Smoothing out the jagged edges

With increased competition among retailers to provide customers with the ‘ultimate shopping experience’, many companies are offering increased product ranges, both in-store and through eCommerce, combined with the introduction of digital platforms which are allowing retailers to sell products from multiple sources.

This is increasing the number, severity, and impact of peaks in the supply chain.

Looking in more detail, we see interesting specific changes in consumer behaviour such as last minute shoppers, a rise in expectations, quick turnaround complexities (same or next day delivery promises add complexity if that offer is maintained throughout a peak event), and bigger shopping baskets leading to more returns. These challenges all have significant impact on the retailer.

Not sustainable

The demand for smaller orders, shorter lead-times, improved accuracy and convenient delivery times with options for goods to be returned is driving up operating costs, and this is simply not sustainable.

In particular, returns present real problems for the retailer because processing costs are often three times that of dispatching the original goods to the customer. Processing costs for returns are often not simply a function of logistics costs as damaged or soiled returns can lead to additional re-work costs or markdown requirements to clear or dispose of non-pristine products.

Secondly, next day deliveries with late cut-off times place additional in-day peaks on the DC operation – in some cases 20-25% of the order volume must be picked, packed and shipped in just a few hours, and during peak periods this puts a huge strain on the DC.

Retailers also need to ensure that inventory is near the customer location, so that they can deliver on their same day delivery promises.

Finally, there are also other significant operating costs, and these include those for consumable packaging linked to the demand to reduce and recycle plastics. 

Mitigation

To offset high operation costs, retailers are investing heavily in their supply chain network and distribution infrastructure – including automated handling equipment solutions. While investing millions in complex IT systems and automated handling equipment undoubtedly helps businesses to meet in-week and/or in-day peaks, often five to ten times higher than average, the asset maybe poorly-utilised for lengthy periods giving a poor ROI.

The overriding aim is to smooth production output and fill production capacity, and retailers try to achieve this aim by employing effective demand planning tools to optimise inventory levels and availability.

In terms of primary transport, the use of hi-cube trailers and sharing transport is now a serious alternative.

Transport planning should be interfaced to warehouse task management to help optimise when and how tasks are performed in the warehouse to meet despatch times.

The use of delivery management technology to optimise distribution carrier (e.g. MetaPack) is good practice, and retailers are also using consolidated deliveries for eComm orders, through shared user consolidation hubs. 

Taking a step back, adapting sales and marketing strategy for Peak can help its mitigate effects. For example, reduce eComm customer service offer for peak events such as Black Friday, and promote click & collect from store / collection points.

Peak planning is critical and this should start shortly after the end of the peak event for the following year. By taking a forensic approach to their operational costs, retailers can steal a march on their competitors by being as responsive, but more profitable.