Bob Trebilcock: Welcome to The Rebound where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post-COVID world. This podcast is hosted by Abe Eshkenazi, CEO of the Association for Supply Chain Management and Bob Trebilcock, Editorial Director of Supply Chain Management Review. Remember that Abe and Bob welcome your comments. Now to today's episode.
Bob: Welcome to today's episode of the rebound: The Future of Retail Fulfillment. I'm Bob Trebilcock.
Abe Eshkenazi: I'm Abe Eshkenazi.
Bob: Joining us today is Craig Jones. Craig is a Senior VP of Global Logistics at Under Armour. Craig, welcome.
Craig Jones: Hi, guys. Nice to see you again. Nice to meet you again. I'm looking forward to the conversation.
Bob: Great, so are we. As if retailers and distributors like Under Armour didn't have enough on their plates already, the pandemic has changed the game for retail fulfillment. Of course, the shift from brick-and-mortar-focused supply chains to customer-focused supply chains has been underway for several years. With the explosion and e-fulfillment during the shutdown, brands like Under Armour have had to put the pedal to the metal and accelerated changes maybe they already had planned. Today, Craig is going to share with us some of his experiences at Under Armour, an iconic athletic wear company - I'm wearing some now - over the last six months and where he sees the industry going in the future. Let's get started.
Craig, you and I had a chance to chat a few weeks ago and it seems as if every retailer experienced a significant spike in e-commerce orders, which of course meant a significant spike in returns. Tell us what you experienced during the pandemic at Under Armour and how you got through it.
Craig: Great question, Bob. Like most retailers, we had a real quick pivot to online orders and it happened very much overnight. If you think about planning for holiday now, Black Friday, Cyber Monday, all of those events, we started back in March and it really happened really quickly. It happened instantaneously in the sense that people started to gain confidence with shopping online. Quite quickly, the only option to buy products at Under Armour was through the digital channel. We pivoted very, very quickly.
Of course, with all online orders became a huge influx of orders. Then we had to quickly adapt to our distribution network, and where stores closed, we adapted the stores to really drive that many fulfillment opportunity that had to service our customers. The flip side of that was a lot of returns, no more than anybody else was experiencing, but you can imagine if you're growing exponentially, managing that returns flow was a big consideration that we needed to plan in as those sales volumes grew.
Abe: Craig, it's really interesting because we've looked at the landscape for years now. Retailers have always talked about e-fulfillment as a loss leader, as opposed to a distribution strategy. That was something that you had to do, but it really wasn't as profitable as your stores because of final, last-mile delivery. As we sit here with COVID, has that changed the equation for you in terms of how you look at the distribution and work of a physical footprint versus e-commerce? Where does the balance strike for Under Armour relative to the two distribution channels? How do you service your customers who want e-fulfillment, but also want cheap it, "I want fast and I want it now." How do you service both?
Craig: Abe, that's a great question and something that Bob and I had a conversation about some weeks ago. I think it's a bit of a myth actually, and maybe I'm being controversial. We always seem to think about e-comm as a very unprofitable channel, but actually, if you really look at the cost to serve and what I mean by that is really look at the end-to-end from fulfilling an order in a transportation network, that's well established. If you get that volumetric order process right and you drop into that, you can actually become quite profitable in the sense that if you benchmark that against traditional bricks and mortar, an e-comm channel, doesn't carry those overheads. It doesn't carry those extensive leases.
If you think about retail stores in big cities, highly populated areas, it could become a challenge. Backrooms of stores are getting smaller. Commercial spaces are getting bigger. The store becomes more of a service center, a place where you promote the brand, you show the product, its benefits, its features. When you start adding the net cost of all of that additional management versus a very quick and easy streamlined parcel to the end consumer, you can absolutely make it work in both dimensions. Let's be honest, that this is a consumer-driven supply chain now. Whether you like it or not, whether you can find profitability or not, if you don't get on that train and you don't service that customer, then you're going to fall behind and you're not going to be ready for those eventualities.
Let's be honest, we hear about the Amazon effect. You can see what's going on now in COVID where digital supply chains have adapted rapidly and the consumer is driving those expectations. If I can get my food same day, next day from Whole Foods, or I can get my products from Amazon, same day, next day, then as a brand, you have to compete somewhat to that.
I think what's really important in all of this, Abe, is really understanding what the consumer is looking for because it's not one-size-fits-all, the consumer in New York City is probably wanting something very different to Baltimore and they all have different requirements. Some want it delivered to their office space. Some would like it at a commercial drop-off location, maybe at their local Walmart store or the FedEx pickup point. There's a plethora of options out there, but the point is the consumer's driving the fulfillment.
If you don't adapt to that quickly, then you'll fall behind. You've got to keep up and you've got to make changes quickly. Profitability and cost to serve can be made. You've just got to take that right decision-making in your process and really look at all options. One size does not fit all across the US, that's for sure.
