RetailCraft 49 - "Predicting the unpredictable" - in conversation with Radharaman Jha, VP Supply Chain at Flaconi

Show Notes

Welcome to an illuminating discussion with Rad, VP of Supply Chain at Flaconi, Germany's leading online beauty marketplace. In this episode, we delve into the fascinating supply chain management domain within the beauty sector. 

Since its inception in 2011, Flaconi has made gains in the German market, with over 25% share, and continues its successful journey across multiple European countries. Rad, with his extensive experience handling supply chains for luxury brands in Dubai, brings distinctive perspectives on the beauty industry.

Rad brings to life the transformative role of supply chain management in digital retail, emphasising viewing it as a value-adding function fostering business growth rather than a cost centre. 

Rad offers an intriguing overview of the beauty industry’s dynamic nature. He illustrates how brands rise and fall in the blink of an eye due to fluctuating consumer preferences and intense competition. We discuss the benefits of leveraging customer data and predicting stock movements to optimize costs, allied to the notion of sustainability in business practices.

We learn not only about an agile supply chain to support flexible business, but also the dynamics of the online beauty market.

 

--  Run time: 28 minutes

 

INFORMATION:

[ 🖥️ ]

Flaconi - https://www.flaconi.de/ and https://www.linkedin.com/company/flaconi-gmbh/ 

[ 👨‍👧 ]

Rad Jha: https://www.linkedin.com/in/radharaman-jha/ 

Georgia Scott: https://www.linkedin.com/in/georgiajones1/  

Ian Jindal: www.linkedin.com/in/ianjindal/ and www.twitter.com/ianjindal 

 

[ 📷 ] (c) Ian Jindal / www.instagram.com/ianjindal

Creators and Guests

Host

Ian Jindal

Founder of RetailX and CustomerX

What is RetailCraft - digital retail, ecommerce and brands - Retail Podcast?

Multichannel retail, ecommerce and digital business - interviews, analysis and discussion with Ian Jindal and InternetRetailing

I love these.

Well,

we're at the stage of singing, so that can't be good. No, stop us. Stop us now.

Hey, welcome to the studio. And this time it's our digital studio.

So although George and I are together, we are reaching out through space and

time to Berlin, where we're joined by Rad. So let's start off with the intros.

I'm Ian. I run internet retailing.

Hi, I'm Georgia, and I head up marketing for Adobe.

And our wonderful guest, Rad, tell everyone who you are. So I'm Rad.

I'm VP of Supply Chain and Master Data at Flaconi.

I'm sure your audience know Flaconi, but just a quick 30-second background about Flaconi.

So Flaconi is one of the leading online beauty marketplace in Germany.

It was founded in 2011. We have 1,000 plus brands, 3.5 million plus customers.

We have 25% plus market share in Germany.

We are currently in four markets, Germany, Austria, Poland, and France.

And we will be launching three more markets this year, which will be Switzerland,

Belgium, and Netherlands.

So talk about me. me over a decade of experience in supply chain operation planning

currently in flaconia i'm heading the end-to-end supply chain now if i have

to simplify for a audience what is,

supply chain and what we do in a simple word i would say we ensure that we have

right product at the right time at the right place in the right quantity,

That's what we do, right? At the cheapest possible cost. At the cheapest possible cost.

Absolutely, yeah. Just in case your investors are listening in here, right?

Yeah. I mean, I say at the right price, that means sometimes the price might

not be the cheapest, but the right quality at the right price.

So it's important that you- What is the right, exactly? Right doesn't mean cheap. Yes.

Exactly. so prior to flaconi

i was i've spent eight plus years in dubai uh

you know mainly handling the middle east market i was

associated with shaloop group so shaloop group is a luxury you know franchise

fashion house they have franchise your brand like lakos or oski sephora louis

vuitton michael koh tory bird so they have 50 plus brand i was managing their

buying assortment category category, pricing, supply chain.

And prior to that, I was with Alphatame Group. Alphatame have brand like IKEA,

Toys R Us, Marks & Spencer.

There I was heading their planning and, you know, global category management.

And prior to that, I had three years with Landmark Group, another family-owned

business in Dubai, five to six billion of revenue.

