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537 posts categorized "Supply Chain"

November 01, 2013

SAP Discusses the Future of Business, Part 2

In Part 1 of this two-part series, I indicated that I divided the facts presented in an interesting SAP slideshow entitled "99 Facts on the Future of Business" into thirteen separate categories. In that post, I discussed the first five categories: Big Data; Business Leadership; Customer Service/Experience; and Education. In this post, I'll discuss the remaining eight categories, namely: Emerging Markets; Innovate or Perish; the Internet of Things; Risk Management; the Supply Chain; Targeted Marketing; Urban Growth; and a Miscellaneous category. SAP introduced the presentation by explaining:

"Business Innovation is the key ingredient for growth in the future of business. Changes in technology, new customer expectations, a re-defined contract between employees and employers, strained resources, and business and social networks are requiring businesses to become insight-driven businesses. In this presentation, we have gathered 99 facts that represent the changes taking place in the world today. Each fact represents a key insight and suggests where we need to focus and change to become viable, sustainable and growing future businesses."

As noted in Part 1, I placed these facts into thirteen categories to help paint a more coherent picture of the future as seen by the analysts at SAP. In the first post, I included the first five categories: Big Data; Business Leadership; Customer Service/Experience; and Education. In this post, I'll discuss the remaining eight categories, namely: Emerging Markets; Innovate or Perish; the Internet of Things; Risk Management; the Supply Chain; Targeted Marketing; Urban Growth; and a Miscellaneous category.

99 Facts

To continue reading this post, click on this link to the new Enterra Insights site.

October 31, 2013

SAP Discusses the Future of Business, Part 1

In an interesting slideshow entitled "99 Facts on the Future of Business," the folks at SAP paint a picture of the future to which businesses should pay attention. The company introduces the presentation by explaining: "Business Innovation is the key ingredient for growth in the future of business. Changes in technology, new customer expectations, a re-defined contract between employees and employers, strained resources, and business and social networks are requiring businesses to become insight-driven businesses. In this presentation, we have gathered 99 facts that represent the changes taking place in the world today. Each fact represents a key insight and suggests where we need to focus and change to become viable, sustainable and growing future businesses." I've placed these facts into thirteen categories to help paint a more coherent picture of the future as seen by the analysts at SAP. In this post, I'll include the first five categories in this post. They are: Big Data; Business Leadership; Customer Service/Experience; and Education. The remaining eight categories will be provided in the next post.

99 Facts

To continue reading this post, click on this link to the new Enterra Insights site.

October 30, 2013

Enterra’s Cognitive Reasoning Platform™ brings era of Big Data to consumer packaging industry

Enterra_New_Logo_ darker blue w regAs of today, I'm transitioning the Enterra Insights blog to a new platform that will be hosted on Enterra Solutions' rebranded website (www.enterrasolutions.com). The new website was launched to coincide with this week's Consumer Goods Business & Technology Leadership Conference that Enterra helped sponsor. For the next couple of weeks, I will continue to provide links to new blog posts to facilitate a smooth transition to the new platform.

To continue reading today's post, please click the following link: Enterra Insights.

October 29, 2013

Order Fulfillment in an Omnichannel Environment

A year ago, Dan Gilmore, Editor in Chief of Supply Chain Digest, wrote, "In case you haven't noticed, e-commerce is growing at a breakneck pace, putting a near panic in traditional brick and mortar retailers, and of course driving many of them to invest heavily in their own dot com sites and business units – even if most of them are losing money at it for now." ["Multi-Channel Commerce and the Supply Chain," 9 November 2012] As we approach what hopefully will be a good holiday season for retailers, order fulfillment is rising quickly to the top of concerns for many retailers — especially omnichannel order fulfillment. I previously addressed this topic in a post entitled The Impact of Omnichannel Operations on the Supply Chain, but with the holiday season upon us, I thought it might be a good time to discuss it some more. Gilmore continues:

Omnichannel Fulfillment"E-commerce ... is now part of the whole 'multi-channel commerce' phenomenon. Multiple paths of purchase and delivery. Buy anywhere, pick up anywhere. More sales and delivery channels are coming too: your television…vending machines…what else? A senior supply chain executive from one of the country's largest retailers told me at a dinner ... that 'multi-channel is going to create big winners and losers' in the retail sector, depending on the decisions and investments each merchant makes. One of the weird things here is how technology driven this all is. ... Of course, this is not only a retailer phenomenon. Manufacturers and wholesalers of all sorts are dealing with many of the same e-commerce/multi-channel supply chain challenges and questions. How aggressive do we go? Will we tick off our channels? Do we insource or outsource e-fulfillment operations? If we insource it, do we use an existing DC, or a separate fulfillment operation? Etc."

Gilmore's questions point out why omnichannel operations are so difficult to get right. He goes on to discuss three of the biggest questions involved in omnichannel operations: How do you best fulfill orders? How do you manage shipping costs? And, how do you manage inventories.

Omnichannel Order Fulfillment

Jason Denmon, a supply chain management consultant, writes, "Fulfillment can get complex as customers expect a seamless experience across all channels. One of the key decision points is whether to manage fulfillment of each channel in shared or separate distribution centers." ["Aligning fulfillment operations with a changing channel mix," Modern Materials Handling, 29 June 2012] Jim Barnes of enVista told Gilmore:

"We like the idea of combining the dot com and retail distribution operation if and only if the retailer has the ability to consolidate reserve inventory but logically keep it separated using a Distributed Order Management (DOM) or what I like to refer as enterprise commerce flow (ECF). In principle we like them combined, but many retailers don't know how to do it, therefore you see a lot of physical or virtual fences separating dot com from retail order distribution. ... The bigger question is regarding service and this is why there is a strong argument against combining retail and B2C. I believe to keep up with Amazon retailers are going to be required to establish more satellite or spoke locations in larger demographic areas that allow the retailers to service customer same day, at worst case next day."

Denmon agrees that "operating out of a shared Distribution Center is most effective when the channels or segments have common order profiles (item type and quantity) that share the same inventory." But, as Barnes notes, that isn't always the case. As a result, Denmon claims, "Fulfillment with each channel in its own distribution center makes sense when the channels have unique requirements." Denmon concludes:

"Choosing what type of fulfillment operation is best for your company starts with a holistic view across the business, channels and segments. Getting stakeholder alignment across channels is a critical first step. Start by asking these questions:

• Where are the synergies and differences between channels?
• Are you struggling to respond quickly to market demand? Or dealing with excessive mark-downs and out of stocks as a result of allocation problems?
• How is the performance of each channel measured?
• What are the tipping points where you are willing to sacrifice the optimization of one channel for the overall benefit of the organization? How wide is your lens?
• What are the impacts of changing business requirements in your channel mix?
• Do you have true business/stakeholder alignment between channels with an overarching strategy that drives one consensus plan?

"With an understanding of the full impact of multiple channels on your fulfillment operation, you can look for synergies and ways to deliver the seamless experience your customers expect."

