Executive Briefings

Here's What's in Store for the Retail Supply Chain in 2011

Last year was truly progressive in the retail industry. The recession created a more selective, value-conscious consumer, and retailers, hungry for sales, responded by becoming more strategic and capitalizing on their existing resources in new and innovative ways. Savvy retailers looked within for ways to squeeze costs out of their supply chains while keeping up their conservative growth strategies. That kind of forward-thinking was born out of the recession but is here to stay. Here's my take on what trends will shape the retail supply chain in 2011 and move it forward.

An integrated e-commerce strategy

One of the main areas that will gain greater importance is e-commerce, which means different things to different retailers, but is essentially the buying and selling of products or services over electronic systems such as the internet and other computer networks. Studies show that consumers are buying more and more products online, and if retailers want to tap into this trend, they naturally have to have an e-commerce presence to begin with - and a good one. The economic uncertainty of the past few years has served to increase retailers' focus on the profitability of the e-commerce channel. It's simply a way to grow business with less capital in terms of not needing to buy land or open a store. It's also a way to manage inventory better, whether items are shipped to the end consumer out of a distribution center or drop-shipped directly from the vendor to the end consumer. Retailers can simply leave their goods in the distribution center until they know they've got a buyer for them. And with drop shipping, a retailer doesn't even have to carry inventory.

We're starting to see - and will continue to see - retailers think about their e-commerce business becoming more integrated with their traditional business. E-commerce traffic can drive store traffic and vice versa, and companies taking advantage of that can grow their business by leveraging both in an integrated way. In any multi-channel retail consumer interaction, traffic and sales are being driven from one channel to the other. For most retailers, the best way of grabbing a piece of the pie is an e-commerce system that's fully integrated with the retail software they're using in their brick-and-mortar stores. As the once clear line between online and offline sales becomes permanently blurred, crossing channels is a proven revenue driver and retail's top innovators are finding ways to bring consistent, meaningful experiences to customers where they do business. An integrated e-commerce solution eliminates the extra effort and expense of maintaining inventory in multiple systems. Imagine how much time and money retailers could save by using just one system to manage their retail stores, warehouse and e-commerce site.

The collect model decreases transportation costs

Transportation management systems (TMS) will remain at the top of many decision makers' priority lists in 2011 in anticipation of a total recovery. In fact, according to analyst firm Gartner, the need to reduce transportation costs will drive TMS market growth through 2013. In particular, we'll see an increased demand and interest in retailers looking to save costs on their transportation spend, which is a big component of their overall expense. There are a number of reasons for this. Some of it is driven by e-commerce. For example, if a retailer has grown its e-commerce business, they have likely grown their number of small packaged shipments. As these shipments become a significant part of their overall transportation spend, retailers are looking for ways to improve transportation efficiency.

Some retailers are starting to do this by moving from a pre-paid to collect model, where they can take more ownership of inbound vendor shipments into their distribution centers by managing the carriers, and by having all of those shipments placed on the retailer's bill as opposed to the vendor's bill. Retailers can often get a better volume discount than vendors can, and have a way of knowing exactly what they're paying for in terms of transportation costs.

New data sharing expands retailer-supplier collaboration

Sharing sales and inventory data will become more commonplace between suppliers and retailers. The real benefits come about when the retailer is providing the supplier with information relating to their product's performance in terms of sales, stock, future demand, etc. Some information, even if a little inaccurate, is better than none at all for the supplier when it comes to their own supply chain planning. When the retailer shares plans with their supplier, the supplier is better able to supply. However, until recently, the amount of money and effort it took for companies to implement the systems to support these data-sharing processes was high. It required building complex data stores to hold and manage all of this historical data, and a set of business intelligence tools to allow end users to make sense of the data.

What has recently happened is that Software-as-a-Service (SaaS) or on-demand providers have developed ways of delivering these same capabilities to both the retailer and supplier at a much lower up-front price point. SaaS will enable many mid-sized retailers to start sharing data with their suppliers for the very first time, and enable some of the larger retailers to share and implement these processes with even more of their vendors than they originally were.

Conclusion

Retailers have already begun re-evaluating their business and how their current supply chain structure supports that business - from a strategy, process and technology perspective. If 2010 is any indication of what's to come, 2011 will be a successful year for retailers and their trading partners.

