By: Ann D’Innocenzio | Link to article
NEW YORK (AP) — From his perch as American Eagle Outfitters’ chief supply chain officer, Shekar Natarajan is taking a page from shared ride service Uber to modernize the supply chain for retailers.
Since Natarajan joined American Eagle almost four years ago, the teen retailer has acquired two supply chain businesses for several hundred million dollars, as Natarajan makes the supply platform shareable with other companies and thus more efficient and sustainable. They form the core of the company’s supply chain platform, which operates independently from the retailer.
Natarajan, whose resume includes stints at PepsiCo, Walmart and Target, believes that small companies can’t compete in logistics with the likes of Amazon and Walmart and should instead pool their resources together. The end game: a model that will take all the packages coming from different distribution centers and then funnel them to a consolidation center with one package delivered to the shopper.
Natarajan’s mission comes as the pandemic has upended the global supply chain, forcing retailers of all types to scramble to unclog goods from all points of the distribution network, while facing spiking transportation costs.
So far, over 100 partners have signed up to use the platform, including 14 retailers like Kohl’s and Steve Madden, six large tech companies and 42 carriers. It will start to consolidate packages by year-end, targeting the nation’s top 25 cities, which face the biggest congestion of packages. Natarajan is also working on a bioplastic collapsible container that consolidates packages from different retailers in different locations to ship to a customer.
Associated Press recently interviewed Natarajan in New York to discuss his model, why it matters and how his personal background shaped his mission. The interview has been edited for clarity and length.
Q. What’s wrong with today’s retail supply network?
A. They’re nonlinear, inflexible and inefficient. We’ve certainly learned over the past two years how little visibility companies have into their end-to-end operations and how much information is siloed. Unfortunately, most supply chain leaders continue to be chained to the legacy infrastructure they inherited when they took on their role. Our opportunity is to help companies unchain their supply chains by evolving to a new, network-based model that’s open, interconnected and more dynamic, so they can respond more quickly and efficiently to changes in the consumer and business environment.
Q. Will the supply chain ever go back to the normalcy of the pre-pandemic days?
A. (The parcel delivery network) is going to explode from 20 billion parcels to 40 billion parcels when it happens in five years, six years or seven years. And in that world, you would probably need 16 million people. You would need 823 fulfillment centers. You have to build 5,000 distribution centers. You have to build 8,400 delivery hubs. You’ll put a million trucks on the road, and you will have 7,500 delivery vans. And that’s not sustainable. So there is inflation brewing all over the supply chain. And so the problem we have uncovered during the pandemic is the vulnerability of the chains.
Q. Can small chains ever compete with the big chains?
A. I have worked for a lot of big companies. In context, American Eagle moves 200 million units. Walmart moves 50 billion units. So what Walmart does in a day and a half is what American Eagle does in a year. And Amazon does it in half a day. So if anyone is thinking that dropping more resources, adding more infrastructure, hiring more people, getting more trucks on the road is going to help them compete better with Amazon, I have some bad news for them. It’s not going to happen.
Q. How did overhauling American Eagle’s supply chain help?
A. It reduced the shipping times to the stores by 80%. This pair of jeans used to take us 14 days to bring back into stock. Now, it takes two and a half days. The packages that you receive…it used to take us five days, seven days. Now it takes us on an average, two and a half days. And if you look at the number of miles every parcel traveled, we reduced it by 2 billion miles.
Q. Why are you naming the boxes for consolidated shipping Tag Along?
A. It goes back to my roots of where I came from. We used to hitch a ride in an auto rickshaw to go and get to the place we wanted to go. And so the concept of tagging along with others is always something that resonated with me the most.
Q. How did your personal background shape your mission?
A. I come from slums in India, but access to education, paying for funerals, getting electricity were all big thing for us. We lived in a single room. I came here with $34 in my pocket. And so what America did was create a level playing field for me. It didn’t matter where I came from. It gave me an opportunity to go work for some of the brightest companies. And so when I looked at the reality of the smaller businesses and how they’re competing, I looked at my own personal life.