Shipping Costs

A lot more retailers are offering free shipping on orders. That makes getting a handle on shipping costs particularly critical. As Gilmore writes, "Discounted/free shipping is sapping the profits out of e-commerce." But, as Bob Trebilcock, Executive Editor of Modern Materials Handling, notes, retailers continue to offer these shipping options because customers expect them. He writes, "Companies] are now operating in a world where cheap or free shipping dominates. Even wholesale businesses are having to guarantee next-day delivery to meet the expectations of business customers that are influenced by consumer expectations." ["Four trends driving automation," 22 May 2012] Jones Lang LaSalle, a global real estate services firm, asserts that the cost of new warehouses designed for omnichannel operations is significantly higher than the cost of traditional warehouses and distribution centers. "Traditional warehouses that support stores require less investment and machinery and fewer staff," they write. "The new e-commerce distribution centers, which involves direct order fulfillment, can cost three times as much and involve three times as many employees." ["Growing E-Commerce Forces Transformation in Distribution Networks, Report Finds," SupplyChainBrain, 25 May 2012] All of that new cost must be absorbed or passed on. Last December, Supply Chain Digest published the following graphic to show "what a number of leading retailers and service providers are doing relative to multi-channel fulfillment strategies."

Multi_Channel_Fulfillment_Strategies

As you can see, with so many fulfillment strategies in play, keeping shipping costs in check is no easy matter.

Inventory Management

Gilmore doesn't believe than anyone has been able to master omnichannel inventory management, but, he writes, "Some of the Distributed Order Management solutions are getting close." Kris Bjorson, head of Jones Lang LaSalle's Retail/e-commerce Distribution Group, told the SupplyChainBrain staff, "Traditional retailers must support the delivery of merchandise and manage both in-store and online inventories and shipments at a frenetic pace against the backdrop of intense competition from pure e-commerce rivals." Stephen Gerrard, Vice President of Marketing & Strategic Planning at Voxware, Inc., notes, "Warehouses are now on the front line of customer satisfaction, but enterprises are still downsizing the supply chain as much as possible. Logistics has to do more with less." ["Warehouses: The New Front Line of Online Customer Satisfaction," Supply Chain Digest, 10 May 2012] It is ironic that at a time when the supply chain is playing an increasingly important role that many executives still only see it as an area to cut costs rather than as an area that will differentiate them from their competitors. Supply chain professionals are fond of saying: The supply chain doesn't support the business the supply chain is the business.

Supply chain analyst Bob Ferrari writes, "Many in the industry believe that there is no single formula for success in this new evolving multi-channel commerce world and each retailer will have to continue to 'tune-in' to customer needs and requirements and provide appropriate, differentiated capabilities that can best balance all physical and online assets." ["Bricks and Clicks - The New Business Model and Supply Chain Capability for Retail Industry," Supply Chain Management, 28 March 2012] Bill McBeath of ChainLink Research concludes, "The rising emphasis on omni-channel has reached a pitched crescendo this year, with no signs of abating. One of the reasons it is 'taking so long' is there are so many dimensions to really doing omni-channel well. It touches everything. Even though e-commerce has been around for well over a decade, we are really just getting started on the journey of putting in place the various dimensions of the foundation for wide spread true omni-channel integration. In reality there are currently centers of gravity—unifying the front-end (the shopper experience) vs. unifying the back-end (fulfillment). For now that is probably the enterprise’s best approach, since, especially the front-end mobile game is just discovering itself." ["Reading the Pulse of Retail at NRF 2013: Omni-Channel Still the Big Thing," 22 January 2013]

October 23, 2013

Globalization and the Supply Chain

Although globalization isn't quite the hot topic it used to be, the subject is still a vital one. Historically, discussions about globalization involved the movement of three things: capital, people, and resources. Nowadays, some pundits like to add a fourth item to that list: ideas. Recently, an article in The Economist stated, "'Globalisation' has become the buzzword of the last two decades. The sudden increase in the exchange of knowledge, trade and capital around the world, driven by technological innovation, from the internet to shipping containers, thrust the term into the limelight." I suspect that the article left out the movement of people either because so many countries have become xenophobic or because jobs now move to people rather than people moving to jobs (i.e., outsourcing) – or maybe the article omitted the movement of people for both reasons. ["When did globalisation start?" 23 September 2013] Globalization has both supporters and critics. The article explains:

Globalization"Some see globalisation as a good thing. According to Amartya Sen, a Nobel-Prize winning economist, globalisation 'has enriched the world scientifically and culturally, and benefited many people economically as well'. The United Nations has even predicted that the forces of globalisation may have the power to eradicate poverty in the 21st century. Others disagree. Globalisation has been attacked by critics of free market economics, like the economists Joseph Stiglitz and Ha-Joon Chang, for perpetuating inequality in the world rather than reducing it. Some agree that they may have a point. The International Monetary Fund admitted in 2007 that inequality levels may have been increased by the introduction of new technology and the investment of foreign capital in developing countries."

As with most debates, there is truth on both sides; but, there is no denying that the billions of new middle class consumers are better off thanks to globalization. The article, however, insists, "It is impossible to say how much of a 'good thing' a process is in history without first defining for how long it has been going on." So the staff at The Economist asks, "When did globalisation start?" Taking the long view, the article argues, globalization began when labor became divided between hunters and shepherds, which led to further labor specialization (e.g., merchants, armorers, etc.). Of course, the "world" in which these specialized laborers lived and interacted was fairly limited in size. It was traders and merchants who really spawned what we now think of globalization. The article concludes:

"It is clear that globalisation is not simply a process that started in the last two decades or even the last two centuries. It has a history that stretches thousands of years, starting with ... primitive hunter-gatherers trading with the next village, and eventually developing into the globally interconnected societies of today. Whether you think globalisation is a 'good thing' or not, it appears to be an essential element of the economic history of mankind."

Throughout most of history, the primary movements of goods, people, and capital have been fairly regionalized. I have argued in previous posts, that regionalization within the broader framework of globalization, is going to characterize much of the trading and other supply chain activities in the future. There is growing evidence of this. For example, Jonathan Webb reports, "The preliminary data from [Procurement Leaders'] CPO planning survey currently finds relatively little evidence for globalisation. In this study, we asked procurement leaders from where the goods and services for each region were sourced. As it turns out, most of the goods for each region were sourced internally." ["The world isn’t globalising – it’s regionalising," Procurement Leaders, 9 July 2013] There's nothing sinister about regionalization. It simply makes economic sense to reduce the length of supply chains.