Bob: Craig, it reminds me. One of the things that you had said to me in our prior conversation was for retailers who have not figured this out who have not adapted to this, the end may be near, maybe that was a controversial statement as well. Talk a little bit before I get to the economic times. Talk a little bit about that, how you see this retail landscape playing out.
Craig: Look, I think it's very difficult for anyone to forecast what-- if I'd be more specific around this year-end, this quarter that we're approaching, it's really difficult to understand how the consumer is going to behave. One thing we do know is that we don't have a vaccine and until we have a vaccine, that confidence in going into stores is still going to be top of mind for consumers. Even with a vaccine or even without a vaccine, there is still restrictions with the amount of customers you can allow in your stores at any one time.
You've got to adapt and you've got to work around that. Who knows what's going to happen in the next months ahead. We've learned a lot. A lot of retailers have learned a lot. Over the last six months, they've learnt to adapt with regards, how to social distance, how to maintain health and safety in the environment. Customers have also adapted really quickly. You've got to read those signals. You've got to listen to your consumer. We're waking up in a morning and we're looking at what's going on in the media, we're exploring what's going on out in the field. We're listening to our store managers, we're listening to our consumers and we're adapting accordingly.
You've got to have-- it's really important, I want to emphasize this more than what I'm seeing now is that, that transparency in communication internally as well as externally is key because the consumer wants to know what's going on, but also internally it's important to know what's going on and why you're pivoting in certain dimensions with regards to the COVID.
Again, if you're not on top of it, and you don't have those slim line communication channels, so you can adapt and you can move quickly and also give people decision power that are in the field in the local distribution centers to act on that behavior, you will lose a lot of ground because it's a real tough environment out there at the moment, but there is money available. Consumers have money. There is a pent-up demand and if you can drive service, if you can service the customer and reach their requirements and offer a safe environment in a transparent way that, then, you can capitalize on this; you really can.
Abe: Craig, you talked a little bit about technology, obviously supporting a lot of the decisions that are being made, organizations are assessing robotics in their distribution centers. Track and trace technologies, artificial intelligence for planning and forecasting. There's a lot on the table for a lot of organizations right now under the guise of digital transformation. Under Armour, what are you seeing as core to the investment on digital transformation, not only today, but in the future? Where's your investments right now in technology?
Craig: That's a great question, Abe. For us, and not only us, but for a lot of retailers, having cash flow and CapEx is always something we look at, and that's not during COVID. Everything that you invest has to have a return. We're obviously more prudent than ever, any investment you make, you need to really understand what that return will look like. There's a lot of companies out there, especially in the world of distribution, robotics, specifically that can help fund some of those initiatives. We've been looking at some some areas, especially in the area of robotics, but data is obviously king in all of this, we have to get better with data.
There is lakes of data out there, we have a lot of insights internally, externally with what's going on, you name it, we have everybody approaching Under Armour with data, whether that's consultancies or whether that's companies that just run those data lakes and able to articulate information and directional pointers for us. For us, we're trying to look at here and now in the sense that if you look at the landscape out there, yes, unemployment is high at the moment, but if you start to look at the unemployment and then break that down into specific skill sets that we're looking for. If you think about distribution, if you think about that picking, that packing process, we're in the playing field with the likes of Amazon, Walmart, Target, you name it, everybody's out for those resources, more so now than ever. I don't see that going away.
The days when I started at distribution of loading up a box and throwing it into a truck and then delivering it whenever the truck was full or it suits you, without technology, those days have gone, everything is visible, it's all tracked and it needs to arrive in a timely manner.
That skill set to manage these fully automated plants, these production plants that are no longer goods in and goods out, that requires a certain skill set. That is becoming more and more scarce. The more we start to lift the lid and start to look at that, there is opportunities to look at other options. I think if you look at some trends of the automation and the car industry, there you've seen this certain task in a distribution center, where you could maybe automize to some degree, some of those manual tasks, maybe that's areas like taking goods from the unloading to a pick location, maybe that's taking it from a conveyor to a put wall station.
There is some areas where building in some elements of robotics can can absolutely help take away some of that manual task but also, most importantly, free up that competent teammate to maybe do other important tasks like inventory integrity and packing out more quality in that last mile, because let's be honest, the people that are meeting the customers now are generally supply chain, teammates, they're not so much retail shopkeepers.
They're our teammates, they're drivers knocking on doors and they're delivering parcels. When that parcel arrives, it's almost an aha moment of receiving a gift and it needs to be in a very, very good quality way executed, otherwise, the damage to the brand and that customer experience is tenfold, if you will.
Abe: Craig, I commend you for identifying the duality of not only technology, but the competency of the individuals necessary to execute on it. I think too often we see technology as a silver bullet without really understanding the competencies necessary to support and engage the individual. I applaud you for that. Bob?
