Subscription-based Supply Chains: More than a Niche Online Play

This is an excerpt of the original article. It was written for the March-April 2015 edition of Supply Chain Management Review. The full article is available to current subscribers.

March-April 2015

Anyone who’s ever bought a house knows the realtor’s motto: Location, location,location. It’s the most important factor in determining the value of a property. Based on the press releases that come across my desk these days, supply chain’s motto is: Innovate,innovate, innovate. This issue includes approaches to inventory optimization, contract management with third party logistics providers and contract manufacturers, and the Goldilocks approach to supply management—an innovative concept aimed at keeping your procurement department from running too hot or too cold.

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The last seven years have been disruptive for traditional retailers and manufacturers of branded products. A convergence of factors has made it challenging to expand sales and maintain strong margins. Most notably, the Internet has shifted the balance of power to consumers with home delivery convenience, readily available product evaluations, access to a wider array of sellers, and price transparency.

The resulting challenges to the seller are clear. Savvy, service-focused consumers may be less loyal to specific retailers or brands. Year-over-year sales growth can no longer be presumed. In short, it has become difficult to maintain a strong following of “sticky” consumers—those who follow through on intended purchases, buy a product repeatedly, and recommend it to others.

Internet-enabled supply chains provide an innovative opportunity to boost stickiness, enhance fulfillment performance, and drive higher profits. Highly regarded companies are establishing subscription-based supply chains (SSC) to create consumer-friendly auto-replenishment processes that simplify purchase decisions and product access for time-starved shoppers. The Internet-based SSC strategy presents an opportunity to attract consumers to convenient prepaid, fixed-duration purchase agreements. However, success can only be achieved when supply chain professionals create efficient SSC fulfillment processes that provide consistent, hassle-free product delivery to customers’ front doors.

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