Regionalization, however, isn't sounding the death knell for globalization. Most multi-national corporations understand that their best opportunities for growth are going to be found in emerging markets among new global middle class consumers. Robert J. Bowman, Managing Editor of SupplyChainBrain, cites an Ernst & Young study that concludes "the biggest opportunity for merchandisers in years to come is the emerging consumer in China, India, Brazil, Eastern Europe and other places far from U.S. shores." ["Forging the 21st-Century Supply Chain," 23 January 2013] Bowman also quotes Josh Green, Co-Founder and Chief Executive Officer of Panjiva, who stated: "To me, the defining economic event of the 20th Century was the rise of the American middle class. For the 21st Century, it's the rise of the global middle class." In other words, what regionalization means is that global corporations are going to have to learn to think globally but find a way to act locally (or regionally). Bowman states, "Manufacturers will still need to be in China – but to serve the Chinese market. The same goes for growing demand in those other emerging economies."

Let me state the obvious: Globalization and regionalization both depend on good supply chains. Getting products to new members of the global middle class or do those still struggling to get out of poverty (the so-called "bottom billion"), is a challenge with which all manufacturers and retailers are struggling. An organization called D-Prize, which "is dedicated toward expanding access to poverty-alleviation solutions in the developing world," also believes that "distribution equals development." Its website explains: "Many solutions to poverty already exist; the challenge is distributing these solutions to the people who need [them] most. We tackle this by challenging social entrepreneurs to develop better ways to distribute proven life-enhancing technologies, and funding early-stage startups that deliver the best results." The distribution challenges faced in getting poverty-reducing solutions to the bottom billion are the same challenges that manufacturers face in getting their products to the same group. Nicolas Fusso writes:

"A massive global toolbox, filled with highly effective tools for solving poverty, continues to expand. Inside you'll find relatively recent additions, such as portable solar lanterns. Other tools, like childhood immunizations, have been dependable for generations. Unfortunately, this toolbox is not open to everyone; it seems someone forgot to unlock it for those most in need of access. In fact there are many proven paths toward development. The past decades have observed a wide range of advancements – including new health and medical interventions, development-focused technologies, and proven financial services. Yet millions in the developing world still lack access to basic poverty solutions. Why is that? Today's greatest need is not for scientists and engineers to create new tools. The real need is for better distribution of solutions that already work." ["Distribution, the Key to Unlocking the Development Toolbox," Next Billion, 25 April 2013]

Fusso notes that D-Prize is offering a prize of up to $20,000 for good ideas about how best to distribute poverty-reducing solutions to those who need them. To large multi-national corporations, that sum is a pittance, but the solutions that could emerge from offering that sum could help everyone. Solving the distribution of goods and services challenge to poverty-stricken areas should be a win-win for both humanitarian and commercial ventures. One would assume that humanitarian efforts could piggy-back on commercial distribution systems serving the bottom billion. Certainly multi-national corporations could use the good public relations that would be created by such a venture. As I wrote in a previous post, "For years, people made the bad assumption that impoverished populations wanted nothing more than the very basics -- food, housing, and water. Yet business people clever enough to package goods in sizes that the poor could afford (like single-wash packages of detergent or a minute of cellphone time) found that the poor could be consumers and profits could be made. We shouldn't be surprised; 'Apple Marys' in the U.S. survived the great depression using this economic model."

The future of globalization and supply chains may very well be characterized by how well companies learn to overcome the "last mile" challenges associated with the bottom billion consumers. Solve that problem and other distribution problems will naturally be solved as well. For more about how globalization and supply chains can help solve poverty, see my post entitled Can Supply Chains Save the World?

October 21, 2013

Attracting Supply Chain Talent

One of the topics at the Supply Chain Insights Global Summit I attended in Scottsdale, AZ, last month was entitled "Supply Chain Talent – The Missing Link." It is a topic that Lora Cecere, founder of Supply Chain Insights, introduced in a post entitled "Supply Chain Talent: The Missing Link in Your Future?" [Supply Chain Shaman, 12 August 2013] She introduced that post by writing, "I even more firmly believe that supply chain talent is the missing link in the supply chain. In figure 1, I outline the company's biggest gaps. It is the sourcing and development of mid-management talent. YOWZA! It is large." The figure to which she refers is found below.

Supply-chain-talent11

The reason that Cecere believes this is an enormous problem is because most current "efforts are focused on new-hire recruitment or mentoring for high-performance development for executive level positions. There are few companies that understand and have addressed the mid-management talent issue." I suspect that Paul Teague, U.S. contributing editor of Procurement Leaders, would agree with Cecere. He believes that companies need to do a better job of talent management. "When it comes to 'talent management'," he writes, "the obvious question you have to ask is, 'what talent?' It's not a trivial question." Cecere's answer, of course, is middle management talent.

If you don't think that Cecere is correct, consider what Jake Barr, Principal and CEO of BlueWorld Supply Chain Consulting, told participants at the Supply Chain Insights Global Summit. He reported that between 25% and 33% of the supply chain workforce is at or beyond retirement age. Most of these people fill operational roles, including middle management. He also told participants that, for every graduate with supply chain skills, there are six holes to be filled and it could be as high as 9 to 1 in the future." Those are pretty sobering statistics. If you want to watch the full hour-long panel discussion held on this topic at the Supply Chain Insights Global Summit, click on this link. If you haven't the time to listen to the entire discussion, Robert J. Bowman, managing editor of SupplyChainBrain, provides a quick overview of what panel members discussed. I've included his comments later in this post. Here are some of the highlights from Cecere's research report on supply chain talent.

"Opportunity to improve. Overall, companies rate their capabilities to manage supply chain talent worse than their peers. In the study, when companies were asked to self-assess their capabilities to manage supply chain talent, 17% self-rated that they perform better than their peer group while 34% reported that they do worse than their peers. And, we all know that self-assessment scores tend to overstate capabilities. ... I think that it is worse than reported ...

"High turnover. Average turnover of supply chain managers is 15%. It is increasing. In the study, 46% of companies attempt to hire from within the company, and 17% fill roles primarily through recruiting talent from other companies. External recruiting is becoming less and less successful.

"Shortage of talent. The average company in the study has four positions open for five months. Companies are is feeling the pain of open positions. The most difficult positions to fill are in the areas of planning that require both a technical mastery of technology and an organizational understanding of the business drivers.

"Stiff competition for college graduates. Today, there is a 6:1 demand to supply ratio for new college graduates in supply chain management. Competition is intense and there is a lot of effort to attract the best and brightest from college recruiting; however, the larger issue is with the retention of mid-management talent.

"Working on the Right Stuff? In short, we need to broaden our scope. The current focus is on recruiting college graduates and high-performing talent with little attention being given to middle-management talent development. Only 23% of companies responding to the study have a planned cross-functional training program for existing employees. This study points out the need for skill development in the areas of training and career progression to give employees cross-functional breadth."

Cross-training appears to be a particularly important activity for the development of middle managers and C-level executives. Teague discusses "a McKinsey report on the ideal profile" for a Chief Financial Officer. He indicates that the study identifies four profiles, "finance expert, generalist, performance leader, and growth champion – and described in general how CFOs can plan their careers around each." Teague believes each of those profiles applies equally to Chief Procurement Officers and probably wouldn't quibble that other supply executives need those talents as well. Teague concludes, "The two talents that seem to be common throughout all profiles are the ability to be flexible and the ability to inspire."