Source: SPS Commerce

Last year was truly progressive in the retail industry. The recession created a more selective, value-conscious consumer, and retailers, hungry for sales, responded by becoming more strategic and capitalizing on their existing resources in new and innovative ways. Savvy retailers looked within for ways to squeeze costs out of their supply chains while keeping up their conservative growth strategies. That kind of forward-thinking was born out of the recession but is here to stay. Here's my take on what trends will shape the retail supply chain in 2011 and move it forward.

An integrated e-commerce strategy

One of the main areas that will gain greater importance is e-commerce, which means different things to different retailers, but is essentially the buying and selling of products or services over electronic systems such as the internet and other computer networks. Studies show that consumers are buying more and more products online, and if retailers want to tap into this trend, they naturally have to have an e-commerce presence to begin with - and a good one. The economic uncertainty of the past few years has served to increase retailers' focus on the profitability of the e-commerce channel. It's simply a way to grow business with less capital in terms of not needing to buy land or open a store. It's also a way to manage inventory better, whether items are shipped to the end consumer out of a distribution center or drop-shipped directly from the vendor to the end consumer. Retailers can simply leave their goods in the distribution center until they know they've got a buyer for them. And with drop shipping, a retailer doesn't even have to carry inventory.

We're starting to see - and will continue to see - retailers think about their e-commerce business becoming more integrated with their traditional business. E-commerce traffic can drive store traffic and vice versa, and companies taking advantage of that can grow their business by leveraging both in an integrated way. In any multi-channel retail consumer interaction, traffic and sales are being driven from one channel to the other. For most retailers, the best way of grabbing a piece of the pie is an e-commerce system that's fully integrated with the retail software they're using in their brick-and-mortar stores. As the once clear line between online and offline sales becomes permanently blurred, crossing channels is a proven revenue driver and retail's top innovators are finding ways to bring consistent, meaningful experiences to customers where they do business. An integrated e-commerce solution eliminates the extra effort and expense of maintaining inventory in multiple systems. Imagine how much time and money retailers could save by using just one system to manage their retail stores, warehouse and e-commerce site.

The collect model decreases transportation costs

Transportation management systems (TMS) will remain at the top of many decision makers' priority lists in 2011 in anticipation of a total recovery. In fact, according to analyst firm Gartner, the need to reduce transportation costs will drive TMS market growth through 2013. In particular, we'll see an increased demand and interest in retailers looking to save costs on their transportation spend, which is a big component of their overall expense. There are a number of reasons for this. Some of it is driven by e-commerce. For example, if a retailer has grown its e-commerce business, they have likely grown their number of small packaged shipments. As these shipments become a significant part of their overall transportation spend, retailers are looking for ways to improve transportation efficiency.

Some retailers are starting to do this by moving from a pre-paid to collect model, where they can take more ownership of inbound vendor shipments into their distribution centers by managing the carriers, and by having all of those shipments placed on the retailer's bill as opposed to the vendor's bill. Retailers can often get a better volume discount than vendors can, and have a way of knowing exactly what they're paying for in terms of transportation costs.

New data sharing expands retailer-supplier collaboration

Sharing sales and inventory data will become more commonplace between suppliers and retailers. The real benefits come about when the retailer is providing the supplier with information relating to their product's performance in terms of sales, stock, future demand, etc. Some information, even if a little inaccurate, is better than none at all for the supplier when it comes to their own supply chain planning. When the retailer shares plans with their supplier, the supplier is better able to supply. However, until recently, the amount of money and effort it took for companies to implement the systems to support these data-sharing processes was high. It required building complex data stores to hold and manage all of this historical data, and a set of business intelligence tools to allow end users to make sense of the data.

What has recently happened is that Software-as-a-Service (SaaS) or on-demand providers have developed ways of delivering these same capabilities to both the retailer and supplier at a much lower up-front price point. SaaS will enable many mid-sized retailers to start sharing data with their suppliers for the very first time, and enable some of the larger retailers to share and implement these processes with even more of their vendors than they originally were.

Conclusion

Retailers have already begun re-evaluating their business and how their current supply chain structure supports that business - from a strategy, process and technology perspective. If 2010 is any indication of what's to come, 2011 will be a successful year for retailers and their trading partners.

Source: SPS Commerce