Chain Store Planning: The Missing Link

The 4 P’s of Marketing (Product, Price, Promotion, Place) have been around since the 1950’s.  For chain store operators, PLACE is more critical than for other types of businesses.

A better term for PLACE is DISTRIBUTION, but of course it starts with “D,” so it never made it into the 4 P’s.  DISTRIBUTION is a term used to describe what is commonly called “the supply chain” and the facilities involved in distribution are “the supply chain network.”  These facilities include factories, distribution centers, and retail stores.

There has been a great increase in the use of science in Supply Chain Management (SCM) in the last 30 years.  Sophisticated techniques in logistics management have been combined with planning tools that allow the many firms involved in the supply chain to work together based on a set of standard practices (known as CPFR: Collaborative Planning, Forecasting, and Replenishment).

Chain store operators have also been adding science to their real estate planning and site selection practices as far back as the 1950’s.  With the advent of geographic information systems (GIS), fast computers, and geo-referenced electronic data about customers, business locations, and the road network, firms are better equipped to rationalize their site selection decisions.

Somehow it never occurred to the Supply Chain people and the Real Estate people that they should collaborate in their planning processes. 

Supply chain people assume that stores are “just there” with shelves that need to be stocked, burgers that need to be flipped, or oil that needs to be changed.  They stand inside the store looking out through the glass window at the world outside.

Real estate people assume that once a store is opened their job is done and the operations people will make sure that the customers get what they came for, whether they are young, old, rich, poor, visiting at lunch or visiting on the weekends.  They stand outside of the store looking in through the glass window and hope that all is well.

Then came the internet.

The customers still like to window shop at the stores.  But they also like to window shop online.  They also like to wander around in a store while window shopping at a competitor’s store on their smartphones, checking Twitter and Facebook to see what their friends recommend.

The supply chain people keep staring at the rearview mirror of sales patterns and try to forecast demand for estimating replenishment levels.  They tweak their allocations and menus in the name of “localization.”

The real estate people keep looking into their crystal balls to forecast store sales with trade area demographics, competition, traffic counts, and site quality.  They create customer profiles weighted by distance and project sales by “day part.”

The time has come for the supply chain people and the real estate people to BREAK THE GLASS AT THE FRONT DOOR OF THE STORE and start talking to each other!

The supply chain network INCLUDES the bricks and mortar stores.

The online sales activity SHOULD HELP DETERMINE where the stores should be located.

The demographic profile of the trade area should INFORM the assortment planning process.

One thing is certain:  the collaboration of the supply chain people and the real estate people will only happen if it is initiated and led by the senior management of a company, preferably the CEO. 

Thomas Davenport of Babson College released a paper called “Realizing the Potential of Retail Analytics” that clearly makes this point:

The other key prerequisite is management interest and even passion about analytics. In many cases when interviewing leading companies, we heard comments like the following: “We have a new CEO who is a real data dog,” or, “Our company culture emphasizes fact-based decision-making.” When that management orientation is present, it’s natural to explore and develop more and more analytical processes over time. If it’s not, it may be an uphill battle for lower-level analysts to get the resources and prioritization their work needs, particularly in difficult economic times.”

It will be interesting to see who will lead this charge.  I believe that it will begin in 2012!

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