As noted above, Robert J. Bowman is another observer who believes that there is a growing talent shortage. "The field of candidates who can tackle the challenges of global supply-chain management today remains alarmingly sparse," he writes. ["Bridging the Talent Gap in Supply-Chain Management," SupplyChainBrain, 30 september 2013] He then refers to Jake Barr's comments at the Supply Chain Insights Global Summit and labels the situation "a crisis." He continues:

"Barr said the roles that require the most brainpower and technical expertise are going begging. At the same time, the rate of turnover is increasing, and positions are remaining open longer. What’s so hard about finding the right people in supply chain these days? It has to do with the growing complexity of the job. Many older specialists came out of the armed forces, where the term 'logistics' was coined. Others fell into the job from former positions in marketing or operations. But modern-day supply chain management is about much more than coordinating the physical movement of goods from one point to another. It encompasses procurement expertise, supplier management, knowledge of international trade trends and regulations, information-technology prowess and customer-relationship management, to name but a few key aspects of the discipline. Making matters worse is the looming retirement of Baby Boomers and the lack of younger talent to replace them. A majority of organizations lack succession plans for critical roles, said Barr."

Bowman reports that "Barr urged companies to adopt a five-point plan." The highlights of that plan include:

"• Engage in cross-functional development, both for existing employees and new hires;

"• Work on leadership development, by identifying those individuals who have the ability to head up large-scale organizations;

"• Speed up the standardization of business processes, to make it easier to train, qualify and move people through the system;

"• Launch 'retain-and-train' efforts, in the form of educational seminars, simulations and various Web-based techniques, and

"• Challenge employees early. Deploy a 'risk-and-reward strategy,' with an emphasis on rotating people through short-term positions in developing nations."

While that plan may sound costly, Barr told Summit participants, "It takes 200 percent of fully loaded cost to bring someone in to fill after you lose them." Bowman goes on to highlight what other panel members discussed.

Joe Krkoska

"Joe Krkoska, director of global supply chain with Dow AgroSciences LLC, said the talent-gap dilemma is 'brewing' at his company, which requires a highly specialized level of knowledge. A first step, said Krkoska, is convincing imminent retirees to stick around a bit longer, and focus on mentoring incoming talent. He said companies are reaping the consequences of the downsizing that took place during the depth of the recession. As a result, there’s a 'void in the population. [New hires] are going to have to accelerate like crazy to get to the level you want them to perform at.' Seventy percent of an adult employee's training is acquired by actually doing the job, said Krkoska. Companies need to emphasize real-world experience, by bringing together seasoned managers and new talent to shadow them."

Cindy Urbaytis

"The average company spends only about $650 per person per year on training, said Cindy Urbaytis, vice president and managing director of the Institute for Supply Management. That's despite the dramatic increase in skills and responsibilities that are needed to do the job. She said individuals shouldn't be left alone to develop their abilities. 'If there's no support and encouragement, it's just not going to help.'"

Patrick Curry

"Patrick Curry oversees skills development and university relations for the Integrated Supply Chain organization of IBM. Emerging from a two-year hiring freeze, the company found itself 'late to the game' in recruiting, he said. The schools on which IBM normally relied for graduates were 'sold out,' said Curry. 'They had zero supply-chain talent for us. To meet the hiring target, we had to go to 35 universities.' In the past, much of IBM's talent pool had come from engineering backgrounds. Now the company had to ramp up hires that were skilled in finance and business management. In the process, it began working to shape curriculums, in some instances all the way back to high schools. At that level, the company found an alarming lack of awareness among counselors and students alike. 'No one's talking about supply chain as an option,' Curry said. IBM has launched six talent-development programs, aimed at various levels of management. A 'global buddy' initiative matches veterans and newcomers in a mentoring effort, frequently centered outside the U.S. Participants stress the value of having learned about the global aspect of business, Curry said."

Nick Little

"From the perspective of universities, the talent gap can be a plus. 'Our graduates are over-subscribed,' said Nick Little, assistant director of executive development programs at Michigan State University. 'They're able almost to dictate salaries.' These days, he said, holders of degrees in supply-chain management can command better starting deals than their counterparts in finance and marketing. Continuing education for older managers is equally important, Little said, adding that Web-based programs are growing in popularity. 'We're helping them to understand the new requirements,' he said. 'In the future, there's going to be a vast increase in online learnings for people with gaps in knowledge and experience.'"

Bowman concludes, "For those keen on pursuing a career in supply chain, the job market is wide open." The picture is not quite as rosy for companies looking for supply chain talent (especially, middle management talent). If your company hasn't already put in a place a plan like the one recommended by Jake Barr, it should establish one now.

October 17, 2013

Working on Top of the World: The Arctic Opens Up

A couple of years ago, Andrew E. Kramer wrote a story in the New York Times about an "an ice-free passage" across the stretch of Arctic Ocean that borders Russia's northern border. ["Warming Revives Dream of Sea Route in Russian Arctic," 17 October 2011] Kramer reported that a decade earlier "an ice-free passage, even at the peak of summer, was exceptionally rare." He goes on to report that, as a result of the shrinking Arctic ice pack, "companies in Russia and other countries around the Arctic Ocean are mining that dark cloud's silver lining by finding new opportunities for commerce and trade." Kramer quotes Vladimir V. Putin, who declared, "The Arctic is the shortcut between the largest markets of Europe and the Asia-Pacific region. It is an excellent opportunity to optimize costs."

Arctic Ocean 03China would certainly like to take advantage of the Arctic passage which is called the Northeast Passage if you head east across Canada and the Northwest Passage if you head west across Russia. Tom Mitchell and Richard Milne report that "the journey via the Bering Strait could shave as much as 15 days off the traditional route through the Suez Canal and Mediterranean Sea." ["Chinese cargo ship sets sail for Arctic short-cut," Financial Times, 11 August 2013] They reported, "The Yong Sheng, a 19,000-tonne vessel operated by state-owned Cosco Group, set sail on August 8 from Dalian, a port in northeastern China, bound for Rotterdam." The ship arrived in The Netherlands on 10 September. In a later article about the Yong Sheng's voyage, Mitchell and Milne reported, "Another benefit of regular shipping services through the Northeast Passage was dramatically illustrated halfway through the Yong Sheng's voyage. As she sailed across the East Siberian Sea on August 31, one of her sister vessels, the Cosco Asia, was attacked in the Suez Canal." ["First Chinese cargo ship nears end of Northeast Passage transit," Financial Times, 6 September 2013] Despite Putin's endorsement of the route, Mitchell and Milne report that not everyone is as sanguine about the passage's future as he is. They explain:

"Despite the passage's allure, most shipping executives and analysts remain sceptical about the dream of an industry transformed by regular summer services across the top of Russia. While the number of 'polar transit permissions' granted by Russian authorities has grown dramatically since 2010 – to more than 370 this year – only about 20 per cent of them were for full transits of the 5,400km route."

