Executive Briefings

Supply Chain Is the Critical Link for Omnichannel Retail

Analyst Insight: The retail cut of the 2014 SCM World CSCO Study reaffirms that for most companies omnichannel is a major retail supply chain disruptor and that, for a few, progress has been made. Fulfillment changes have been driven by a desire for greater speed and agility. Battle lines are drawn between online and bricks-and-mortar supply chains. As omnichannel leaders look to move from walk to run, retail’s best weapon is harnessing demand data to make smart trade-offs. – Matt Davis, SVP Research at SCM World

Supply Chain Is the Critical Link for Omnichannel Retail

Three Differentiators for Retail Supply Chains: Three years of digital demand data indicate the majority of retail supply chain organizations continue to build direct-to-consumer delivery in response to e-commerce and mobile demand. In 2014, 73 percent were establishing this connection themselves with 8 percent relying on e-tailers.

A steady increase in retailers seeing no change in fulfillment strategy – up to 19 percent in 2014 – shows that a few continue to shift toward stabilised fulfillment networks. As multichannel retail has begun to remove the separation of demand and supply data across the channels, true omnichannel operations have emerged. The way forward for supply chain will be to address three key areas.

Speed and agility. Across all industries, speed and agility in meeting customer fulfillment objectives is rated the second-most important driver of competitive advantage.  For retailers, improving supply chain speed and agility are more important to competitive advantage than any other strategy. Sixty-one percent of retailers say speed and agility are essential for competitive advantage, beating out cost reduction (54 percent) for the number one driver of competitive advantage. Retail supply chains are more driven by speed and agility than its peers (Retail – 61 percent, CPG – 48 percent, all industry average – 53 percent).

• Cost to serve. Cost to serve has gained a bad rap because many assume it is an exercise to eliminate any and all complexity. In reality it is equally about identifying the cost and the value of complexity to ensure that the right trade-offs are being made for the right customers. If cost to serve is already a tarnished term, you may just need the simple fix of changing the name. “Customer value analysis” is an easy alternative.

• SKU proliferation. Sixty-six percent of retailers plan to grow SKU portfolios, while consumer products manufacturers are less bullish at 56 percent. SKU proliferation can be a large source of hidden costs that are often not visible outside supply chain groups. Collaboration with consumer products supply chain organizations has made great progress in SKU optimization and complexity quantification in recent years. Step one is getting agreement that SKU complexity quantification has to be about estimation, not precision.

The Outlook

Is there a retail social saviour? For the third straight year, those that say social has no effect on supply chain today has fallen (2012: 47 percent, 2013: 37 percent, 2014: 33 percent). Forty percent say social is a real-time source of customer feedback… but only 20 percent say it has improved demand sensing and forecasting. In other words, only half can convert social feedback into improved demand management. Social looks most promising when it comes to expose demand risk.

Three Differentiators for Retail Supply Chains: Three years of digital demand data indicate the majority of retail supply chain organizations continue to build direct-to-consumer delivery in response to e-commerce and mobile demand. In 2014, 73 percent were establishing this connection themselves with 8 percent relying on e-tailers.

A steady increase in retailers seeing no change in fulfillment strategy – up to 19 percent in 2014 – shows that a few continue to shift toward stabilised fulfillment networks. As multichannel retail has begun to remove the separation of demand and supply data across the channels, true omnichannel operations have emerged. The way forward for supply chain will be to address three key areas.

Speed and agility. Across all industries, speed and agility in meeting customer fulfillment objectives is rated the second-most important driver of competitive advantage.  For retailers, improving supply chain speed and agility are more important to competitive advantage than any other strategy. Sixty-one percent of retailers say speed and agility are essential for competitive advantage, beating out cost reduction (54 percent) for the number one driver of competitive advantage. Retail supply chains are more driven by speed and agility than its peers (Retail – 61 percent, CPG – 48 percent, all industry average – 53 percent).

• Cost to serve. Cost to serve has gained a bad rap because many assume it is an exercise to eliminate any and all complexity. In reality it is equally about identifying the cost and the value of complexity to ensure that the right trade-offs are being made for the right customers. If cost to serve is already a tarnished term, you may just need the simple fix of changing the name. “Customer value analysis” is an easy alternative.

• SKU proliferation. Sixty-six percent of retailers plan to grow SKU portfolios, while consumer products manufacturers are less bullish at 56 percent. SKU proliferation can be a large source of hidden costs that are often not visible outside supply chain groups. Collaboration with consumer products supply chain organizations has made great progress in SKU optimization and complexity quantification in recent years. Step one is getting agreement that SKU complexity quantification has to be about estimation, not precision.

The Outlook

Is there a retail social saviour? For the third straight year, those that say social has no effect on supply chain today has fallen (2012: 47 percent, 2013: 37 percent, 2014: 33 percent). Forty percent say social is a real-time source of customer feedback… but only 20 percent say it has improved demand sensing and forecasting. In other words, only half can convert social feedback into improved demand management. Social looks most promising when it comes to expose demand risk.

Supply Chain Is the Critical Link for Omnichannel Retail