Social networks (Facebook, VKontakt, Twitter, LinkedIn, etc.) are linking people virtuality but henceforth they can support elaboration of new business models to get back to reality. The loop is closed. The synthesis of the 2 worlds seems ineluctable. Together we can be better buyers and we can negotiate directly with brands and factories...

1. This document is the sole property of Chip4Cheap.com. Apr 2014 © – Author Thierry Laurent-Pellet, Founder
SOCIAL ECONOMY INFLUENCE ON SUPPLY CHAIN
by Thierry Laurent-Pellet
Introduction
The complexity to market a product increased significantly due to consumer requirement
upraising enabled by the fast evolution and complexity of technologies combined with the
necessity of conditioning related to demographic and geographic factors. If we want to
attack a market such as Salt Lake City in Utah we might consider it in a very different fashion
than “Destin” in Florida; one is constituted of a young growing population diluting
considerably the Mormon population the last 2 decades due to attraction of mountain skiing
at affordable price for youngster, the 2sd being the paradise of retirees. Why demographic
and geographic aspects are so important? It allows marketers to anticipate the way that a
product might have to be personalized, conditioned, introduced and priced. Demographic
tells us for example that in Utah introducing alcohol will be possible in one decade because
the Mormons population will become a minority and the today youngster will be in charge of
the future legislation. But something goes beyond the consumption or purchasing aspect, it
helps to understand the way goods should be produced and the frequency it should be
shipped to specific market. Replenishment customer demand driven is the next move for
supply chain.
The game changing in the supply chain
The supply chain conventional approach consists in using forecasting software to predict the
necessary demand and plan its production. The forecast is made after gathering data across
point of sales and the aggregation allow to calculate the average consumption (I short cut
the data collection and mining process but mainly this is pretty much what people do).
Therefore production is triggered by forecast order and merchandizes/goods are dispatched.
Does this take care of the market parameters differentiators? Well no! Some point of sales
gets overstocked other get out of stock. This problem occurs due to information loses in the
data aggregation forecast process; the demand planning does not take in consideration the
specificity of each point of sales market. As a result companies are losing money because

2. This document is the sole property of Chip4Cheap.com. Apr 2014 © – Author Thierry Laurent-Pellet, Founder
Inventory is not optimized, the replenishment cycles are too long and systems are not
reactive enough to markets evolution.
Shipping products to market place goes very often through storing product process in
warehouse to decouple conditioning and address final delivery (Splitting bulk into smaller
package). This step can eventually be the stage of customization before hitting the point of
sales. Warehouses are generally positioned at several point of sales cross over to optimize
the cost of line hall and shorten distance to final delivery. To understand how this process
can be optimized lets describe what “Frito-Lay”(acquired by Pepsi-Cola in 1965) set in term
of supply chain process to address the growth of 50 000 points of sales per year, 150 new
points of sales per day (Charles Elmer Doolin, Texas San Antonio, started Frito production,
ships for dipping guacamole and tomato spicy sauce, in 1930 with a capacity of 5 kg a day at
a 60$ profit per month).
“Frito-Lay” growth is such that its sustainability is linked to high efficiency supply chain
consumer driven process. Orders do not come from forecast based on aggregated historical
data but driven by the demand directly generated by the point of sales. The difficulty does
not take place in algorithm to anticipate the needs but in the network to set to fulfill the
need analyzed every day. Each point of sales sending the aggregated number of product sold
every day, the system know exactly how much bag of ships is needed to be shipped to fulfill
the demand. They are actually installing cameras analyzing the stock by measuring
difference of pictures taken with a certain frequency. Orders are pushed immediately to
delivery mini trucks smart phone driver which are loaded with merchandize to shorten the
time to market. Cycle fulfillment is reduced dramatically using Internet technology. In
conclusion information technology coupled with efficient distribution network capability to
bring the product closer to consumer satisfy the demand, avoid over stock and/or out of
stock, increase the sales, reduce the fulfillment cycle but ask for a great network flexibility.
This very specific approach will give birth to dozen of non-asset based shipment
management services companies which will address niche market for specific products
linked to specialized servicing needs. Its already happening in California with companies such
as Pegasus logistic specialized in the delivery of big screen TV, the delivery operator set the
gears from box to operational mode. We know that Amazon is focusing on food delivery, we
saw startup delivering diapers for babies in USA (acquired by Amazon), French startup in
Paris delivering shavers for much cheaper price than supermarket. The trend is turned on.
Social shopping, social shipping is on the go...
When airbnb.com came out I was skeptical and wondering how people could leave their
apartment with all belonging to people they don’t even know … That sounded to me kind of
awkward and I was wrong, people from 34 000 cities in 192 countries jumped on the site to
participate to the gigantic rental business, it’s astonishing. In fact researches have been
made on the social factor of confidence and it determined that the structure of our