The latest news concerning the passage involves a Danish ship, the bulk carrier Nordic Orion, which was "the first commercial bulk carrier to traverse the route since the SS Manhattan broke through in 1969." ["Danish firm seeks to be first to bring bulk carrier through Northwest Passage," by Wendy Stueck, The Globe and Mail, 19 September 2013] Stueck reports that the "Nordic Orion was loaded with coal at a Vancouver terminal. From there, it headed to Finland" where it pulled into port in early October. The staff at The Maritime Executive reports:

"The North West Passage across the Arctic is shorter than the traditional route through the Panama Canal and thereby has the potential to generate important saving in both time, fuel and CO2 emissions. Christian Bonfils, [Managing director in Nordic Bulk Carriers A/S], explains. 'The North West Passage shortens the distance with 1.000 nautical miles. This results in a reduction in fuel consumption and transportation time – and it also means lower CO2 emissions. The fuel savings alone add up to approximately USD 80,000.' In addition this new route allows full utilisation of the ships capacity and thereby carries 25% more cargo than through the Panama Canal. It takes more than an average ship to sail the North West Passage. The trip across the Arctic is a challenging task that requires great experience, navigational skills and modern world class ships. In fact, there are only a few vessels which can handle the task." ["Historic Sea Route Opens Through Canadian Arctic Waters," 25 September 2013]

Per-Ola Karlsson and Laurence C. Smith report that it is not only shipping companies that are planning to take advantage of the shrinking Arctic icecap. "As the ice recedes in the Arctic," they write, "talk of industry entering the region to take advantage of its economic opportunities is on the rise. The territories contain significant natural resources, including conventional hydrocarbons (natural gas, condensate, and oil), metals, fish, high-value minerals such as diamonds and rare earths, and fresh water." ["Is the Arctic the Next Emerging Market?" Strategy + Business, 27 August 2013] They continue:

"But many of those who wish to develop the region overlook the primary truth about it: It is an emerging market. To be sure, as one of the last of the true wildernesses remaining in our world, the Arctic is a uniquely challenging environment. But it is not empty. It is home to some 4 million people comprising a broad range of cultures — and an economy worth about US$230 billion annually. The land is inhabited by more than 40 ethnic groups, such as the Sámi of northern Scandinavia, the Evenki of Russia, and the Inuit of Canada. In Canada, Greenland, and the United States, in particular, local control by aboriginal communities and regional business corporations can be substantial. Most of the Arctic region is governed under existing national structures and international frameworks similar to those in other areas of the world. It’s not the northernmost equivalent of the next frontier, waiting to be conquered by big business or governments desperate for resources. Adding to the complexity, the interested parties don't yet possess the technology or know-how to access the Arctic’s resources in a sustainable way. "

If you want to read more about the resources in the Arctic and who's going after them, read my posts Search for Resources at the Top of the World and Attention to the Cold Arctic Heats Up. Karlsson and Smith conclude, "The Arctic region will require novel, cooperative solutions to overcome these challenges to sustainable economic development. The time to act is now: The resources locked in the Arctic could shift the balance of energy supply and demand in the world in important ways." I certainly won't argue with that conclusion.

October 16, 2013

The Impact of Omnichannel Operations on the Supply Chain

At the end of my post entitled Surviving in the Omni-channel World, I indicated that, in a later post, I would discuss the impact of omnichannel operations on the supply chain. In that post, I quoted the editorial staff of SupplyChainBrain who wrote: "With more customers shopping online and on their mobile devices, it seems imperative that retailers offer different channels for fulfillment to not only keep prices low, but to remain competitive and foster customer loyalty." ["Multichannel Fulfillment Is The New Normal," 11 March 2013] Dave Kilzer, senior vice president of supply chain solutions with Idhasoft, told the SCB staff that many companies fail to understand the nuances between "all-channel" and "omnichannel" operations. He stated that omnichannel "describes a distributor's ability to provide an equally high level of service, regardless of the means by which product is purchased or shipped. All-channel can result in excess inventory, physically separated and unable to cross boundaries to meet the needs of the moment. Omni-channel, by contrast, makes it possible to hold inventory in multiple locations while treating it in one coherent 'bucket'." ["'The 'Omni-Channel' - and Its Implications for the Supply Chain," SupplyChainBrain, 11 July 2013]

As I understand it, the differences between all-channel and omnichannel operations described by Kilzer rest on a distributor's ability to tap all sources of supply regardless of where they are located. The article helps explain this:

Omnichannel Fulfillment"The two concepts involve different rules of allocation, and the supporting technology has to recognize that. It's getting to the point, says Kilzer, 'where much of fulfillment in e-commerce is now being fueled, not from a DC, but from the backroom of a retail location.' In essence, the distributor is reaching all the way to the store shelf. The setup requires pinpoint visibility throughout the distribution chain, including the ability to manage the 'black hole' that is created when a consumer takes product off the shelf and moves to the checkout stand. 'Those two seconds are how tightly inventory has to be tracked,' says Kilzer."

Clearly, successful omnichannel operations involve a number of technologies that can track supplies in real-time as well as predictive analytics that ensure supply is going to be able to meet demand. That's why Ann Grackin, CEO of ChainLink Research, told the SCB staff that "more dollars are being spent on operational challenges: customer experience touch points (single view of the customer, POS, store and web design); IT infrastructure challenges from web to wireless in the store; and supply chain – which includes inbound merchandise allocation, replenishment, inventory management, and fulfillment to the customer." ["Supply Chain Takes Its Power Position in the Retail Industry!," SupplyChainBrain, 11 March 2013] If, as the SCB staff claims, omnichannel fulfillment is the new norm, it should come as no surprise that the staff believes that the supply chain now sits in a new power position. To ensure that supply chain professionals make the most of their empowered position, the ChainLink analysts assert that those professionals need to ensure they have the following technology tools in their kit:

"• WMS –Various warehouse technologies to support inventory management and omnichannel fulfillment. The past model of web-only or catalog-only inventory infuriates potential buyers. Amazon has shown the way: pass-through shopping with inventory status from partners – merchants and manufacturers to locate the specific products – puts private label retailers to shame. Private label, who own the end-to-end – from manufacturers through to point of sale – still can’t provide seamless inventory locating and fulfillment. Yet Amazon can, without owning the back of the supply chain. Voila – collaboration and process mastery!

"• Source tagging and B2B transacting – RFID, bar-coding and EDI will continue to grow to provide seamless communications and visibility across the trading network.

"• Transportation and Trade – Logistics technology and process methods such as collaboration for carrier consolidation to reduce inbound coordination and bottlenecks.

"• Mobile and Wireless – Our research showed more mobile for supply chain than the shopper experience! End-to-end visibility, coordination with third-party services, direct store delivery, and same-day service to customers will grow. Wireless infrastructure in stores will grow not only to support mobile checkout and tablets for sales assistance but store operation such as inventory management and pricing.

