Visit Our Sponsors
It has become obvious to anyone doing business in the retail sector that the industry has and will continue to undergo radical change. The reason is, of course, the internet and the explosion of e-commerce. But traditional retailers and online upstarts alike know that the picture is more complicated than that. They need to be able to satisfy customer demand wherever it originates, providing an unprecedented degree of choice for the buyer while simultaneously controlling costs. Following are excerpts from conversations between SupplyChainBrain editors and industry experts on how they’re adjusting to this frenetic pace of change, conducted at various locations over the past few months.
Chris Baker, Partner, Oliver Wyman: The role of supply chain and operations is becoming pretty interesting in retail. For me, it’s quite exciting. What has historically been a behind-the-scenes supporting role is coming to the fore. At the same time, it’s bit frightening, because whether it’s start-ups that are coming in with a disruptive mindset, or the likes of Amazon.com, who’s becoming the big incumbent player, there are challenges from all fronts. What was historically a linear value chain is getting upended. You’ve got retailers becoming consumer packaged goods [producers], and CPGs going direct to the customer. It’s a world where anything goes now.
Pooja Agarwal, Vice President Operations, Birchbox.com: Right now, the challenge in fulfillment and transportation is how we get customers things fast, but also at the price they want and expect. With Amazon.com coming into the game, the expectations of consumers have changed. On the transportation side, the piece that’s been challenging is giving them free and fast shipping. For us it’s particularly challenging, because we don’t have many retail stores to pull on, to get it directly to consumers, so it’s a question of how we leverage new types of transportation models. Whether that’s regional carriers or consolidators that skip steps in the Postal Service, on the subscription side it’s been creating a whole new business model that didn’t exist before, except for periodicals and things like that.
Charles Armstrong, Founding Partner, Orion Advisors Group: In response to the omnichannel customer who’s creating the pull, organizations are making sure that they offer variety, fresh inventory and innovation, to satisfy customer demand. What comes along with this, unfortunately, is an increase in the number of SKUs that the organization has to make available. This creates complexity. It has to be integrated throughout the organization, inclusive of the supply chain. All waste and inefficiencies end with the supply chain.
The solution is to create a supply-chain-centric metrics process. In a product launch, for example, we understand where we’re going to add SKUs. At the same time, we have to have a strategy that allows us to address how we’re going to exit that SKU, and decide the strategy for clearing that inventory. In the process, we’re eliminating excess capacity and markdowns. If an increase in the number of SKUs is a requirement, how do we minimize complexity in terms of the planning process, so as to make sure that the marketing organization is prepared to phase out inventory, supply chain is prepared to start decreasing inventory, and procurement is based on a planned elimination schedule? How do we ensure that the infrastructure required for those launches is timed with them?
Mike DelBovo, President, Saddle Creek Transportation: In-store fulfillment has been the easy way that companies can start with omnichannel fulfillment. They basically took inventory off the shelves and, as same-store sales declined, supplemented it with fulfillment operations. But that’s been a challenge for a lot of mid-sized retailers. They’re having difficulty with consistent operations between one store and the other. Inventory that they thought was at a store isn’t there. It could have been misplaced, or theft could have happened. They can’t fulfill their orders as expected. Plus, you have social media out there, with people complaining loudly and often if their orders are not fulfilled perfectly. So in-store retailing has become more of a challenge for the omnichannel.
Baker: If I’m a traditional retailer thinking about the world today, I’m looking to get a good understanding of the strategic landscape. The answer is going to be very different depending on your industry, region or market. There’s definitely not a one-size-fits-all strategy. Understanding the demographics, determining whether certain products are well-suited for a multi-channel role: these are really important baseline questions.
The second thing retailers need to think about is the assets they have, and the strengths they can bring to this fight. It’s not the right idea to try to out-Amazon Amazon. The physical footprint of your store network, and the ability to build relationships with customers and nurse them over time — these are things that you’ve taken 10, 20, 30 years to build capabilities around. You need to think about how you can leverage those in your multichannel strategy.
Chris Elliott, Senior Strategy Consultant, Blue Horseshoe Solutions: The opportunity that companies are missing in today’s environment is the ability to react to customers quickly. There’s historical precedent for this. In the late 1800s, Sears, Roebuck redefined customer service. Now, e-commerce has given us another opportunity to do the same. We used to have rock-solid guarantees; what companies are missing now is the ability to respond to customers in a way that satisfies them more than they’re doing now. A lot of people have the feeling, when dealing with e-commerce companies, that they’re talking to a wall, or communicating by e-mail. Especially for high-value or high-margin clients, there’s a huge opportunity to add a personal touch that’s missing, so that you can engage with them, bring them into your community, and give them the opportunity to be better customers. They’ll provide you with a better margin as long as you’re providing them with better service.
Tom Enright, Research Director, Gartner: I’ve been working with retailers for 25 years. Some still struggle with things like accurate store inventory, the reliability of the numbers, and doing everything in real time. These concepts have been around as long as retail has.
