Retailers are faced with delivering an ever more complex and diverse offering to their customers. Meanwhile, customers are increasingly better informed and more demanding, using different modes of shopping at different times. In a multichannel retail world, with increasing use of the internet, it would be easy to assume that the retail store might soon be redundant. Instead, forward thinking retailers are integrating their supply chains across different channels, and reorganizing around the customer: using customer information to personalize offerings, and creating relevant retail environments, which reflect core customer values-moving from being product-centred to customer-centred. So the store is becoming an increasingly important constituent in the supply chain.

For customers of a large retail chain-wherever they shop-they are dealing with the same brand. They expect a personalized service to reflect their needs, whether in different formats of a store, or online. Many retail organizations focus their efforts on the right web site and the right "multichannel offer." However, real retail differentiation comes with the ability to offer customer-enticing services and to deliver against bold commitments. Circuit City's "24/24" offer, Argos's "Click&Collect" and "One-Hour Delivery" from Sainsbury's are great examples of the ability to marshal cross-department resources to get it right for the customer.

Recognizing how important experiences from different retail channels are to a customer's perception of their brand, retailers are integrating services across channels, in order to deliver a more seamless customer experience. Employees and customers need to be able to access consistent information from multiple sources, regardless of channel: point of sale, kiosks, catalogues, call centers, internet, etc.). Examples of cross-channel services include:

• Viewing purchase history online

• Receiving "in-stock" notification

• Accessing online shopping list in store

• Viewing in-store availability while browsing online

• Using online promotions in store

• Viewing in-store events online

• Registering for in-store events online

• Reserving online, pick-up in store

• Using cross-channel gift card/certificate

• Buying online from store

• Buy online, return in store

• Accessing cross-channel loyalty programs

Delivering such integrated services correctly is key to improving customer experience. Research highlights that putting the customer at the forefront of operations delivers real benefits. Key to future retail success in a world of open information, operational complexity, and tough competition, is the ability to get customers to advocate and promote your products and services. Thirty-one percent of customers pass on bad experiences. But 79 percent will actively commit to a deeper relationship after a satisfying experience.

Today's retailer needs the ability to make and commit to an ever more complex set of service promises, driven by the need to keep up with market and customer demands. Pressure is being leveled on supply chains, to ensure marketing and sales promises are fulfilled 100 percent. Innovative solutions are being applied to help traditional product-oriented supply networks to mature into customer-centric supply chains, with the retail store as a key component. Despite huge growth in online sales, three emerging trends are reinstating the retail store as the central focal point for the customer:

Greater brand reassurance from a physical presence. As brands are extended across multiple channels, customers will endow greater trust in a brand that retains physical stores than they will to online stores. Retailers with a physical presence will therefore benefit from greater loyalty.

The need for a physical pick-up point. Most online retailers operate a home delivery offering. However, with all adults in a household frequently working during the daytime, it is often not convenient to deliver to the home. A retailer with a physical store presence offers its customers a more satisfactory experience, by giving them an option to collect in-store. Items ordered online can be picked in-store, ready for the customer to collect, perhaps on their journey back from work.

The negative experience associated with web returns. Online retailers need a simple means whereby customers can return goods. It can be quite a negative experience to have to repack an unwanted item, and arrange to send it back to the retailer. For example, there is a trend for customers increasingly to purchase clothing items online, but return unwanted items in-store. In such cases, those online retailers with a physical presence deliver a more satisfactory customer experience.

Developing Store-back Approaches to Supply Chain Management

With the status of the store in the supply chain established, it is perhaps surprising that retailers have traditionally focused on stimulating demand through new products, services and markets-rather than supply-side innovations.

The resulting underinvestment in operations leads to short-term tactical solutions, rather than enduring strategic ones. For retailers with a large stores portfolio, the multiplier effect is dramatic. The cost of ignoring this need to make strategic changes in store operations is high, albeit not immediately visible.

A framework, consisting of five focal themes, attempts to address how to manage the sensitive balance between meeting customer needs (demand) and providing the right goods and services, at the right time, in the right way, to an agreed standard (supply), while managing resources in order to make a profit.

The five levers are:

1. Payment, and in particular queuing to pay, still remains the biggest source of customer dissatisfaction. It attracts even more complaints than the price of goods and services. Viewing store operations through the lens of payment logically connects a series of processes, recognizing similarities and identifying opportunities for improvement. At Jackson's Stores (a U.K. convenience store) a system called Shop Scan Save has been introduced. This is a club whereby members save money on their shopping, receiving discounts via their mobile phone. For example, if you wish to purchase washing powder, simply text "washing powder" to a specified number, and an offer will be sent to your phone immediately. To redeem any offer, the customer merely presents his membership barcode at the cash register, and the discounts are applied automatically.

2. Self-service-the trend for self-service can be witnessed at ATMs, during cinema and theater ticket bookings, airline self check-in and at fast-food restaurants. Retailers are at an early stage in truly understanding, implementing and exploiting self-service. At the METRO Group in Germany, Self Check-Outs have been installed across its hypermarkets and supermarkets. Recently they started testing a "Future Check-Out" with separate unattended scanning and pay stations. Metro has recognized that the payment process is faster than the scanning process and has reduced queue lengths by installing more scanning stations than pay stations.

3. Information where and when needed-in the most appropriate form, provided in the most appropriate way, precisely, when needed, and when it will be used. Boots, the U.K.'s leading health and beauty retailer, has implemented an in-store employee portal to support store managers and their teams in delivering improved customer service. Accessible through PCs, checkouts, and mobile devices, the portal delivers a wide range of information and applications, including live sales and stock data, training information, and advice on serving customers.

4. Management and leadership-good retail managers intuitively do the right things, but the real challenge is to embed good shopkeeping principles into the less capable manager.  Supporting store management by providing guidance, leadership, and training, is essential in creating a successful store. Burdening store managers with centrally created problems often prevents them from focusing on store-related issues. The Reject Shop has implemented a centrally-managed portal to deliver back-office applications to its 100 stores across Australia. Benefits include dramatically improved decision-making, in-turn delivering reduced costs, increased productivity, more time to serve customers, better relationships with partners and suppliers, and a more uniform customer service and store presentation.

5. Closely coupled retailing-recognizing the integrated nature of tasks, activities, processes and technologies to ensure that they work. At Marks and Spencer in the U.K., a key performance indicator is the customer conversion rate-the number of transactions divided by the number of people entering a store. This shows how many people are not buying-and is now measured by store department. It is used as a tool to measure the effectiveness of innovations, be it store layout, or getting the right staff in the right location, at the right time.

The examples above show how retailers have focused on each one of the levers to deliver innovations in store operations, and thereby improved customer service. This is a "Store-Back" approach to supply chain management-enabling a holistic, store-centric view, working back from the desired end-state outcomes in-store, towards the supply and support facilities that service the store. With the increasing importance of the store in a multi-channel retail environment, store operations effectiveness will be a key competitive differentiator.

Keith Burgess is a senior managing consultant in the IBM Global Services Supply Chain Practice, where he specializes in supply chain strategy and planning in the retail industry. Contact: [email protected].