products by day of the week, some products sell more on the

weekend, or certain days of the week, because of various

reasons. And if you're setting your facings, simply based on

the case, pack quantity, you might run out of some products

on Saturday morning or Saturday by noon, where if you would have

adjusted your your shelf quantity to meet peak demand,

you wouldn't be out of stock for that. And you go you also have

to remember, most items in the store are fairly slow movers.

And yeah, there's a few items that move like crazy. Right? So

so for the ones that move really fast, it would be optimal from a

store perspective, to allocate more shelf space to them. And

having bigger caseback quantities don't make sense. I

mean, it might make sense, right? But but for slower moving

items, like you take certain kinds of shampoo, which I never

buy anymore. Why? And, and you take certain you see, I don't

know how many SKUs are in a typical store. But hundreds,

like what's hundreds? Yeah, it's there's a lot of SKU's of

shampoo, you may need them for various reasons. So you don't

lose shoppers. But you don't need a big case pack. Right?

You'd be probably don't need more than one facing for those

skews. Yep. The other problem with having large case pack

quantities at some point when they get too big, is if all the

product doesn't fit on the shelf, then the case has to go

back to the back room, and often gets lost. And that's one of the

benefits of of RFID or a technology like that is if they

these retailers were using it properly. They would know where

product is in the store. And the case pack quantity wouldn't be

as big of a deal but it still is even if you have RFID and you're

using it properly. If your case packs too big then you're going

to have multiple trips from the back room to the to the shelf

and and then that increases your labor costs.

Yeah, for sure.

Brian, just sent us Brian bro, just sent us a note. I'd love to

have you kind of react to this. He says in my honest opinion,

longer lead times aren't an issue if service is consistent

and you have a regular cadence of Order Generation say once a

week processes like dynamic distribution that delays the

final score allocation to account for the point of sale

forecasts and variability. Agree? Or do you want to have a

little debate

Um, I will agree and disagree to some point.

Good, I do agree if if demand is level, meaning then you're gonna

have good service. I totally agree. Absolutely. As as

uncertainty starts increasing, at some point, the longer lead

times will have to result in more safety stock. Because no

safety stock is a rough estimate. It's about equal to

the amount of safety stock increase you have to use is

about equal to the square root of the lead time. So it

increases but kind of at a decreasing rate. That's just a

rough estimate. But I do agree if you if you have things if you

have good service mean, your your ship, your carriers are

consistent, providing good service, and your demand isn't

to uncertainty, then yeah, you should be able to plan this.

Yeah, it's a planning process. So I agree with Brian.

Yeah, I think there's a couple more factors

too. And I'm not sure this is an official industry term, but the

term is I use a lot of switch ability. Okay. So if I'm going

in to the store for bread, and they don't have exactly the

bread I'm looking for, I'm leaving the store with bread,

right, I'm not gonna go home and go sorry they didn't have bread,

they didn't have any bread? Oh they had four other loafs but

you said you wanted this one, well buy another one. That's

different than if I'm going in to buy black printer cartridge

for my HP printer, and they have other printer cartridges. I

can't switch I gotta find this one. And I think that's why you

find the RFID really taken off in the apparel general

merchandise, probably more so than dry grocery for that

reason. Because you know, we've we've battled this and you know,

this, we've battled this, we need to provide more assortment

and opportunity for merchandise for, for our customers. And

that's I went into the pendulum and it swings all the way back.

Now we need more holding capacity. Because we're running

out of stock and that game. That game has been going probably

since the first retail store, which is how do I offer the

right level of assortment while maintaining my my on shelf

availability for my customers. That's always a pendulum that

goes back and forth amongst retailers. And I'm not sure that

merchants who make those decisions are really thinking

about in that way about the supply chain implications. I

think they're more about an I need to offer more assortment to

my customers or I'm hearing a lot of problems with out of

stocks on the shelves. How do we factor it in really experts in

the supply chain to these decisions that are being made

between the buyer and the seller?

Let's get back to your switching concept. Okay.

You're right. You know, it's like if you if you want

buttermilk biscuits, and you go in there out and they have

country biscuits.

You might be okay.

If you're a new parent, you've got a baby. And you go in for

Enfamil? Because that's what maybe they gave you and you're

not switching hospital. You're not switching in there. And it's

not available, you don't slip switch to Similac. Because a lot

of times, or vice versa. Not the names of the brands are

irrelevant, right. The point is that people aren't going to

switch right point. Yeah, very few people will. And you not

only lose the basket, you lose. You could lose the customer, in

some cases, if it happens too often. Yep.

100%. Yeah. And the general running joke I do is if

you're in a Walmart store, and you don't have your stuff, I'm

going to go back to what we said the customer is ultimately in

control, they're going to get out their phone. And they're

going to use Walmart Wi Fi to order from one of the

competitors. How about that for a double slap in the face, but

they're going to make the choices. Because the customers

ultimately go back to the first thing we said that Doug said,

there's not a lot of loyalty there if they they're gonna get

there they want and if you don't give it to them, they'll find

somebody who will no problem. So Michael Hika just gave me an

interesting question seems like item velocity and the modular

holding power may have a bigger impact at the shelf versus

supply chain issues, especially with the shelf use for physical

customer and digital customer. Your reaction to that?