Chad Collins, Chief Operating Officer, HighJump: We’ve been working particularly hard in the grocery area. We’re seeing a lot of activity there. Think about a grocery order — it’s a lot different than a typical mass-merchant order, which might have one or two items. A grocery order might have 15, 20, 25 items on it, and all of them need to come from different areas. You need to coordinate items that might be coming from the bakery, deli, frozen foods and dry goods areas of the store, so that they’re ready for consumers when they come to pick up their online grocery order. It’s challenging to put this initiative in place for a lot of retailers. Often they only have inventory visibility for items leaving the distribution center and passing through the point-of-sale system, and don’t understand the inventory in between. If you’re going to promise orders to online customers who want to pick up or ship from the store, you have to have good visibility and accurate inventory at the store level. A lot of technologies are coming onto the market that help retailers handle inventory within the store itself.
Baker: Historically, end-to-end inventory management has been more of an internally facing capability. The need to be able to look across your entire supply chain, to interact with your vendors and give them good information — world-class leaders have always done that. Now that’s part of the customer-facing operation as well. The ability to tell someone where their order is, where you sourced that product from, is becoming a differentiator on the front end. End-to-end inventory visibility and management is becoming not just a cost-management capability, but is now a differentiator as well.
Collins: When you have a stockout with somebody coming into your store, that’s a big challenge. But it’s not as bad as somebody who places an online order, comes to the store expecting to be able to pick it up, and the inventory’s not there. Anytime there’s an inventory issue at the store level, it slows down your progress toward fulfilling orders from the store itself.
Baker: Many years ago it was a very linear supply chain, going from A to B to C. Even a few years ago, there were a couple of parallel paths. It was either A to B in a store setting, or A to B in an online pure-play setting. Now it’s a many-to-many thing. You’ve got many different points of pickup and ways to fulfill customer needs and pickup points. The complexity is multiplying in a way that a lot of retailers are struggling with. But as long as you focus on what your customers actually want, and think about the highest priority fulfillment channels are, you’ll get to the right balance of meeting customer needs and getting the cost equation right.
Enright: We define direct consumer selling as brands or manufacturers who don’t have their own stores, and wish to start selling their products online directly to members of the public. A typical example is the brand of shampoo that we buy in the supermarket. The manufacturer of that particular shampoo can start to sell it directly to us online through its own website.
Probably the biggest challenge that retailers have is a lack of commitment. They don’t necessarily see this as a genuine revenue driver that they need to put their full business commitment behind. Often it starts as a project on the side. If it doesn’t have the right level of commitment, it can fail quickly, without making too much of a difference. Companies need to be fully committed from the top down, saying, “This is a new method by which we can derive revenue. It’s just as important as all of the other things we do. Let’s get behind it.”
When you start selling directly to consumers, they essentially view you as a retailer. That’s one of the challenges for these companies. They need to think and act like retailers. In the eyes of the consumer, if I buy something online, I’m going to judge those guys just like I judge retailers.
Collins: Retailers have brick-and-mortar locations close to the consumer. Progressive retailers are now looking at that inventory, and ways to fulfill orders right out of the store. That gives them an advantage over pure-play e-commerce companies.
Scott Spata, Vice President Supply Chain, The Home Depot: For The Home Depot, service starts with the customer. We sit down with our customer base, do a lot of interviewing, bring in groups that we talk to about how their behaviors and buying patterns are changing. As we talk to them, we learn all kinds of things that apply to processes, programs or offerings that we currently have. More importantly, we learn about opportunities to launch new initiatives to drive service that they don’t get today, such as the option to buy online and deliver from store. With I.T. support, we’ve built out that code. In New York, for example, a lot of people don’t have cars and need it delivered. We like to say that they can order what they want, when they want it and how they want it.
What’s happening now is the mix of in-store and online. Fifty percent of our customers now start their shopping experience online. They may transact in-store or on our website. We only need to ask them one question: Do you want it delivered, or do you want to pick it up? Or we can deliver direct from distribution centers at the lowest cost — that’s the most efficient way for us and the customer as well. All that has changed in the last several years — the ability to search and transact online, and deliver directly to customers or have them come pick it up. Now that we’re selling those capabilities, customers have an enhanced experience.
Joe Quinn, Senior Director of Public Affairs, Wal-Mart Stores Inc.: We’re a company that has several advantages. We understand our core customer. The act of driving to the store and walking in and purchasing your groceries that maybe were produced locally, that’s never entirely going to go away. Where we’re unique is that we’re also spending a tremendous amount of time getting better every day at e-commerce, using smart people to design systems to take us into the future. [We want to be] a company that can still serve your needs if you’re walking in the front door to buy groceries, or if you’re ordering your new electronic device online, and we want to ship it to you that day. The advantage we have is that we’re a company that can be very effective at doing both. We are surviving and thriving in this complex marketplace right now, and we’ll continue to do so.
Enright: The leading retailers are becoming increasingly consumer-focused. They’re jumping to the tune of the consumer in many ways. If they see a market for direct-to-consumer as well as buying in store, they’ll say, “I need to be part of that. I need to change the way in which I work, and to recognize that this is a trend.” I can see it spreading into virtually every single area. Probably grocery is the one that’s strongest right now, in terms of its likely adoption at an above-average rate for the foreseeable future.
To view the video in its entirety, click here
Timely, incisive articles delivered directly to your inbox.