Think tank: retailers should make supply chain top priority

The retail industry in the UK is in a state of crisis, with eCommerce opening up massive opportunities for fast moving companies, while others are ‘rabbits caught in the headlights’ of the fast pace of change.

The scale and speed of change is terrifying many retailers and this contributed to a great number of them recently going out of business. Fifty four retailers failed in 2012, the worst year since 2008. In the early months of 2013 Blockbuster, Jessops and Republic and HMV also went into administration.

At the same time, online sales are seeing rocketing growth, with the IMRG Capgemini e-Retail Sales Index recording 17.5% year-on-year growth in 2012. 

It isn’t a simple shift from one channel to another though. As customers move, their habits are changing dramatically. One body that has looked at the issue in great detail is Retailtopia, a thought leadership panel sponsored by BT that was set up to examine the future of UK retail. Its most recent vision paper focuses on the supply chain and the role it has to play in tackling the omnichannel challenge.

Jim Spittle FCILT, chairman of the Retailtopia panel, says: "Customer loyalty is a thing of the past. In the omnichannel world, barriers to customers switching disappear. Consumers have a choice of product and retailer at their fingertips and competition is fiercer than ever before.”

This is a wake up call many retailers have had trouble heeding, or if they have listened, they still struggle to adapt. Why? Because the pace of change is unprecedented.

Spittle continues: "Worryingly, too many retailers still underestimate the need for a radical rethink of traditional supply chain practices and models. Boardroom complacency and lethargy are significant dangers. The need for urgency is clear because the move to omnichannel retailing is happening now.”

So the answer is to design an omnichannel supply chain. Easy, right? Not quite, the Retailtopia panel identified a lack of internal collaboration as one obstacle. In other words, supply chain staff are not always at the top table where big decisions are taken. The Buying and Merchandising departments are often seen as the ‘premier league’ while supply chain is the ‘championship’.

Buying and Merchandising teams should understand the supply chain is a core part of the process and develop a more transparent, cross-functional way of working. This will require a significant change in culture. The panel also says retailers need a board that is savvy about omnichannel and willing to take a lead. It also recommends forensically analysing your cost to serve and understanding your whole supply chain costs.

This will involve the agreement of new metrics for measuring omnichannel success and failure. For example, measures such as ‘returns by SKU’ could give a retailer the data to help manage returns and to determine how profitably its online business is operating. 

Neil Ashworth, FCILT, chief executive of Collect+ and former supply chain director at Tesco.com and Woolworths, expands on the need for new thinking: "We are moving from a high capitalisation, high margin environment to a low capitalisation, low margin environment, yet boards are still clinging on to the old KPIs, such as sales per square foot. The supply chain will have to be more versatile and agile.”

In order to achieve this level of flexibility, retailers are challenging suppliers to come up with more sophisticated solutions and think carefully about how they are put together.

 

James Sharples, the UK MD of automated systems provider Swisslog says flexibility is one of the key requirements of its retail customers (including Ocado and Asda) in the UK.

"With AutoStore [a grid-based storage and picking system served by robots], we have the technology to introduce a modular, scalable approach. A lot of people talk about automation being inflexible, but with AutoStore a company can start small and grow the system without incurring huge add-on costs,” he explains.

"It allows companies to grow easily with no disruption and allows customers to phase investment. Retailers can add more robots into the grid and therefore react quickly to their business changing.”

AutoStore originated in a non-food environment but it can be applied to anything that fits into a tote. It is ambient temperature only but Swisslog is exploring customer requests to create chilled and frozen versions of the technology.

Savoye solutions sales director Alain Bussod agrees about the need for flexibility. "For eCommerce, you need plug and play. This is why we have designed the Intelis conveyor system in a modular way. Retailers can programme the system themselves using an SD card that slots into the conveyor and build and configure the conveyors to meet changing business needs with a minimum of fuss.”

Savoye helped French online retailer Vente Privee from its earliest days, and its growth from processing 150 orders per day in 2004 to more than 100,000 orders per day in 2013 shows the great change eCommerce business models can undergo, underlining the importance of flexibility. Without it, retailers end up with a system that will block growth, or one they will have to bypass and leave behind.

 

As well as flexibility, speed and simplicity are key for online retailing. Unlike traditional distribution, the emphasis is not on case and pallet movements, but consists of a great many small orders of one or several items. In the long run, as online retailing builds greater scale, this will require more automated solutions to remain cost effective.

Advanced Business Solutions MD Simon Fowler clarifies. "If you are picking and moving lots of small (and relatively low cost) items, the emphasis has got to be on automation, you don’t want a whole lot of people involved, the process needs to be as light touch as possible.”

The growth of online orders is driving greater throughput and if the need for speed continues to climb we may see robots similar to those that are more typically deployed in production environments used for item picking. Indeed, in a visit I made to Knapp’s HQ in Graz last year I saw a demo of its Pick-it-Easy robot, which uses lightning quick robotics and vision technology to recognise items and pick them to totes.

Another huge challenge for the retail supply chain, aside from the obvious shift to omnichannel, is the drop in customer loyalty it brings. This indirectly affects the supply chain as retailers move to combat this trend by investing more heavily in big data - essentially scouring online information such as browsing habits, Facebook likes, Twitter tweets, etc. The Retailtopia panel says this more accurately predicts buying habits than traditional information gathering based on what people bought in the past. Increasingly this data will direct the supply chain to feed (what is hoped) to be the right type and quantity of products to the right place at the right time.

The panel is also calling for greater standardisation of data used by retailers across the supply chain, which would make it easier for partners to share and understand. Although not specific to retail, Forrester Research says "the process of data exchange today is so error-prone that, on average, 30 per cent of product data is incorrect across the supply chain”.

Jim Spittle concludes with a rallying call to retailers. "In expressing their desire for the benefits of an omnichannel world, consumers have made it abundantly clear what they expect of retail.  We would urge all retailers to put the future of their supply chain at the top of the boardroom agenda. This is not a time for piecemeal changes but time for a quantum leap to meet the expectations of consumers.

"Transformation, not transition, is the name of the game. The panel feels a real sense of urgency. The writing is on the wall: the time for action is now.”

 

 

Retailtopia Vision Paper

You can read the full Retailtopia vision paper here - http://tinyurl.com/bvafb5s