Monday, February 17, 2014

Pop-ups popping all over

Lean startup principles
Lean startup, the philosophy for startups based on lean manufacturing, aims to eliminate the wasteful practices that may hinder already financially crunched startups from blooming to their full capacity. The focus of ‘lean startup’ is on simplifying processes and removing everything that does not add value for the end-customer, essentially termed as waste. This approach aims to help startups succeed with minimal external funding, intricate business plans or the elaborate products.
The lean startup approach encompasses the following ideas:
  • §  Eliminating uncertainty
Creating order by having processes in place and by testing them continually
  • §  Working smarter
Asking if a product should be built. Establishing that the product or service will sell once built by conducting extensive surveys, experiments and iterations
  • §  Developing a Minimum Viable Product (MVP)
Following the ‘build-measure-learn’ feedback cycle by initially building an MVP to initiate the learning process
  • §  Validating learning
Refining the MVP over time while simultaneously assessing its demand

Pop-up shops
A practical manifestation of the lean startup approach that I came across is a Pop-Up shop. Unlike a conventional retail store made of brick and mortar, a pop-up shop opens for a very short duration at a unique, strategic location.  These shops are put up by all kinds of companies, big and small, especially startups, in an attempt to receive real time customer feedback and assess demand of their products in a relatively inexpensive way.   The concept of Pop-Up stores has recently gained momentum, especially in the apparel industry, which, for reasons of volatile demand and product obsolescence has the error margin of a whisker. In November 2012, French luxury brand Hermes opened a pop-up shop in Toronto to launch its new product line of silk scarfs. Similarly, a startup might pop up at a particular location to test the demographics before setting up base at that location.

Impact on the supply chain
The concept of Pop-Up stores leads up to another one called Pop-up supply chain. The fundamental of a Pop-Up supply chain is to leverage the available resources in a network to dynamically switch between the distribution nodes as demand changes constantly. For a pop-up shop, which lasts from a few days up to a few months, having a full-fledged warehouse management system is a sheer waste of resources. Moreover, since the store itself lasts for only up to a few days or a few months at best, latency or high lead times are not acceptable.  In such a case, strong and close-knit relationships with suppliers is critical for the success of the shop as the suppliers may have to provide supplies on very short notice and may even have carry the inventory on the retailer’s behalf. In such a case, third-party logistics providers such as UPS may serve the purpose of keeping the inventory in transit and shipping it directly from the factory to the pop-up store.
In case of bigger retailers such as Tesco, the supply chain needs to be adapted to make it compatible with the multi-channel nature of the distribution of the retailer. Along with pop-up shops and permanent showrooms, such retailers might also be involved in e-commerce, in which case inventory management may become more challenging than ever due to the varying nature of demand from each of these channels.
The article provides deeper insight into the fundamentals of a pop-up supply chain:

The question that I could not help but think about relates to the other end of the supply chain. Though a pop-up store may be an ideal way for retailers to assess demand, but the question that calls attention here is whether suppliers are ready to handle the momentum that is an inherent part of this approach. Moreover, for a company as big as Dell, suppliers may as well be ready to bear the burden of inventory for the profits they make from Dell.  However, for startups and smaller companies that are already struggling to meet financial obligations, would suppliers really be interested in being highly responsive and operating on the knife’s edge?   



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