And there I was managing their overall supply chain. I love this idea of family-owned

business of six billion.

Yeah. and not just any old family if

they are also missing as well so it was interesting there

rad you're talking about it wasn't just supply chain you

also had the buying an assortment at some point so really it's everything other

than the retail experience and the marketing so that's uh you're interested

to get your hands around everything so what tempted you when you're You're sitting in Dubai thinking,

I have all of the world's best brands.

I have the marketer myself. I'm doing everything.

Do you want to go and join this small but growing beauty online business?

What was the conversation you had with yourself that said, yeah,

that's my next challenge? What was it that attracted you to the beauty sector?

You said family-owned business, right? So I have worked in Middle East in all

these big giants, right? Right. So I mean, most of them are 2 billion plus. Right.

So there are certain good thing about this big companies and also a certain

shortfall in terms of learning and in terms of what you can do. Right.

So I was primarily into omni-channel businesses.

So we had 90, 95 percent businesses of all those businesses where I have worked, they were.

Mainly into detail and you know omnichannel they had

three percent four percent of revenue at that time coming from e-commerce

and e-commerce was really booming so i wanted to really push myself out of my

comfort zone of managing a bigger team to managing smaller team and see how

the world react to the e-commerce growth and how really leaders build a company

from small to big and And, you know,

I wanted to get that experience hands-on to build a business bottom-up and then say that, yes,

you know, now I know not just about running a show,

but also, you know, how to build a show.

I'm hearing that you're very competitive and you wanted to give yourself a challenge.

That's what I'm hearing.

True. But again, I always believe that competition is not against external factors.

It's always a bit internal, yeah. Yeah.

So just in case we get too philosophical now, because that's a really, really good point.

I know, we've come straight in with some fantastic zingers. Another zinger.

If you're explaining to your friends about the beauty business,

what are the characteristics that are difficult?

So you've gone from having structured SKUs, different brands,

and now you've got these thousand beauty brands.

If I were being reductive, I'd say, well, it's just smelly liquids in small quantities.

Okay fine i didn't say that but just to the outside person who's not in the

beauty sector just give us a picture of what are the difficult things to manage

within the supply chain there are a couple of things right beauty business if

you look at from the supply chain perspective.

It might sound much easier to manage

compared to other business and why i'm saying that

i'll give you a certain example right since i was

managing a fashion business hardware business you know

home business i can all this when you're managing

a fashion business you have multiple season right spring summer fall

winter so you have to ensure that you buy right quantity you

sell it you don't keep too much of you know stock which is

not selling otherwise you have to do you know no all this

kind of margin optimization pricing and everything so

from that perspective in a beauty business we have 85 to

90 percent assortment which is continuous line

which meant that fell throughout the year so then

your entire planning is relatively simpler

in fundamental principle as we

speak however the issue with

beauty business and not issue you know real challenge is

this is one of the fastest evolving business

on this planet right more so because

as you know 70 to 75 80 percent of the beauty business are driven by ladies

right women buy those kind of products there are so much of competition about

you know natural beauty you know then organic non-organic clean cosmetics and

everything you know it's.

People have got multiple options than what they have in fashion or any other business, right?

So you might see that certain brand might tomorrow pop up out of nowhere.

And within six months, they might be the top seller.

And you might see certain brand which have been a top seller suddenly collapse, right?

So, I mean, except few brand which are top-notch brand, they know how to maintain.

But no, this is the kind of dynamic that you deal with.

It so it's so it is more challenging because unlike

in fashion business you know you have spring summer so

they know the defined time frame but

in beauty you don't know what will happen tomorrow so you

are always predicting something which is unpredictable right

yeah and and that kind of real challenge from

the from what we see as a part of the you know whole beauty

ecosystem system so if we go from the

challenge to supply chain as

a positive now you kindly

spoke last october at channel x

world and two of the things that

stuck out for me were first

you were talking about supply chain being a value

chain and driving the business forward and you

also then spoke about beauty supply.

