Natarajan, along with American Eagle chief operating officer Michael Rempell, talked tactics to bolster the retailer’s supply chain during the Shoptalk conference taking place this week as the small crowd that waited to meet the Harvard Business School grad highlighted how important the discipline has become within commerce organizations.
“It’s very simple. Shekar’s a great visionary leader and he deserves to be a part of our executive leadership team,” Rempell said during the American Eagle panel when the topic of supply chain executives having a seat at the executive table came up. “But also, supply chain is not a back-office function. It’s a customer-facing function. Of course, supply chain needs a seat at the table.”
Macy’s chief supply chain officer Dennis Mullahy echoed the sentiment during a talk at Shoptalk just before the American Eagle executives took the stage as he reflected on the evolution of the role within retail.
“I think if you go back, supply chain was always considered a cost center,” Mullahy said. “You built a lot of those solid straight lines between Point A and Point B.”
The considerations for supply chain chiefs are roughly the same as they’ve always been, but with added complexity. How companies have managed through the challenges has varied.
Last year “really showed how fragile the supply chain is,” Mullahy said. “When you think about the global supply chain, what happened in ’21 are all things you have heard before, but never at the scale and size, and never at the same time.”
Macy’s implemented a number of workaround strategies. It went to the transportation companies it works with to find out how its business could be prioritized, better tracked and also increase and secure capacity.
Changing up the sourcing strategy and working with manufacturers operating in multiple countries also helped create some stability when paired with analytical tracking technologies to understand the geopolitical or other risks the company might face in any given country.
“We’re using analytics in a couple different ways. One is to really drive our forecasting and demand. So, getting predictive about where inventory is going to sell as early as we can and as accurate as we can,” Mullahy said. “The second is being able to forecast what that receipt flow is going to look like and where we think the blockages are going to come.”
Macy’s also diversified away from the Port of Los Angeles’ congestion and long vessel wait times to other West Coast ports or Canada. While the transit times may have been longer via the alternatives, it was still faster than having product linger on a boat off the coast of California, Mullahy said.
The executive added those are all long-term strategies with the expectation that this year may be slightly better than the prior year in terms of supply chain challenges. However, Mullahy said he’s not looking at a possible start of a correction until next year at the earliest.
“If you think about the supply chain, none of us own end to end, everything that comes through. There’s handoffs between various partners,” Mullahy pointed out.
American Eagle’s approach to its supply chain is a bit of an anomaly within the fashion retail space, with its acquisition last year of last-mile solutions startup AirTerra and third-party logistics company Quiet Logistics. The company paid $350 million for the latter.
The concept of managing logistics in-house is beginning to have legs, however. BJ’s Wholesale Club scooped up four refrigerated distribution facilities and their associated trucking fleets from Burris Logistics. Ashley Furniture bought Wilson Logistics’ western division business and Costco acquired Innovel to boost its last mile capabilities. Meanwhile, ocean carriers such as A.P. Moller-Maersk are looking to bulk up on their logistics service offerings.
The philosophy behind acquisitions at American Eagle began pre-pandemic with Natarajan’s push to shake up what he called the traditional model for retail fulfillment.
“It might be lean, but it’s traditional retail. If you want to succeed at where the world is going, you need to run your supply chain and distribution more like Amazon, more like how the big companies in the world do it,” Rempell recalled Natarajan saying to the executive team. “So we set on a path to test our thesis.”
The idea was to test and see if inventory, labor, fulfillment and delivery could all be improved when greater control of that aspect of the supply chain was take on. When Covid hit, the team stayed the course.
The decision to acquire as opposed to building out its own logistics arm made the most sense when management weighed costs and the reality, as Rempell put it, that it would never have the same efficiencies as an existing operation.
“These strategies were a home run for us,” the COO said in retrospect of the decision to acquire.
Whether logistics acquisitions become a bigger trend among retailers and brands remains to be seen. But Natarajan sees it in another way.
“Everyone has to realize competing in supply chain is not an advantage,” he said. “Supply chains at a hyperscale are an advantage. We always forget that. What I think the future of the supply chain is, it’s not buying more assets; it’s utilizing assets better.”