Sourcing Flexibility In Today's Supply Chain Economics  

As the National Sales Director at Buy Supply, I get many calls throughout the day. On one particular morning, I received an early call from a specialty distributor customer who was in a frantic state of mind. He was seeking to source a specific and unique item for one of his best customers. It seems that this customer had seen some "garage shelving" in a big box hardware store and thought that this item would be perfect for a new project that his team was working on. The only problem was that the shelving unit that he saw had four shelves, and he needed one that had eight shelves. "No problem," he thought. "I can call the manufacturer and ask them to sell me four extra shelves! I need 250 of these units, so it is definitely in their best interest to sell the additional shelves to me, which they are already making for the units; I just need them sent separately. Problem solved!" Unfortunately, current supply chain economics can't always afford flexible solutions for business owners. 

Infinite Options But Limited Flexibility 

In a world where businesses and consumers seem to have infinite options from thousands of suppliers offering millions of products, the above scenario seems like a reasonable conversation that many can imagine having. Forgetting for a moment about things like the capacity of the shelving unit to support twice the number of shelves, the customer has a right to assume that this particular request is something that could be accommodated. The customer is not asking for anything that doesn't already exist. Plus, the demand is at a large enough volume that the manufacturer has an incentive to deviate from their usual process and packaging.  

However, as you can imagine, the customer in my story ran straight into a brick wall. After spending nearly an hour on the phone with the manufacturer, being transferred between no fewer than nine different departments and staff; having to explain the situation and his need several times, and being told eight times that the person had no idea how they would be able to handle this request, the customer was told by the final manager that the manufacturer couldn't help. The customer then tried the same thing with two other manufacturers who make a similar product, with similar results.

So, why did this customer have so much trouble getting three large shelving manufacturers to handle a simple request like this? Ostensibly, the economics of the special request were appealing to the manufacturer... 1,000 extra shelves, no packaging needed, stacked on a pallet and wrapped up, no need to send the shelves down through the supply chain and share profits with the big box retailers. But it turns out that manufacturers plan out their production of the garage shelving units way in advance. They manufacture four shelves and four posts, with the exact amount of hardware and brackets needed to assemble the precise shelving unit that comes in the box. No more, no less. There is not enough extra material left over to provide 1,000 additional shelves to one customer, with one requirement, even though it would seem to make sense economically. 

No Room For Deviation In The Supply Chain

But it goes even further. It turns out that the economics of this item are highly engineered, and they rely on a particular group of activities to happen in a certain way for the retailer to be able to sell this item in their stores for $129. The cost of making this item in a factory, shipping it thousands of miles, costs of distribution and warehousing, and profits and overhead for no fewer than four different companies means that there is NO room for any deviation from the exact planned process.  

Herein lies the rub. Down the line to the big box retailer, the manufacturers and distribution chain have gotten very big and very lean. Handling "one-off" requests are not something that anyone plans for or has systems designed to accommodate. Even a different division of the manufacturer, who handles custom requirements every day, could not help in this case because they too have a process they follow. They do not allow for sourcing what is essentially a "consumer" product for the "industrial" side of the business. There is just no "slack" left here that can allow for this type of request.

It occurs to me that the only way that almost any large distributor would handle the request would be to tell the customer that if they want a shelving unit with eight shelves instead of four, they would have to buy two shelving units and throw away the posts and hardware for one of the kits, to have the extra four shelves to use. Almost any other solution is impossible. The cost of deviating from the process is so high and involves so many different steps in the supply chain being changed and customized that it is essentially unattainable.

My takeaway from this is, are we all too big? Are we so lean and stretched that we can't handle a request that seems to be super easy? Has the economics of our complex supply chain created a situation where we cannot be flexible?  

Are We All Too Big?

Maybe some distributors are. I can think of two organizations that are over $1 billion in sales that I worked with, and I know for a fact that neither of them would have come up with a solution that would have solved the problem in anything close to an economical way. The result would have been that the customer would wind up paying at least $300 per unit to get four extra shelves for each of them. The customer could buy twice the number of units from the big box store and spend less money.   

Are We Too Lean And Optimized?

Maybe we are. The economics of large organizations and the impact of all of the efficiency and optimization that we have worked on for the past several decades have created impressive cost savings and processes that are excised of almost all waste. But at what cost? When we engineer all of our operations to do something a certain way, it becomes prohibitive to deviate from the process without someone WAY up high in the organization making a conscious choice to do it.  

Do The Economics Complex Supply Chains Not Allow For Flexibility?

In this case, it would seem that this is precisely what happened. In the end, the first solution (which none of the manufacturers or big-box chains came up with, by the way…) was to buy twice the number of units and throw away the extra posts and hardware. So in a way, the flexibility was there, and the customer had a way to get what they wanted, but they had to pay twice the price to get it.  

Another answer is to have different partners who are good at other things. There is a place for the big box store or large distributor that can move millions of widgets at peak efficiency and with the leanest operations to achieve the best cost. But please don't ask them to do anything too weird…

For one, you are going to need a partner that is smaller. Innovation, flexibility, and the ability to think outside the box are what they are best at. No request is too unusual or different, where one person can pick up the phone or walk over into the next office and talk to another person to get the customer taken care of. But don't expect that you will pay anything close to the prices that the big box partner will offer.

The other answer is to work with just ONE partner who can provide the cost efficiencies and streamlined processes of the big box company, in situations where that makes sense and is needed, but which can pivot to becoming almost a concierge dealer who can handle any request and provide nearly every customization when that is what is wanted and needed.  

Organizations that recognize that both scale and flexibility are essential and needed by our customers are the ones that will end up on top at the end of the day.