Supply chain leaders tackle retail dilemmas

In the 20 years since Amazon.com launched, retail has been transformed by eCommerce. But the forces behind these changes have not stopped. Mobile commerce and click-and-collect are combining with in-store and online purchases to force difficult choices in retail supply chain management.

While consumers once saw price as the main appeal of online retail, in the omni-channel world, customer service is coming to the fore as a differentiator between retailers, both in store and online. But supply chain managers must understand how far to go to meet customer expectations while still maintaining profitability.

The event was attended by retail and business leaders from the UK and Europe.

Stuart Higgins, retail partner, LCP Consulting presented research showing how not all retailers are approaching omni-channel in the same way. While Omni-channel Pioneers have fully committed to transforming both back end and front end operations, Omni-channel Followers don’t have the integrated business models to offer the seamless service they would like.

Others have opted to exploit analytics and optimise their multi-channel or pure play operations, with some success. Meanwhile, Challenged Multi-channel Retailers are trying to adapt to a multi-channel world by flexing bricks and mortar infrastructure.

“We published a report in 2013 which concluded omni-channel was the inevitable solution for all retail business. The research in 2014 shows omni-channel might not be the only solution. The big question is, what is the winning retail model?”

Price is no longer the most important customer driver for most segments. Only Challenged Multi-channel Retailers think it is. The remainder are split between customer service and assortment, the research found.

“Today’s consumers want new and different experiences and their expectations are rising all the time. The winners are not simply competing on price, because that is a losing proposition in the long term. They compete on value: they are continually seeking to differentiate across every touch point on the customer journey.”

Simon Ratcliffe, supply chain & IT director with fashion and lifestyle retailer Fat Face, said some assumed omni-channel meant they should follow the latest trend in the market, but understanding what customers really want is more important.

For example, many retailers are offering next day delivery, but Ratcliffe said that might not be as important as convenience and consistency of delivery.

“Next day is expensive. With late cut-off, it adds a significant cost operationally from where we are today. Whereas convenience and consistency with clearly defined slots are better solutions. You need to be making those trade-offs through understanding your own individual customer set as closely as you can,” Ratcliffe said.

He adds: “Supply chain design is changing, but you should never forget the basics of visibility, accuracy and lead time. There are new parameters that have to be added to the old. Forget the basics of supply chain design though, and you will get distracted by the new.”

While some retailers see omni-channel as a threat to their existing retail footprint, Argos, Britain’s leading digital retailer, sees stores as an asset in the new trading model.

Ian Howes, supply and distribution development director, said developing a responsive supply chain is vital, as predicting customer demand becomes increasingly complex. The store estate will be leveraged for customer convenience and the new hub and spoke model will unlock smaller store formats and same day home delivery for customers.

“Our new distribution model will allow us to provide More Choice Available Faster, with market leading immediacy and convenience in store pick up and home delivery” he said.

Argos has created a hub and spoke distribution model where larger hub stores provide up to 20,000 SKUs for immediate/same day collection in all stores.

John Lewis has re-engineered its supply chain around omni-channel, offering click and collect from sister retailer Waitrose and next day home delivery for online sales.

The biggest challenge was the growing proportion of premium, next-day orders for delivery in store using their Click & Collect service. Since 2008, they have grown from less than 25% per cent to as much as 65% in 2014.

Terry Murphy, director of NDC Operations said: “Click & Collect is what the customer really loves and now two thirds of our click-and-collect goes via this channel. Our growth has been driven by the supply chain.”

Since 2008, John Lewis has expanded from one e-fulfilment centre, working 7 days shifts per week and supplied from 5 other DCS, to five store and e-fulfilment centres all working 24/7 supported by sophisticated new warehouse management systems.

New consumer trends such as dual screening, where people shop online via tablets or smartphones while watching television, also affected buying patterns, he said. With half of online sales via these devices, consumers react quickly to competitor pricing.

But planning omni-channel services breaks traditional business cycles, Murphy said. “Business plans are typically three years; consumers plan for a month or two. You have to be very agile.”

For example, Black Friday has become a significant event in the UK only in the last couple of years. “Last year, nobody knew what demand would be. We exceeded a high forecast by over 20%. What we have now is very little wriggle room when demand really spikes.”

Alan Braithwaite, LCP Consulting’s founder and executive chairman, closed the seminar by describing Amazon.com as “the elephant in the room”. The global online retail giant seems satisfied with lower profits than the majority of retailers, he said.

“The business and commercial challenge in supply chain design is how can you do things that are great for customers and still maintain a fair margin when you have a [pricing] floor from a business like Amazon?”

LCP recommendations
• Consistent customer proposition: Ensure you have a uniform, aligned presentation of your offer across all channels.
• Seamless order management and customer experience: Make it easy for the customer, so that they can interact with you when they want, how they want and through a medium of their choice.
• Fulfilment excellence: Deliver consistently high quality of service regardless of the circumstances.
• Effective personalisation: Understand your customers individually and tailor your offer accordingly.

Main themes from LCP Leadership Seminar
• While consumers have rising expectations of omni-channel service, retailers need to ensure they deliver on their commitment.
• Speed of delivery may not be as important as convenience or consistency.
• Price is becoming less important; delivery and customer service out-rank it in many cases.
• Consumer behaviour is changing rapidly and is difficult to predict. Supply chains need to be agile and adjust faster than traditional three-year business planning cycles.