I totally agree, guys. I mean, we're always

talking about transportation and warehousing. But the reality is

the store is the place where you've got to get supply chain

concepts integrated. So yeah, I definitely agree and I don't

think I don't think many retailers you mentioned this

earlier and directly but are in their merchandising decisions

are really taking into account the supply chain variables. And

its true holding capacity, and even store processes, you know,

which have to be enabled by technology these days. That

gotta be. Yep. And, and then visibility. But yeah, I mean, I

think that a lot of times retailers look at merchandising

as a, an art. So if you if you look at omni channel for example

Well, let me back up a second. If you look at retail media

networks, right? Yep, this industry was about 40 billion in

2023. According some numbers I have, maybe it's not perfectly

accurate. But that's roughly. And, you know, it's still

nascent, right? It's still a nascent form of media. But if

you draw a straight line, it looks like it couldn't be as

much as by 2026 180 billion. Wow. Okay. And many suppliers

out there don't know. There are 600, retail media networks out

there. Yeah, Walmart Connect is one of an example. You look at

Walmart Connect, right? You can, you can advertise if your

supplier, you can advertise on their digital space, you know,

like, you can advertise on the app, you can advertise on the

website, you can have a sponsored pay, you can have a

brand page, there's all these different ways you can do it.

Even in the store, you know, you've got audio, you've got

video, you've got even in the Self Check stand, you know,

there's a place where they advertise things there. But on

top of that, they've partnered with a company to create a way

where you can actually have a supplier also advertise on

Walmart's social media like Instagram or Facebook, things

like that. And so and so what's happening is, suppliers are, I'm

surprised how many suppliers really still aren't very

familiar with this. But like, how do they increase more spend?

Do they take spent from their other media that they used to

use and put more of it into retail media networks, this is

going to have a big impact on demand, where demand comes from.

And I think that merchants and suppliers need to be thinking a

lot more about how do we incorporate this, this

information is quite available, how do you incorporate that into

your forecasts and into your supply chain planning your

network design? I don't think that's happening very much at

this one edge. It's going to it's going to get bigger, it's

going to have more and more impact over time. Yeah, for

sure. Well,

what do you think the big so it's so it's now

2024? I mean, what are the big? What are the big opportunities

in the retail spots? I'm not gonna say just supply chain?

What are the big opportunities in your point of view in the

retail supply chain? What are the things that we should be

focusing on?

We need to be focused on omni channel, we

could have a whole conversation about that. But if you if you're

if you have a store, and you have all the omni channel

options, and it doesn't increase sales, then all you've done is

increased uncertainty, and the skill. If it increases sales,

you might have actually solved some problems through that.

Ignoring capacity constraints and things like that, but but I

really think understanding how the network designs needs to

change as a result of omni channel is a huge opportunity

that is being under right now. You know, people are saying

well, we need to change our network design a little bit, or

we need to do this that or the other, maybe caseback one of

these I don't even know all these variables. But I think

there's a lack of really using concepts that are well

established in supply chain management and applying them to

these kinds of questions for omni channel and of course

retail media networks. Everyone in supply chain should be aware

of retail media networks and be learning as much about them as

possible. And then how your companies responding to these

things. But but the the other thing is, you know, Mike, I

remember if you would have asked me back in 2005 would technology

like RFID, as an example, be implemented and be being used by

this point. I would, of course, by this point, visibility is so

important. And now that we have blockchain technology, the

marginal benefit of visibility has gone up the order of

magnitude. From a supply chain perspective, I think it's going

to take leadership from key players to roll this out and

make this work. Yep. Well,

Just to build on that. And then we're going to

kind of wrap this up. You know, I've spent 20 years in RFID,

I've started up and shut down more RFID projects then I care

to remember, but it's now taking place, right? Every major

retailer is using it. But I would say 90% of the benefits

today in retail are at the store, escaping those Dr.

Hardgrave that it's getting to the on hand accuracy of knowing

what you have and where it's located. The opportunity, since

all of this stuff, for the most part is tagged at source by the

manufacturer, tracking it through the supply chain, and

eliminating claims and duplication and product

authentication and etceterra are the big opportunities. And I

think that's where RFID and blockchain will play. It's just

really, really hard. I mean, the people, the practitioners who

are trying to do this, they're always challenged with that kind

of thing. But we're gonna get there. And I agree with you, I

think, knowing what you have, and where's it located

throughout the entire supply chain, and the impact of omni

channel are clearly going to be big drivers for this.

I even think from a defense perspective. Yeah. I

think such a kind of thing can work terrorist behavior and so

forth.

Yeah. Well, outside of retail for sure. Dr. Waller?

What did I What did I and we're get we're a little bit over. But

that's okay. What did I not ask you that I should've what's on

your mind? What's keeping you up at night? You know, what are the

things that you think we ought to be thinking about as an

industry?

Well, I think as an industry, and I'm talking

broadly supply chain, management, not just retail,

yet, we need to be really thinking about making sure that

we have multiple ways to ship things to store things to

forecast. Because other big sources of uncertainty are

heading our way. We just don't know what they are. There's

other black swans out there.

Got it. Cool. Dr. Waller, as always, thank you so

much. Thank you for all you do for the industry. Thank you for

your leadership at the University of Arkansas. This

will this this isn't the first time we've talked it won't be

the last time we've talked I enjoy working with you on these

kinds of things. And and certainly we'll put your your

bio information in the in the podcast. So if anybody wants to

reach out to you separately, but thank you so much. Have a great

rest your day. And I really do appreciate you joining us today.

It was absolutely my pleasure. I always enjoy

visiting with you and your background is so remarkable

being the first Information Systems type person on a supply

chain, a supplier team here in Northwest Arkansas and just all

the things you've witnessed and you're continuing to stay

involved. So thank you for having me. Good talking to you.

All right. Have a great rest of your day. Thank

you.

Bye bye