"• Demand Management – Demand process and technologies continue to evolve. One method yet to master is how to make sense out of the great customer insights coming from social. There are solutions that provide these, but they are 'newbies.' Few traditional demand forecasting players provide these – at their peril. Retailers and brand companies are reaching beyond the traditionalists to access these.

"• Social Enterprise – There are three flavors of social: one for customer facing marketing and customer support; one for B2B collaboration; and one for knowledge sharing in the enterprise. The latter two we call Enterprise Social Networking. Retailers will begin to understand the differences and not just use social for marketing."

Research conducted by SD Retail Consulting concluded that, despite the impact that omnichannel operations will have on the future survival of businesses, many large companies have been slow to adapt. ["Largest Retailers Slow to Adapt to Needs of Omni-Channel Shopping Environment, Study Finds," by SD Retail Consulting, SupplyChainBrain, 7 June 2013] Some of the more significant findings from their research include:

"• U.S. trails U.K. for in-store pick-up of web-based orders: Only 29% of U.S. retailers surveyed have implemented in-store pick-up options, and a mere 24% are planning to unveil a pilot program by late 2013. These figures represent a stark contrast to U.K. retailers, where 78% of retailers surveyed have deployed in-store pick-ups. U.K. retailers continue to improve on the convenience of in-store pick-up programs, testing additional benefits such as free parking for customers who pick up during morning business hours

"• Mobile POS Is Rare: Only 18% of U.S. retailers have implemented mobile POS systems across a significant portion of their stores, and in most of those cases, retailers have only rolled it out to select groups of stores, rather than entire chains. Further, mobile POS is still typically utilized for only one or two specific uses (i.e., line busting or search/assistance within specific departments), rather than leveraging the full extent of its capabilities (CRM, labor scheduling, traffic counters, etc.)

"• Store staff are not getting effective cross-channel training: 80% of U.S. and U.K. retailers said they have not invested sufficiently in training their staff on how to handle multichannel customers in-store, whether on how to handle 'show rooming,' competitive price-matching, in-store pick-up requests, or addressing specific product knowledge customers may have gained from the web. Additionally, fewer than 25% of retailers surveyed indicated that their field management was providing the leadership necessary to drive improved productivity through their physical stores in this new multichannel environment

"• No store associate incentive and recognition for cross-channel selling: Less than 10% of retailers surveyed are currently compensating their associates in some way that recognizes their contribution to cross-channel sales. Retailers with cross-channel customers acknowledge that while the store may not ring the sale, their associates play a critical part in driving company top-line sales, yet methods for compensating employees for contributing to the sale by servicing the shopper in-store (before they actually transact on-line) have yet to be formalized."

What clearly pops out to me is that visibility and collaboration need to be improved dramatically if omnichannel operations are to succeed. In order to achieve the necessary level of collaboration, new key performance indicators need to be developed that take in account new digital paths to purchase that are being embraced by many consumers.

October 10, 2013

Surviving in the Omni-channel World

Erik Brynjolfsson, Yu Jeffrey Hu, and Mohammad S. Rahman believe that mobile technology is forever changing the face of retailing. They write, "Recent technology advances in mobile computing and augmented reality are blurring the boundaries between traditional and Internet retailing." ["Competing in the Age of Omnichannel Retailing," MIT Sloan Management Review, 21 May 2013] As a result, they assert that "retailers [can] interact with consumers through multiple touch points and expose them to a rich blend of offline sensory information and online content." The editorial staff at SupplyChainBrain agrees that mobile technology has changed the retail landscape, and the staff insists that interactions with consumers are just as critical after the sale as before the sale if they are to remain happy and loyal. "With more customers shopping online and on their mobile devices," it writes, "it seems imperative that retailers offer different channels for fulfillment to not only keep prices low, but to remain competitive and foster customer loyalty." ["Multichannel Fulfillment Is The New Normal," 11 March 2013]

Brynjolfsson, Hu, and Rahman believe that technology has finally reached the tipping point in the retail arena. They describe the new business landscape this way:

Omnichannel marketing"In the United States today, more than 50% of cell phone owners have smartphones, and more than 70% of these have used their devices for comparison shopping, a habit that is becoming increasingly common worldwide. In the past, brick-and-mortar retail stores were unique in allowing consumers to touch and feel merchandise and provide instant gratification; Internet retailers, meanwhile, tried to woo shoppers with wide product selection, low prices and content such as product reviews and ratings. As the retailing industry evolves toward a seamless 'omnichannel retailing' experience, the distinctions between physical and online will vanish, turning the world into a showroom without walls. The retail industry is shifting toward a concierge model geared toward helping consumers, rather than focusing only on transactions and deliveries."

It doesn't take much imagination to envision the challenges and complications created by this new retail landscape. Although analysts seem to be in agreement that retailers must adapt to this omnichannel world or risk extinction, "some of the largest U.S. and U.K. retailers [have been] slow to adapt their store operations to changing consumer buying habits, according to a study by SD Retail Consulting, a retail advisory firm and unit of Hilco Trading, LLC." ["Largest Retailers Slow to Adapt to Needs of Omni-Channel Shopping Environment, Study Finds," by SD Retail Consulting, SupplyChainBrain, 7 June 2013] Antony Karabus, president of SD Retail Consulting, stated, "The largest retailers must examine every customer touch point and how they play their part in creating that seamless customer experience. For the minority of retailers who are successfully transforming their store environments, the rewards will be substantial."

Charles Hunt, owner of Duvet and Pillow Warehouse, a fast-growing online retailer, told reporters from The Economist, "'Multichannel' (or even better, 'omnichannel') is something almost every self-respecting retailer wants to be. It means letting customers shop with smartphones, tablets, laptops and even in stores as if waited upon by a single salesman with an unfailing memory and uncanny intuition about their preferences. Pure-play internet vendors are good at this. But most resist the idea that actual stores, with their rents, payrolls and security cameras, ought to be one of those channels. The thought of having the same costs as bricks-and-mortar competitors 'scares the living daylights out of me'." ["Mixing bricks with clicks," 23 March 2013] Hunt clearly spots the sorest point in omnichannel operations — the differential costs between online and brick-and-mortar operations.

Another sore spot, however, is omnichannel alignment. McKinsey & Company analysts Duarte Braga, Paul-Louis Caylar, and Pascal Griede, note, "At many companies, ... channel conflict or poor coordination gets in the way of true multichannel harmony. Successful multichannel leaders understand the importance of flexibility – helping customers shift between channels at the different steps of their decision journey to achieve the experience they want." ["A symphony of separate instruments: Cross-channel and online sales," Telecom, Media, and High Tech Extranet, 24 October 2012] Braga and colleagues note companies that began as brick-and-mortar stores are sometimes as reluctant to enter the online market as Hunt indicates he is to enter the brick-and-mortar arena. This kind of reluctance can result in the disharmonies noted by the McKinsey analysts. They conclude:

"No company today would neglect digital sales altogether. Yet many still view these efforts as sideshows to their 'real' business in stores. By taking smart advantage of the range of digital platforms currently available, retailers can delight customers both inside and outside their stores, while harvesting valuable consumer insights. Going a step further to integrate these digital channels within a truly multichannel strategy can boost performance across all channels – whether online or offline."