Bob: Thanks, Abe. I've got one more question, and then I'll Abe take you out on the last question.
Craig, one of the things I hear from, not just retailers, but everybody is saying that because of COVID, it's really accelerating plans that they might have had on their timeline for the next two or three years, they feel like they have to do it now. At the same time, capital expenditure of funds are limited. One, are you experiencing that? Two, how do you invest? How do you leverage your partners to get those capabilities you need but also control your costs and deliver service?
Craig: Some good questions, guys, you're giving me today. Bob, on that one, yes, absolutely. Maybe, just to build on what I said to Abe on a previous question. When you're spending money now, no matter what business you're in, you have to be prudent and you have to be conscious of what does that return look like? That is, like a fundamental that we have in place today. I don't speak for Under Armour, I'm sure a lot of big brands are also questioning that approach. You've got to be prudent, number one.
I think number two is that the environment is so fluid at the moment, if you talk about forecasting, if you talk about where does that channel, or where does that business go and where does it look like in the next years to come, it's very, very difficult to nail it down. Years ago you could maybe get your precision, your variability within a point one of a percent, and you could be pretty spot on, on skew level, let alone on sales levels. That fluctuation and that change in the business model is really difficult to manage.
To build a warehouse today and invest in a distribution center, you can be writing checks for hundreds of millions of dollars for that level of automation. What we've been looking at is, where can we partner up with third-party logistics companies? There's a lot of really good third-party logistics companies out there, that are willing to invest and are willing to drive technology forward. We found that we're looking at, how do we want to collaborate in that space, so that we develop a third-party model with very clear service level agreements and very clear contractual requirements, but also leverage on that speed to market and that technology.
If there is a change in the market, if there is a fluctuation, then that third party can look at alternatives within their portfolio to maybe offer some of that space in another building, bring in a different commodity to offload some of that downtime. We're trying to build that partnership because ultimately, at the end of the day, in the distribution space, we want to be competitive, we want to use distribution, we want to use logistics as a competitive advantage. I just want to just build on what Abe concluded on the previous question.
This is not about replacing people, replacing a teammate. The most important commodity we've got at Under Armour is our people, is our team. If we can build in parallel, a third-party relationship, technology, robotics, and build that together in partnership with teammates that love the brand, that love the company, if you get that together and get it working well, you can do a lot of things very, very quickly, because ultimately, again, it's about protecting the brand, it's about delivering that service. You can have the fanciest distribution center in the world, you can have the best technology in the world, but if you're not delivering to a customer promise, it doesn't matter, it's not going to work. Simple as that.
Abe: Craig, very insightful. Last question for you. You've learned a lot, as we all have through this pandemic, what do you consider the most important lessons at Under Armour? How does that guide you and your supply chain team going forward?
Craig: Thanks, Abe. Without a shadow of a doubt, transparency and openness internally and externally, is absolutely key, because that's where your vulnerabilities, your humbleness shines through. Ultimately, we want to make sure our teammates are safe, we want to make sure that the environment is conducive, not only to them, but also to the family and we take care of our business and we really pull that daily to us. We're not going to do anything that will put anybody at risk.
For us, that transparency is really important so that we over-communicate and we make sure that everybody knows wherever you are in the world, because let's be honest, this has been a global pandemic and we've had puts and takes all over the world, no matter where you are, no matter what city you're in, everyone goes through a different evolution through this drama that we've been facing. I think for us, it's been really about revisiting those business continuity, because we build business continuity for force majeure with regards a hurricane, when's the next flood? Is there going to be a building that the wall falls down?
All of that rudimentary stuff, we've always build plans, but how do you build a plan for a pandemic? Yes, we have a cyberattack, but a pandemic is very, very different. We've learnt a lot and we've listened and we've been working, not only through our own organization, we've been supporting local government agencies and we've been really getting engaged with the community. I think putting community, putting team first, that's been a good mantra that we've been following and revisiting and walking through that to business continuity. We're sharing that with our third-party companies, our logistics companies. We're trying to help each other and that's been our guiding star through this process. I'm hoping we're at the end of this and we're really hoping that the next couple of months ahead during flu season, we can march through this accordingly.
I hope everybody who is listening to this podcast also has the same success as what we're doing. I don't think anybody knows what's going to happen over the next couple of months ahead, but I think if we help each other out as an industry, if we talk to each other, support each other and take that opportunity to build support in the community I think this is going to definitely help us get through this and make us stronger as an organization moving forward.
Abe: Bob, you want to take us out?
Bob: Yes. Thank you. That's all the time we have today. Craig, thanks so much for joining us. We hope everyone who's listening will be up for our next episode. We look forward to hearing from you them. I'm Bob Trebilcock.
Abe: I'm Abe Eshkenazi. Take care everyone.
Bob: The Rebound is a joint production of the Association for Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com. We hope you'll join us again.