Chain resilience so both of these

are lovely phrases but i'm not going to ask you to tell

us what they mean so let's start off with the supply chain as

a value chain what does that mean and give

us an example of the behaviors and benefits so if

you talk to any supply chain operation guy right

you will often see that operation supply

chain have taken a backseat in

the organization right you will talk about sales and

marketing you will talk about all of their function finance and all

their function but supply chain it's okay these are the guy who

will work in warehouse they have to ensure that they deliver their product that's

what you know normal general perception is but if you pull out a recent data

about why many of these startup have failed They have not failed because of

poor digital marketing.

They have not failed because of not having a fancy website.

They have not failed because of, you know, not having a right leadership team.

They failed because of poor execution.

They failed because of poor operation.

Most of the time and if you see right

whenever there is a funding crunch most of these startup who goes you know you

know bankruptcy are the one where they did not have end-to-end optimized value

chain and what i mean by that right often operation team focus on firefighting.

They did not get stock, somehow get the stock, deliver to customer and all that.

They never focus on looking at the larger picture, larger value.

So when you are looking at supply chain as a traditional function,

you often consider this as a cost center because you are paying for your warehouse

rent, your staff and everything, right?

But since you have not trained this operation team to think about how this team

would add value to your customer,

And when you change this mindset that supply chain is no more a cost center,

but a value center, then organization will start thinking about what will happen next year.

What are the potential supply chain disruption that could happen?

And then you start looking at all those dots and start working on that.

So give us an example there, Rad. So you're at the board meeting.

People look at you twice in the meeting. One is because there's been some almighty

problem and they stare at you and you explain it.

And the other one is when the CFO says, what is our cost per order?

And so if you've reduced your cost of order, everyone goes, well done,

Rad, but it's still cost.

Now, your previous point was you go from being a cost centre,

even if it's well managed and wonderful, you know, wonderful sausage machine, to being a benefit.

So who sees that benefit, the customer, your colleagues, and how does it change

the way people talk about it at the board's table? So just bring that to life for us.

So, look, when I say supply chain or operation as a value chain,

I don't mean that we will not focus on the key objective or key KPI,

which is defined to us. So cost per order, right?

On time, in full, supply part, right?

All these traditional KPIs are important.

Important but when i say value chain for example a

normal simple mindset is if you want to

offer best product have lower out of stock then simply buy everything right

so you know if you get let's say i've worked with that company right so you

would say you know what i will buy for two months you know you know supply chain

term we say we will buy for two months stock cover right Right.

In a normal traditional cost center mindset, since you are getting a discount

of 5% from supplier, you might buy for two months or three months. Right.

And, you know, supplier might say, you know what, I will give you 8%. You buy for 5%.

Six months right a traditional cost center

mindset will tell you that look i am saving cost

eight percent why not buy it but as

i said we are living in a truly volatile business yes

supplier is pushing stock to you just because he

want to get rid of his entire cash flow and everything right but

if you are keeping this in your business you are

screwed for next six months so when you think

about value center you will say look even if

i get eight percent discount i have to keep

that in my warehouse for six more months which will

add additional storage costs i might not

be able to sell it so maybe after three months

i might left over with you know x million

of stock right from this x million i might

not sell at all maybe 10 percent

of this if you do all this kind of

calculation you will realize that that eight

percent you are not even gaining in

fact you are losing 20 percent on that so this

is the mindset shift that organization operation supply chain have to come towards

now when this happen this has not just advantage for customer because now you

are more agile so you are able to adopt what customer need yeah so you You are

not forecasting what customer will buy after six months,

but rather you are adopting to what customer is buying.

So customer will have better fulfillment.

At the same time, your CFO finance will be happy because now you are not asking them for more cash.

You are asking them only for a small incremental cash. So the entire cash is not blocked.

Right. At the same time, you are able to simulate and predict after every month

that how much stock is not moving and what can we do?

Maybe get rid of this by 80%, 70%, 90% discount instead of keeping them for three, four months.

So you are actively participating in an organization as a value center.

You are supporting organization to create value rather than just looking at

a traditional cost center approach. So all of our supply chain listeners are

now feeling a sense of pride.

Thanks for that, Rad. Now, one of the things we learned from system design is

that the more optimized a system, the more fragile it is.

