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The supply chain’s growing importance in modern retail

Efficient supply chain management is crucial if retailers are to offer their customers the required shopping experience in today’s complex trading environment

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Retailers competing for consumer spend today are realising that attention to the customer journey, once defined by merchandising, in-store theatre and assisted selling, now begins away from the busy high streets and shopping centres.

For success in today’s retail world, it seems, the customer journey must be considered behind the scenes at the point of product procurement.

With complexities surrounding how modern customers want to buy, collect or return their items – enabled by both consumer technology and the sophisticated systems now available to big businesses – a tidy, efficient supply chain is becoming essential.

Stock and supply chain management are where vast pools of retailers’ financial resources are being directed, with the notion that an organised and visible inventory at the back end builds a foundation on which an array of new front-end services, such as click and collect, home delivery and in-store mobile-assisted selling, can function.

Different retailers label this environment in different ways, but it has commonly become known as the “omni-channel” challenge.

A recent survey of global retail CEOs by supply chain solutions provider JDA and professional services firm PwC suggests 51% of respondents plan to offer buy-online-pick-up-in-store (Bopis) services in the next 12 months. This was an increase of 4% year-on-year, but was accompanied by the finding that supply chain complexities and costs continue to be a major barrier to offering a positive customer experience.

“Supply chain has become more interesting because there has been a realisation by most retailers that marketing departments can’t make promises that supply chain can’t deliver – that’s been a key area of change,” says Tom Enright, supply chain research director at Gartner.

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He acknowledges the increase in supply chain directors being promoted to board level in retail as evidence the industry is seeing the function as “not just trucks and sheds” as was perhaps the case in the past.

“The reason the supply chain has become more interesting is that the whole shopping experience has become more interesting, through retailers trying to roll out improvements in shopping services and thinking about using store inventory to offer same-day delivery, etc. Supply chain has to be part of that conversation,” he says.

Time of transformation

Digital transformation projects are taking place across the retail industry, with research from JDA and PwC indicating that developing and implementing a digital transformation strategy is the retail CEO’s number one priority in 2017.

Almost 70% of the 350+ global retailers questioned in the survey say they plan to increase their investment in this area over the next year, and that will inevitably involve supply chain reorganisation.

Department store chain Debenhams became the latest large retailer to announce a project of this nature in April 2017, when it revealed it was embarking on a mobile-centric strategy to boost consumer engagement with the brand. Some 10 stores are being assessed for closure, alongside one central distribution centre and 10 smaller regional warehousing facilities.

Much of what the business is looking to achieve at the consumer-facing end relies on streamlining operations behind the scenes, and Debenhams is not the only one. N Brown, Majestic Wine and Aldi are just three of a multitude of retailers on that organisational journey, often referred to as omni-channel development.

Phil Pavitt, global CIO of glasses retailer Specsavers, is also overseeing a major infrastructure project at his organisation. It is a plan defined by reducing the tech supplier base and modernising “heritage systems”, and there is also a significant supply chain management piece attached to the initiative.

“We’re pulling our supply chain onto a core enterprise resource planning (ERP) system, which shows you how important it is to us,” he says.

“Supply chain will be managed by Oracle and JDA. It means we can switch sites quickly if one site is struggling, or we can change volumes or manage in a more interactive way between the shop front and right through to supply chain end.”

Providing a real-time view of stock

Unlike many retailers, Pavitt stops short of saying he is aiming for a single view of stock across all channels. For the past decade, as additional channels – particularly e-commerce – have been added to retailers’ operating models, suppliers have started promising technology that can offer them a holistic, real-time view of stock.

No retailer has yet claimed to have achieved this, although the closer they can get to it will clearly improve their chances of meeting the demands of increasingly discerning consumers.

“Understanding your stock, where it is and what’s in it is important, but the single view of every item and complete accuracy may not ever happen,” says Pavitt, who is leaving Specsavers in June 2017, having been responsible for establishing the business’s transformation strategy and reshaping it for future success. “But the current situation can get a lot better.”

Assessing cost implications

JDA and PwC’s research notes the fulfilment options which have transformed retail in recent years have become a cost burden to the companies offering them. CEOs said they are reducing same-day delivery services and the number of specific delivery time slots they offer.

According to the survey, 57% of executives plan will increase the price of online deliveries in the next year. Some 62% are looking to raise the minimum order thresholds for free standard home delivery, while 55% are raising the minimum order value for Bopis.

Robert Geere, CIO of retail and wholesale operator AF Blakemore, uses Swiss grocer LeShop as an example of how the wider retail industry might approach fulfilment to save costs and enhance customer convenience.

“More and more, LeShop is implementing pick-up points, and this looks to be the way forward,” he says.

“It’s convenient for the individual home shopper because they don’t have to stay in and it’s more cost effective for the retailer. The pick-up point strategy will continue to gather momentum, and I think you will see a whole marketplace continue to appear with that service.”

Creating cross-brand pick-up points

Amazon lockers and facilities from other providers are already appearing in and around supermarkets and shopping centres, while a central reason for the £1.4bn acquisition of Argos by Sainsbury’s allowed the grocer to create its own multiple, cross-brand pick-up points across the UK. Geere acknowledges the concept is not completely new, but he believes there is significant potential for it to evolve.

He sees convenience retailers such as Spar as well placed to be part of that particular ecosystem.

“I think there will be extended opening hours by operators. It’s a potential marketplace that will grow, defined by fewer home deliveries and more flexible options cropping up,” he says.

For all this to function efficiently alongside traditional customer channels and the ones yet to emerge, it is clear an organised supply chain will be critical. Retailers, as they have discovered with the advent of e-commerce and social media, will have to quickly learn how best to manage these new operating models and routes to the shopper.

A new line of thinking

Gartner’s Enright says a whole new line of thinking in demand forecasting is required, whereby retailers do not just ask the question, “How many products will we sell?” but instead predict how many products they will sell via each channel and in what format.

“Retailers are not looking at the fulfilment implications of how a customer will shop,” he says. “They are still just looking to understand how many products they will sell.

“That’s not the right question to be asking in this day and age. Most retailers are still trying to answer the wrong question and they haven’t yet got their heads around the fact the question is becoming rapidly redundant.”

With this type of fundamental restructuring being called for, tight supply chain management looks set to remain critical to any successful retailer’s modern-day growth strategy.

This was last published in May 2017

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