Brynjolfsson, Hu, and Rahman report how "the availability of product price and availability information, the ability of consumers to shop online and pick up products in local stores, and the aggregation of offline information and online content have combined to make the retailing landscape increasingly competitive." They note that "retailers used to rely on barriers such as geography and customer ignorance to advance their positions in traditional markets. However, technology removes these barriers." For brick-and-mortar stores location still matters in two ways. The most obvious way that location matters is, of course, ensuring that a store is located in an area easily accessible and desirable to shoppers. In the mobile age, Brynjolfsson, Hu, and Rahman point out that location also provides an advantage when shoppers are nearby. They explain:

"The growing prevalence of location-based applications on mobile devices is a critical enabler of these changes. According to the Pew Research Center, 74% of U.S. smartphone users used their phones to obtain location-based information in 2012. Retailers are taking advantage of opportunities created by location-based applications. Walgreens, for example, has teamed up with Foursquare, a location-based social networking website, to offer customers electronic coupons on their phones the moment they enter a Walgreens store. Saks Fifth Avenue has also worked with Foursquare to steer consumers toward physical locations by offering goodies (such as high-end brand Nars lipstick). Macy's offers free Wi-Fi in its stores; consumers can scan QR codes on products to see online product reviews, prices and exclusive video content on fashion trends, advice and tips. In some cases, the location-based applications aren't managed by the retailers but by third parties. For instance, RedLaser, an eBay company, allows consumers to scan UPC codes to determine whether specific products are available nearby and at what price. Mobile applications themselves are becoming increasingly advanced. For example, Loopt, of Mountain View, California, provides real-time location-based services aimed at specific users and popular locations. Retailers can use Loopt as a virtual loyalty card, allowing them to connect directly with consumers based on their location. Loopt users can find friends nearby and receive coupons and rewards for checking into specific locations. Another app called Doot enables users to leave public or private messages for friends or family members at restaurants or stores; the messages are activated when the designated people reach the sites."

Brynjolfsson, Hu, and Rahman offer seven strategies for achieving successful omnichannel retail operations. They are:

1. Provide attractive pricing and curated content.

2. Harness the power of data and analytics.

3. Avoid direct price comparisons.

4. Learn to sell niche products.

5. Emphasize product knowledge.

6. Establish switching costs.

7. Embrace competition.

They conclude:

"Technology is making omnichannel retailing inevitable and is reducing the ability of geography and ignorance to shield retailers from competition. It is breaking down the barriers between different retail channels as well as the divisions that separate retailers and their suppliers. At the same time, omnichannel retailing expands the overall pie by extending market reach and introducing consumers to products they may not have known about. Supply chains that generate increased consumer value are likely to win in the long run. More transparency is likely to speed up this process, leading to more of a 'winner-take-all' effect. As a result, retailers and manufacturers will need to find an area where they are truly the world’s best, as opposed to just working harder to hide from competition. With omnichannel retailing, competition will increase on many fronts, but so will the opportunities for savvy retailers and supply-chain partners to gain competitive advantage."

Omnichannel operations for many companies will result in smaller retail stores and larger distribution centers. I will discuss the backend impacts of omnichannel operations on the supply chain in a future post.

October 09, 2013

Millennials: Getting to Know You

Back in 1951, when Oscar Hammerstein II and Richard Rogers wrote their now-famous tune "Getting to Know You," they weren't thinking about marketers' love affair with consumers. Nor did they ever dream about how intimately marketers could actually get to know consumers. Nevertheless, marketers embrace the sentiments contained in Rodgers and Hammerstein lyrics:

MillenialsGetting to know you
Getting to know all about you
Getting to like you
Getting to hope you like me

As marketers get to know consumers, differences in generation product preferences quickly become clear. For example, back in 2012, Jefferies, a global investment bank, and AlixPartners, a global business advisory firm, released a study entitled Trouble in Aisle 5 that concludes there is a dividing line between baby boomers and millennials (sometimes referred to as Generation Y). ["Millennials' Grocery Consumption Patterns to Vastly Affect Food, Beverage Industry, Study Finds," SupplyChainBrain, 3 July 2012] Presumably Generation X individuals lean either towards their parents preferences or towards their children's preferences, because you don't read a lot about Gen Xers as a huge marketing target. In fact, the generation getting most of the attention nowadays is Generation Y — the so-called millennials. As the staff at ZOG Digital tells retailers and manufacturers, "Millennials are likely within your target audience." ["Marketing to Millennials: Just be Real, Dude," 3 July 2013] Here's how the ZOG Digital staff defines who is included in the term "millennials":

"The exact definition of 'millennials' varies, but it generally encompasses anyone between the ages of 18 and 30. Described as 'digital natives' by eMarketer, these consumers grew up with advancing technological opportunities. They may remember their parent's old brick car phone or beginning computer classes in grade school, but largely, they emerged from their teen years with a solid grasp on the Internet and all surrounding devices. Now, millennials are not only the creators of many social media networks, but they are – as a whole – early adopters who exemplify it. Just take a look at the average age of users on six of the most popular social networks – the typical user on Facebook, Twitter, Pinterest, YouTube, Google+ and Instagram falls within the late teen to early thirties age range. Millennials are the influencers you are looking to identify and engage with in order to increase visibility."

To learn more about "influencers," read my post entitled Do You Know Who Your "Influentials" Are? Lucia Moses notes, "Millennials are different from their parents, at least when it comes to spending. The Shullman Research Center surveyed adults with a household income of $75,000 plus on their spending plans and habits, and found that those age 18-33 were more optimistic about their financial situation and planned to spend more than their older counterparts." ["Wealthy Millennials Approach Shopping Differently Than Their Parents," AdWeek, 3 September 2013] The latest quarterly MarketPulse report from Information Resources Inc. confirmed the optimistic outlook of millennials: "The report found that 28% of millennials feel their financial situation has improved in the past year, vs. 20% of those aged 25-54 and 16% of those age 55 and older. In addition, 42% of millennials expect their financial position to improve in the coming year, vs. 26% of those aged 35-54 and 17% of those aged 55 and older." ["Shopper Sentiment Improves: Report," Supermarket News, 6 August 2013]

According to Moses, millennials are more likely to buy online but less likely to use credit than preceding generations. So what else has Big Data analysis taught us about millennials? AlixPartners analysts report:

