After a few years of decline the retail market is expected to grow again. In the Netherlands for example, the retail industry experienced a 1.5% growth in 2015 and is expected to have CAGR of 2% in 2016 . Despite this (small) market growth quite some retailers face serious financial problems. Changing customer needs, the increasing pressure on sustainability and introduction of technologies strengthened the degree of rivalry in the retail industry. Whereas pure-play ecommerce retailers tend to grow significantly in spite of the increased rivalry, most traditional brick-and-mortar retailers struggle to incorporate these challenges in their business models. Nonetheless, there are some examples of traditional brick-and-mortar retailers that successfully transformed their business model.
Walmart for instance successfully transformed its business model. Within this transformation supply chain was not only an important enabler, but also a new source of sustainable competitive advantage. Walmart has combined its traditional strengths in distribution networks with digital innovations in newer ways to drive growth. By improving forecasting demand and inventory processes, significantly decreasing customer lead time through high investments in online fulfilment centres and converging physical and ecommerce channels Walmart built a future proof ecommerce supply chain. Resulting in having higher availability, lower inventory and a higher service level than its competitors .
The Walmart story is just one example of traditional retailers showing that supply chain management can be the key to survival for traditional brick-and-mortar retailers. Based on our experience in retail industry we see four key trends that support traditional brick-and-mortar retailers in their journey towards renewed growth:
Order orchestration: how managing supply holistically contributes to the consumers’ all channel experience
Consumers have more choice to obtain information about products, more different ways to order products and services, and there is corresponding expectation to track & trace post-purchase in different ways. To put it short: fulfilment gets more complex.
With order orchestration the traditional silos of planning and execution are taken down. Supply planning information, order management, allocation, and inventory are brought together for all channels. And that is really needed for omni-channel retailers to keep up with stiff competition.
Order orchestration provides a global view of inventory availability and fulfilment routes, it brings together traditional store network supply chains and the ecommerce channel. Orders not necessarily have fixed fulfilment routes. For example: an ecommerce order can be fulfilled from a physical retail store given inventory and service trade-offs.
There are packages available that manage all-channel demand and fulfilment, such as Manhattan Associates’ Distributed Order Management or IBM’s Sterling Commerce. These packages are typically bridged between a company’s ERP systems to capture orders and the fulfilment systems such as WMS to manage operational fulfilment.
Supply Chain Analytics: how analytics can lower inventory, increase availability and decrease transportation cost
As mentioned in previous blogs, data is the new oil of this era. Retailers possess large amounts of data that can be valuable source of operational efficiencies and bottom line supply chain cost reductions:
- Due to the increase of ecommerce orders retailers’ distribution networks becomes increasingly complex. By applying big data and advanced analytics retailers can simplify their distribution networks and dynamically optimize routing. State of the art transport management systems incorporate business intelligence capabilities enabling this distribution network and dynamic optimization.
- Retailers are facing more volatile demand, unpredictable returns and a growing assortment. Because of this volatility and unpredictability forecasting accuracy seems to be under pressure. Meanwhile customer requirements in terms of product availability have only increased. Our experience shows that big data is an important tool to handle increased volatility and unpredictability. Incorporating these complexities enables retailers to significantly improve forecast accuracy, resulting in decreased inventory levels and increased product availability.
Last mile logistics: how supply chain collaboration enables shippers to decrease supply chain cost
Last-mile delivery is a major cost driver in most retail supply chains. It is therefore not surprising that for most omni-channel retailers last mile logistics is a key area of supply chain innovation. Walmart for example started pilots in New York and San Francisco for same day delivery by bike messengers and DHL has done trials with drone deliveries. These developments are interesting, however scalability is still an issue. Especially in non urban areas Uber alike parcel delivery models will have trouble to be more cost efficient than traditional parcel carriers such as FedEx or UPS.
An important way to decrease transportation cost in last mile deliveries is to increase the number of orders per drop. Supply collaboration enables shippers to combine orders in such a way that last mile logistics cost can be reduced significantly. Although supply collaboration can decrease supply chain costs, it also requires some hard choices for retailers. It requires some tough negotiation between competitors and will disrupt the role of parcel carriers. Furthermore, it brings some technological challenge, since a collaboration platform is required to combine shipments. Despite these challenges we think supply chain collaboration can be the next big enabler for efficient last mile logistics.
Click and collect: one of the new competitive edges of traditional retailers
Click and collect enables brick-and-mortar retailers to bridge the gap between online and offline retailing. By doing so, click-and-collect can be a big enabler for sales growth for omni-channel retailers. Physically and technologically retail stores have to turn into online fulfilment centres with endless aisles. To enable this transformation of deploying stores as online fulfilment centres inventory visibility is a must have, as such one of the enablers of order orchestration. A retailer has to know the inventory levels per SKU in all channels and stores in order to determine what the most suitable fulfilment method and location. This increased need for visibility requires integration between ERP systems, POS systems , WMS and order management systems. It might even require the implementation of a dedicated IT solution that offers system wide visibility.
The retail industry is facing major challenges. By applying order orchestration, a revised last mile logistics setup, adoption of advanced supply chain analytics and true converging between physical and ecommerce channels both traditional brick-and-mortar and ecommerce retailers can turn these challenges into opportunities over a new competitive edge.
So are you up for the challenge? Let us know what your major supply chain challenges will be in the coming year...