So, you know, you try and manage all the inputs, the throughputs,

the processes, the outputs. But yet...

What you're talking about is sort of baking in as well agility and resilience.

So just going back to the second part of the question, you told us about the

value chain and buying it, but you're also promising us resilience.

So how, tell us a bit about that. In a very reactive environment, yeah.

And this is where the, you know, the advantage of data come into picture, right?

So we all have been talking about this, but I have, again, I always say,

right, in our personal life, we use ChatGPT or maybe ChatGPT 4. I don't know, right?

But in the professional life, people are still using Excel. That's the true reality.

So until you start moving your personal and professional life to a same scale

in terms of technology, you will not be able to truly leverage the entire benefit.

Now, when I say you always have to have certain kind of trade-off between what

is your efficiency versus what is your customer promise.

So, yes, there would be a point where you might be fragile in terms of what customers expect.

But if you really leverage the customer data and able to apply different statistical

models, which are currently open source.

Again, I've never asked people to go and buy sophisticated software, right?

I said there are so much information, so much open source available.

If you start using this, then you will be able to reduce this kind of fragility.

So you might not be, I mean, nobody is 100% perfect in predicting customer demand.

But if you can even be 80%, then you are well above 90% of the industry standard.

Right? Right. And I was just reading one customer survey by McKinsey or somebody,

and they said that irrespective of COVID or Ukraine war or Israel war, after every 3.7 year,

there is a supply chain disruption.

So, again, even if you remove all this that we see after every 3.7 year,

there is a supply chain disruption. And this is a known fact.

Even after knowing that, 90% of the organization are not aligned and not prepared

to handle the disruption.

And do you think, obviously, as you said, you've come from much larger organizations

into a smaller one, right?

So you're probably now in a position to move more quickly, shall we say,

when there is disruption.

So do you think that that's why 90% of the organizations can't kind of adapt

over 3.7 years because they're these big ships that are slightly harder to turn

or is it just total ignorance?

No, I mean, you're absolutely right. That's one of the reasons.

The other reason is also that, you know, we often call about,

you know, talk about agility, but,

the organization still lack agility yeah right

because when you have to do you

know this kind of adjustment every now and then you need

the entire organization to shift and move

yeah right your finance have to move your

commercial your marketing everybody have to move around right and

if you don't have that kind of mindset across all

the value function across all the you

know no organization function you will not

be able to do that yeah and therefore it is much easier

for me to you know to you know to drive across

this and frankly in last one year

we have seen tremendous improvement versus i

mean when i joined company versus now i can

say that at least we are 70 80

percent different company yeah so how we have turned around the

entire part right and it's always easier because

a you have got mindset across the organization

therefore we say we are not e-commerce we are v-commerce so when we say v-commerce

we would like to focus on we yeah we first customer second our brand our supplier

strategic partner and third our employee so we want.

Three of us as a V, to have this entire commerce in place.

And we want to have an entire operating model, which is not just benefiting

one partner, but benefiting all the three.

Yeah. So it's not because obviously, we've just learned how you're ensuring

that your supply chain and the management of the supply chain is both agile and robust.

But to your point, you then need kind

of pillars and operational processes and for

all of the the parts of the business to move with you

because obviously if you're just moving but no one else is you know think about

the marketing assets if you've got new products every two months or whatever

so and is that something that you feel that you've been at you've seen the change

in the business in your time there is kind of everyone adapting this more agile

methodology yes absolutely and And see, when I joined,

this took me one year to build this entire mindset, right?

Again, this is not just my contribution, but the entire organization and,

you know, leadership contribution as well.

But once we have built that, and once people started seeing the actual result,

so now we don't have to convince everybody.

So now we know, right, if there's this, we have to move it.

So, I mean, that really helped. And this is what I say that when you start looking

at the organization as a one unit, as one value chain unit,

and not giving certain importance to a certain function and not discounting

some other function and work together into a common goal, you will see a result.

I have one more question, sorry, because I'm just very interested,

which is that how do you know when maybe you're being too responsive?

So for example, I mean, this is something that I challenge with at Adobe, so we're very similar.