3. This document is the sole property of Chip4Cheap.com. Apr 2014 © – Author Thierry Laurent-Pellet, Founder
civilization is based on the confidence in others, the “alone you are weak but all together we
are strong and can build more” is ruling. This is the particular reason why people are trusting
each other, they do believe that everybody can beneficiate of such a system, it’s convenient
for the renter to get accommodation easily booked and the owner got rewarded by making
substantial money financing, week end and vacations… Obviously the social (or
collaborative) economy is born and it is working pretty fine. Communities realized they can
put resources in common to help each other, live better and their actions are helping in the
sustainability of our environment (sharing car to travel, sharing apartment, hosting people,
renting gears, reselling assets). Those business models are born out of the necessity of
individual to gather, interact, or feel they need to be useful to the majority. The technologies
of Internet played a major role in the pooling process. It is a great way to communicate over
and make resources available easily. But another factor was leader to boost this move: the
raise of consciousness that despite the consumption solicitation and habit most of human
being living in advanced countries has, a significant effort had to be made to preserve the
resources our planet generously is offering. It’s a collective consciousness rising to optimize
the usage of resources instead of wasting them uselessly. Social networks (Facebook,
VKontakt, Twitter, LinkedIn, etc.) are linking people virtuality but henceforth they can
support elaboration of new business models to get back to reality. The loop is closed. The
synthesis of the 2 worlds seems ineluctable. Together we can be better buyers and we can
negotiate directly with brands and factories. Why should we go through unnecessary
retailers which added values is only about to triple, quadruple the cost of goods? What is the
point to waste money when we can save it?
How to leverage social economy and what is its impact on existing models?
Before to think we will blow totally the existing supply chain model established let’s put
together a solid statement: those type of supply evolution are made only for niche market.
Where there is a strong need to group the purchase to drop down significantly the price of a
high frequency usage product or commodity (Associated to delivery or delivery management
services) there is a room for that solution shift. Opportunities are rising from saving or the
desire to help the community. It’s becoming a sociologic reflex. The effect of the economic
crisis had a benefits, people started to realize that a huge amount of resources can be
mutualized to save money keeping the benefits of those resources (Car co-transportation
services, VTC). We are just at the beginning of social network leverage. Today, social
network are propagating information through connection, and tomorrow this social group
will become buying power and ethnic commercial entity representing a negotiation force.
Groupon is the typical archetype of those solutions but the negotiation is made by agent
detrimentally to their partners, the capacity is not managed which represent a high risk to
suppliers (To remind this bakery receiving a +110K cake order in London from Groupon
platform that might bring the bakery to bankruptcy in 1 week). The negotiation process does
not take in consideration the real cost of producing merchandize or product; moreover it’s a

4. This document is the sole property of Chip4Cheap.com. Apr 2014 © – Author Thierry Laurent-Pellet, Founder
constant rush after deal necessitating a gigantic sales force. This model is fragile, dangerous
and not sustainable on the economical point of view because it does not bring the necessary
transformation to make the situation a win/win deal for consumers and suppliers.
So what’s the deal with social shopping and social purchasing?
Most of merchandise produced at a cost X end into a caddy or at exit of a boutique set to 3
to 4 X. So what happened? In the middle, cost of transportation increased the initial goods of
50%, adding the cost of storage into buffer warehouse before delivery bringing another 50%,
the retailer due to the cost of its shopping stage, employees, direct marketing, government
tax and ROI bring it to X3 to X4. Who pays the bill at the end of the chain? Consumers!
Would it make sense to avoid the storage by shipping smaller amount of merchandize
targeting the right quantity for a geo-localized market and proceed to the shipping from
terminal line hall hub to final delivery? Sounds like a plan. At least, intermediate storage and
retailer are dropped from the picture and factories would beneficiate from direct demand
driven order increasing their revenue substantially. Intermediates can start to rollover at
night because their days are counted down. The existing social networks can be the relay of
those future platforms. They provide the buyer snow ball effect which is the support for
good’s pricing negotiation. The social economy is at the door. In a future article we will treat
of a concrete example through solutions we are developing at Ship4Cheap.com.
Contact: Thierry Laurent-Pellet References.
Ship4Cheap.com – CEO & Founder
Email: tlaurent@ship4cheap.com My special thanks goes to Mr. Al-Kazzaz, Ph.D.
Tel: +33 785 888 760 PDG de E2C Bridge, for mentoring this article.
Skype: stream2peers