"Based on the most recent projections by the U.S. Census Bureau, millennials over the age of 25 (the age at which income and household formation typically start to really accelerate) will make up roughly 19 percent of the U.S. population by 2020, up from just over 5 percent in 2010. These 64 million millennials will see a significant spending-power increase in the coming years as the median income for those households is expected to jump to more than $45,000 from just over $28,000. In fact, the study finds, food-at-home spending by Millennials is set to jump by $50bn annually through 2020. By contrast, the baby boomer generation, which has had an outsized influence on consumer trends for decades, will fall to below 20 percent of the population in the next eight years." ["Millennials' Grocery Consumption Patterns to Vastly Affect Food, Beverage Industry, Study Finds," SupplyChainBrain, 3 July 2012]

Brad Tuttle agrees with that analysis. "The millennial generation," he writes, "is easily the most studied demographic since ... the Baby Boomers." ["Millennial Shoppers: Big on Browsing, Not Splurging," Time, 11 September 2013] He continues:

"This is not only because Americans are always fascinated by youth culture, and that millennials are growing up during a period when technology and economic forces are changing rapidly, but also because — to put it bluntly — Gen Y represents big bucks. Roughly 80 million American millennials spend $600 billion annually, and by 2020, it's expected this generation's spending will hit $1.4 trillion per year, or about 30% of all retail sales. No wonder retailers, marketers, manufacturers, and all kinds of consultants have been trying so desperately over the years to get inside their heads and find out what it is that interests them — and what they'll pay for."

Analysts obviously don't agree on everything about millennials. As noted above, some analysts predict that millennials will spend more than older consumers; but, others claim they will spend less. Tuttle notes that recent studies about millennials have been published by "the NPD Group, Accenture, and the Shullman Research Center." He reports, "In a press release accompany the NPD report, Marshal Cohen, the group's chief industry analyst, called millennials 'the most elusive generation and the most challenging to keep engaged.' While some of the findings in the studies from NPD and others may be surprising, and demonstrate important cultural differences between how millennials and other age groups spend, simple economic circumstances can be credited for much of what sets young consumers apart. For instance, why is it that millennials go shopping quite frequently, but purchase at a significantly lower rate than older consumers? 'Because they are the most selective as well as the most economically challenged,' Cohen put it simply." Tuttle provides a few more insights about millennials drawn from these studies:

  • "Millennials really love to shop. Indeed, in the Shullman study, 58% of consumers ages 18 to 33 put themselves in the 'love to shop' category, compared to 40% of adults overall. And while the data indicates that millennials are more likely to make online purchases than older consumers, young shoppers still do enjoy going to stores. According to the NPD report, 53% of millennials shop in-store at least once a week, and 81% of their dollars are spent in brick-and-mortar stores. 'Interviews conducted recently at one of America's largest shopping malls confirmed our survey findings that many members of the digital generation actually prefer visiting stores to shopping online,' the Accenture report states."

Lorraine Mirabella provides additional evidence that millennials may save brick-and-stores from the onslaught of online retailers. "Buying almost anything online may be as much second nature as texting for many in the first generation to have grown up with e-commerce," Mirabella writes, "but the millennials still do most of their shopping in stores, especially those that keep their offerings fresh and make the experience social, according to research from the Urban Land Institute." ["Gen Y shoppers, raised on e-commerce, still prefer in-store experience," The Baltimore Sun, 7 September 2013] Tuttle's next descriptive trait involves shopping frequency.

  • "Millennials purchase less frequently. Young consumers may be out at stores in large numbers, but they're not necessarily buying anything. According to the NPD study, the conversion rate — percentage of consumers who actually make a purchase — is lowest among millennials. Whereas seniors make purchases 72% of the time, millennials pull the trigger only on 57% of their shopping (more like browsing) ventures. Gen X and Baby Boomers fall in the middle, with conversion rates of 66% and 69%, respectively."

Maureen McAvey, senior resident fellow for retail for Urban Land Institute, told Mirabella, "Retailers are keeping a close eye on the millennials' buying habits because it's becoming clear that they are not just a younger version of their elders, but a different shopper altogether." That's why it's so important that retailers get to know them better. Tuttle's list continues:

  • "Even well-off millennials aren't big splurgers. The Shellman study, which focused on young consumers with household incomes of at least $75,000 annually, found that for 53% of higher-income millennials, their last 'luxury' purchase cost under $250. What's more, these consumers were fairly likely to wait and save up before buying anything in the luxury category: 30% reported saving up specifically for the purchase (compared to 16% of adults overall), and only 10% of millennials put the purchase on a credit card (compared to 19% of adults overall)."

Suley Muratoglu, Vice President for Marketing and Product Management at Tetra Pak, reports, "Millennials represent the fastest-growing segment of luxury goods and services purchasers, according to a recent study by American Express. Yet they are also giving rise to a new lifestyle that can be characterized in two words: frugal and green." ["Millennials’ Frugal And Green Lifestyles Raise The Bar For Brands," Manufacturing.net, 29 May 2013] Muratoglu continues:

"To splurge on the high-quality items they covet, especially just-off-the-line electronics, Millennials scrimp in other areas. But even as they look for coupons, sales and promotions and stray from well-known brands to keep their cash-strapped budgets in check, they choose 'makers and products that are socially responsible. … fair-trade and offer lower carbon footprints,' notes Ana Nennig, EVP of global consulting firm Havas PR. What's more, packaging, which has long been part of the green discussion due to concerns about food waste, sustainability and recyclability, is center stage again. But this time consumers are considering it in a more holistic way to embrace and fulfill this young group's unique views on frugality and social responsibility."

The last item on Tuttle's list addresses the frugality of millennials:

  • "They’re big fans of convenience and cheap prices. It's easy to see economic forces at work yet again in light of the NPD study's findings that 'value oriented retailers within the dollar store, second hand, drug store, and off-price channels' are especially appealing to millennial shoppers. Another study, 'Millennial Shoppers: Tapping into the Next Growth Segment,' released last summer by SymphonyIRI, indicated that millennials tend to be driven more by cheap prices than loyalty to any particular brands, and that they like shopping in drugstore chains like CVS and Walgreens more than other consumer demographics."

The millennials' reputation for frugality led McAvey to tell Mirabella, "'Many people speculate this is going to be the sharing generation,' more apt to rent a zip car or ride a bicycle than buy a car or use a tie-sharing service rather than having a closet full of the accessory. ... 'It's not clear that they wish to acquire as much stuff as their parents did, and retailers are very interested in what they're going to do.'" Tuttle further reports, "The SymphonyIRI survey also showed that millennials have been resorting to classic DIY strategies in order to spend less money, sometimes — in the case of health care — to disturbing degrees:

'This group is 46 percent more likely to use at-home beauty treatments to save money, and 31 percent more likely to cook from scratch or with limited convenience foods to save money. They are also 18 percent more likely to 'self-treat' where possible to avoid spending money on doctor's visits.'

The bottom line appears to be that millennials are becoming an economic force to be reckoned with but extracting money from their clenched fists may prove more difficult for retailers than it has been to get money from previous generations.