Social Media and the Supply Chain

Stephen DeAngelis

April 15, 2011

There has been a lot written about the coming age of social commerce (i.e., commerce driven by social media sites and applications). Jonathan Birchall reports that a number of prominent retailers, for example, are relying “on applications to deliver increased sales and lure customers from rivals.” [“Digital-savvy shoppers drive change,” Financial Times, 29 September 2010] He provides a few examples:

 

  • Best Buy, the largest US electronics retailer, is testing a system that sends messages about special offers to customers’ mobile phones when they enter its stores.
  • Kohl’s, the mid-price department store, is rolling out in-store touch screen kiosks that will allow customers to order online items that are not available in the store.
  • JCPenney, its rival, is moving towards the launch of a mobile e-commerce platform, and has just upgraded its website search system.
  • Walmart, the international retail group, is creating a global e-commerce platform.

 

How will social media sites and other customer-facing technologies change the supply chain? Some supply chain analysts believe that multi-channel sales will force retailers and suppliers to develop multi-channel supply chains in order to remain responsive and competitive. Still others believe that the data collected by social commerce technologies will result in the broad implementation of demand-driven supply chains. Birchall continues:

“Instead of introducing customers to technology aimed at increasing operational efficiency, such as bar codes, or electronic payments, retailers are now struggling to stay abreast of the technology at the fingertips of their customers. Shoppers equipped with smart-phones can now use tools from the online world in-store. They can check prices at rival stores and look for independent product reviews. They can use their phones to receive digital offers, and increasingly to access payment systems and complete transactions. But dealing with the digitally equipped ‘multichannel’ shopper is presenting challenges for the industry that go well beyond what the customer sees in the store.”

Birchall asserts that the rise of social commerce will require new business models and supply chain designs. He continues:

“For retailers, the challenges of creating a single customer experience both online and in stores can encompass basic considerations such as ensuring the prices or offers are the same whether the customer is buying in a shop or via the internet. In one of the most radical responses to the challenge, Moose-jaw, a small outdoor equipment retail chain based in Michigan, has done away with a separate computer system for its point-of-sale devices. Instead, the in-store machines connect to the same IBM Websphere Commerce database as its e-commerce site, which is also used by its call-center sales staff. The system also operates a loyalty reward scheme – the customer’s purchase history is accessible in all channels.”

With only seven stores, Birchall admits that Moosejaw’s challenge was relatively simple in comparison the challenge that faces companies that operate thousands of stores and generate billions in revenue. The direction Moosejaw has gone, however, seems to be the direction that most successful retailers will eventually end up going. One area that is receiving a great deal of attention, Birchall notes, is “mobile e-commerce capability.” According to the article, it is “an area that is gaining attention from a range of leading retailers, including Walmart, Target, Best Buy and Sears Holdings.” Supply chain analyst Lora Cecere, believes that social commerce has “the power to redefine the shopping experience allowing companies to anticipate, personalize and energize the shopping experience in new ways. Untapping the potential of this technology shift will make the vision of customer-centric value chains … a new reality. [“The Rise of Social Commerce,” Supply Chain Shaman, 15 October 2010] She believes that these new technologies are so revolutionary that the retail landscape now “resembles the wild, wild west.” Cecere provides a list of some of the technologies that “are converging simultaneously”:

 

  • Geospatial. Geospatial data combined with point of sale data to deliver a tailored response to the shopper when they are in the store. The data enables insight on not only what you bought, but where you were when you bought the item. And, what your shopping behavior was prior to the purchase. This is redefining couponing. Examples include Groupon a new social couponing company, Get Satisfaction a new rewards program for purchases, Shopkick that rewards you for going into a store, coupons tendered through your Garmin device in your car, and specialized shopping baskets in the stores to tender special offers.
  • Gaming. Social gaming to enhance the shopping experience, but also unleashing a new opportunity to learn more about a consumer through their gaming behavior.
  • Mobile Applications. In 2011, 50% of the populations in modern trade countries will have smart phones. Mobile applications in combination with 2-D bar codes can personalize the shopping experience in new ways.
  • 2-D Bar Codes. Direct personalization of the shopping experience through 2-D barcodes to the shelf to either differentiate the product, communicate how to better use the product or connect with gaming to energize the shopping experience.
  • Virtual Currency. Virtual currency linking the socialgraph, the gaming experiences and the new social commerce sites together. It is a new way of seeing what shoppers really value. Check out the selling of Facebook credits at your Target or 7/11 stores.
  • Shopping with Friends. Consumers trust their friends. They want to shop with their friends. The Socialgraph enables this new type of shopping experience on Facebook or in a bricks and mortar experience.
  • Facebook as a Channel. As the conversation is enhanced by commerce, companies are adding storefronts to their Facebook pages. Community recommendations by friends turns into shopping with friends for enthusiast purchases -– hobbies, cosmetics, toys –- enhancing the customer experience.

 

Cecere goes on to assert, “[Social commerce is] reshaping value chains. More than ever, retailers are now manufacturers and consumer products manufacturers can now sell directly to loyal shoppers. The power is shifting to the shopper. The digital consumer now has the power of the value chain in the palm of their hand, but more importantly, it allows a company to have a direct dialogue with a consumer in a more meaningful way.” Having interviewed over four dozen companies, Cecere came to the conclusion that companies go through four different phases when implementing a robust social commerce scheme. They are:

 

  • Let’s be Social. In this stage, the organization is social for social’s sake. The deployment of the technologies are primarily in marketing and the strategies are very brand-centered; and consequently, not very effective.
  • Enlightened Engagement. As social maturity evolves, companies have new opportunities for direct dialogue. It enables dialogue and customer service, new product launch, and community development.
  • Store of the Community. Direct involvement of the community in product assortment, category definition, and demand shaping activities.
  • Frictionless Commerce. The redefinition of the shopping experience based on mobile, social and ecommerce capabilities that culminate in a TRUE cross-channel experience.