We move at very kind of quick pace, quite iterative, agile.

How do you know when it's a trend when you're actually just reacting to a kind of moment in time?

So for your products, for example, when do you make the decision?

How do you know that you're not just being maybe overly reactive to a change

in marketing conditions?

Do you have kind of, I guess, parameters for that decision making?

Yes, we do have. So over the last one year, we have built multiple KPI and metrics

using a sophisticated data tool.

Right so for example if i tell you right

we have a stock segmentation right stock tagging

which actually take into consideration the

aging of the stock the sell-through of the of the stock right how much we are

selling every day every week every month right how that brand is performing

how that division is performing how yeah you know so we have all these metrics

in place and we are revising this calculation,

not every week not every month every day yeah,

so we are really on top of that and we don't react just when we see certain

changes in a day yeah we see okay if you see a huge changes in one day then

just go back and see you know no changes over the week oh.

Even here we see a change let's go and see at a

month level right let's compare last year

versus this year okay let's compare last last year versus this

year right so we we put multiple parameters into place we try to find a common

confluent ground before being too reactive right and you know we don't simply

react we find all this confidence we come to a conclusion and then Then we discuss

this conclusion with other parties, other leaders,

right? And then we see how they see.

We also see how our competitor is reacting, right?

So we have all this information wherein we can also understand how market is reacting.

So we don't want to be more reactive, but I would say we try to be more proactive

in a sense, right? Oh, that's another zinger.

Another one. So, Raj, one of the characteristics of what you've been saying

is this idea of looking more broadly.

So when you were talking about the value chain, you were talking about looking

outside of your silo and looking at the warehouse, the sell-through, so broad view.

We've talked in resilience about looking outside, looking at the customer.

I think that brings on to the last part I want to cover off,

which is sustainability.

And again, when we chatted in Berlin last summer, you were talking about sustainability.

So maybe just bring together some of the threads around resilience,

data across the silos, look at the customers, and just tell us what your focus

is at the moment on sustainability.

So again, when we talk about sustainability, right, and this is where I say

that probably we are not talking about.

Elephant in the room right we're not addressing elephant in the room we

are more often talk about auxiliary initiative which

might not be the biggest initiative to

transform the entire you know sustainability now again

sustainability could be a different topic for different

industry if somebody is into manufacturing right

for him or her right sustainability could be

right sourcing right sustainable sourcing you

know raw material package material and all that

part right so but again even in this case

manufacturer often think about just first layer of sustainability right for

example if somebody is you know auto manufacturer right and if he is buying

let's say car seat from supplier a he might just be thinking about how sustainable

that supplier is but that That supply,

in turn, might be buying from five different supplies,

sub-supply, right? Nobody cares what's happening there, right?

So when I say in the entire ecosystem, we don't look at sustainability as a whole.

We often think about our first level of visibility. That's number one.

Now, if you come to, let's say, retail or e-commerce businesses like us, right?

We often talk about sustainability with our packaging, right?

Because how sustainable our package is and all other components.

I think, yes, that's the important part. And we have done that as well in Flaconie.

But I see there are other parts where supply chain can come in.

For example, let's say if my ordering, if my planning is not efficient and I

am getting three trucks a week from my supplier to my warehouse.

Right then i'm emitting more more co2

right yeah so then compared to what can i

do something wherein instead of buying three times a week i can just buy once

without affecting my customer demand without impacting my financial cash flow

if i do that then essentially from that three truck could be just one truck

so i am reducing carbon footprint by one third.

So my point is we should start thinking

about sustainability as a whole ecosystem and

not look at in silos right yeah

good and i think that ties in very nicely with

the things you've been talking about which is the of

the podcast which is the data which is the connection and

seeing how one thing is connected to the other

which is absolutely fascinating well rad thank you

so much for joining us in the studio we know time is short

as am i so it was great of you to join

us and thank you so much for sharing with us

yeah some of your journey as well some of the characteristics of

putting supply chain at the heart of the

business thank you thank you so much thanks for having me yay that was great

that was fab have you practiced this I wonder yes I was thinking gosh you have

such fab answers off the cuff he's definitely been thinking about it yeah that was great no good.