New winning model for daily consumer goods business with simplified supply chain

26.05.17 Jarmo Salonen

When you go to a hypermarket to buy food and other goods for the weekend you typically need to spend half an hour walking around, trying to find everything you need, collecting groceries and other goods into your shopping cart. Then you go and queue for a while to the cashier, unload your shopping cart to allow the cashier to scan and move your goods to the other end of the cashier where you again pick them up and put into your bag. And then you drive home with the bags.

Instead of this traditional shopping practice would you consider more tempting to be able to select your goods on the Internet, make an order with a couple of clicks and then let the service provider pick up the goods you ordered and deliver them close to you or even to your home? This is of course already possible, as several companies offer this kind of service with some additional costs, delivering your grocery order to your home or alternatively allowing you to pick a readily collected bag from the store.

However, the real big improvement opportunity is in simplifying the overall supply chain for the daily consumer goods, making it lean, cost efficient and customer friendly, allowing consumer to get the goods with less effort and cheaper price. This would mean eliminating the retail store from the chain and picking the goods directly from the regional warehouse against the customers order. Customers orders would be delivered to close by locations, where customers can easily and quickly come and receive their goods during predefined timeslots, e.g. between 4-7 pm for the orders that have been made before 10 am on the same day.

This model would eliminate many non-value adding activities from the current supply chain: goods movement from regional warehouse to retail stores, all retail store activities like receiving of goods, storing, shelving, scrapping the outdated goods etc. Also all related retails store costs (investments of retail store buildings, maintenance, equipment, personnel etc) would be eliminated. Naturally this model would require intelligent warehouse arrangements and a system for picking the goods in the regional warehouse (like e.g. Amazon has) as well as people in charge of picking the goods for the customers and sufficient set of vehicles and personnel transporting the goods from the warehouse to the customers. But the key difference and benefit in this model is that all those activities add value to the consumer, there are no multiple unnecessary handlings, movement and transportation steps as there are in the current model. Also having only few regional warehouses (located within a reasonable transportation distance from the delivery points) instead of huge number of retails stores and markets allow a significant reduction in the amount of goods becoming obsolete or spoilage. This is because you can much easier predict the demand of bigger populations served from regional warehouse than demand of small populations served from the retail stores. The manufacturers and suppliers of the goods would in this model deliver the goods directly to regional warehouses to avoid multiple sequential warehouses and movements in between them. Because of these factors this model evidently will be more cost efficient and could lead to situation that you could get your shopping cart with 80€ instead of current 100€. And you only need to place your order on the Internet and collect the goods from a close by location. This model would be suitable for the vast majority of daily consumer goods, if not all.

Interesting question is why it has not been done yet? Is it too radical, questioning the need for the retail stores and hypermarkets, are the current players too tied with their legacy? The fact is that online shopping of daily consumer goods is growing, new generations are very used to use the Internet for shopping. Also spending time in hypermarkets is somewhat painful and too time consuming for many people. So there will be a clear market opportunity for this kind of or even a better model. At the end what counts is simplicity, real value add and cost efficiency for the consumers. Interesting is to see who will do something like this first and when.

In addition to this example the world is full of market opportunities where you can with radical rethinking, with simplified and streamlined processes provide something better and/or cheaper to customers. Our passion in MidaGon is to help companies with these opportunities, make something really unique and successful in the market, using our extensive experience in business model and process transformations.