 

Although most of the discussion about social commerce appears directed at marketing and sales, Cecere believes that “unveils new opportunities for [other members of] the supply chain team” as well. The opportunities she identifies are:

 

  • Redefinition of customer service. Organizations really don’t have customer service. If you ask what does your customer service department do, you will find that most take orders. There may be another department that receives customer complaints. But, the ability to listen and learn from shoppers and enhance the shopping experience through the integration of social technologies–twitter feeds, Facebook fan comments, private networks, syndication of review data–allows a 360 degree view of the digital consumer for the first time. The ability of the organization to think outside in and engage the shopper in a meaningful dialogue. It unveils the opportunity to listen, to have a meaningful response and to learn. For me, this is exciting.
  • New ways to sell to loyal shoppers. The concept of anticipation of needs through the social graph is also fascinating to me. Let me give you a personal example. I am going to be a grandmother. I am so excited to be a grandmother, but only my social connections know the full extent of my excitement. For the first time in 20 years, I am a shopper for all things baby. I am also a quilter, a knitter, and an avid crafter. Imagine how a smart company could use this information to anticipate and deliver some exciting offers to me to shape demand. The socialgraph enables unique insight on changes in lifestyle, community sharing, and tailored offers.
  • Channel proliferation. We have talked cross-channel for years; however, in my shopping experience, Nordstrom comes the closest to having a true cross-channel experience. For most companies, the e-commerce and bricks and mortar channels are separate and distinct. But now we have channel proliferation with M-commerce through mobile and social commerce through Facebook. This channel proliferation will force companies to rethink their supply chains. It will give rise to a new wave of supply chain execution applications. A new bar will need to be reached for inventory accuracy the need for a more real-time signal of inventory in the extended supply chain. Removing data latency on inventory movement will become a new corporate focus.
  • A new need for new type of supply chain transparency. When we communicate all the way to the shelf with the shopper, a new level of supply chain transparency is needed–especially on manufacturing and quality data– to convey the brand promise for health and wellness, food safety, organic, etc. This driver will redefine manufacturing execution systems and force the integration of bill of material, process quality data, and specification information in a new way. It will also tie manufacturing execution systems to supply visibility. Supply chain execution will no longer JUST be about order fulfillment.

 

To learn more about why Cecere singled out Nordstrom for attention, read my post entitled Supply Chain Helps Nordstrom’s Bottom Line. A few months after Cecere penned the post cited above she was able to present her views on social commerce as part of a webcast panel that included two other prominent supply chain analysts, Bob Ferrari and Trevor Miles. Concerning that experience, Ferrari wrote:

“Trevor set the context for what is described as social, by noting what Geoffrey Moore, noted author and IT observer, labels as systems of engagement. Lora touched upon current examples and the potential use of social methods in the customer-facing side of supply chain, while I explored some examples and potential that I believe are applicable on the supply side of supply chains.” [“The Potential of the Social Supply Chain,” Supply Chain Matters, 10 March 2011].

Ferrari admits that social commerce is probably still in its infancy with many analysts and executives believing “that social media is really nothing more than Twitter and Facebook.” He cautions those who would dismiss social commerce as a pipedream to reexamine their beliefs. He writes:

“If you examine some of the efforts of early adopters, and if your lens is broadened to the notion of how people and teams can communicate with one another and gain insights, the value of social supply chain may have a different lens for your organization. Social concepts do not equate to endless 120 character streams of unrelated or broadcasted information. Like any other new technology, the focus should not be centered on the technology itself, but rather the business problems that need to be solved, along with the various options available to solve these business problems. For instance, how can we gain more early warning on pending supply or specific supplier problems? Are certain products experiencing extraordinary quality failures?  How are our customers responding to our new product launch and what connotations will that have on supply plans? If a supply chain related disruption occurs, and existing communication channels are temporarily unavailable, how will we gain insights as to what is happening at the source?”

During a conversation that Ferrari had with Dr. Andrew McAfee, principal research scientist at the MIT Sloan School of Management, McAfee observed that there is nothing wrong with a “healthy skepticism” of social media, but he went on to note that “leveraged use of social systems have the potential for organizations to connect teams of knowledge workers.” Ferrari continues:

“Dr. McAfee further noted that the pace of business has permanently changed, and change will continue to come at a faster pace, and in global perspectives, sometimes despite all means of planning. While we are in the early days of this transformation, unlocking the explicit and tacit knowledge of teams of individuals can be the difference in how tough problems are tackled and solved in a much more timely manner. On our webcast, Trevor Miles reminded our audience of a quote from Angel Mendez, senior vice president of supply chain for Cisco Systems. ‘There are over 20,000 employees involved in the activities of Cisco’s supply chain, only 2,000 of which work directly for Cisco.’ That is the new reality of supply chain management for many in our community and that, I would argue, is the strongest consideration for keeping an open mind in incorporating social concepts in your supply chain processes. While we are in the early adoption phases of incorporating social mechanisms, the competitive benefits are important to consider for supply chain management needs.”

For more on this topic, read a post by Bill DuBois entitled OMG! Social Media and the Supply Chain … LMAO! [The 21st Century Supply Chain, 9 March 2011] In a future post on this subject, I will discuss why some analysts believe that ubiquitous social commerce may be further in the future than some anticipate.