To succeed in today’s competitive environment, retailers must meet consumer expectations for speed and convenience by adapting supply chains designed for single channel to deal with an omni-channel world. To do this, it’s vital to maximise efficiency in the supply chain and ultimately reduce lead-time. Here we investigate what’s driving changes in the retail industry and how to create an agile and responsive supply chain.
Shoppers are increasingly buying online as opposed to in-store and ecommerce is the fastest growing retail market in Europe and North America. In 2017, total e-commerce online sales are expected to increase to £230.62 billion, a rise of 14.2%. Although online sales don’t carry the overhead costs of traditional stores, there are still cost implications such as high return levels, borderless transportation costs, 24-hour stock position and availability challenges.
Omni-channel strategies are driving the trend towards consumers shopping online with purchases ultimately being fulfilled across multiple channels. Smart-phone shopping has also increased, particularly amongst millennials, and mobile purchases now account for half of all UK ecommerce purchases. A consumer may find a product online in an evening, try it on in store next in the morning, order on the mobile for home delivery on the way to work, for it to be fulfilled from any store that has stock. Omni-channel is driving convenience and high fulfilment rates as some retailers take a holistic view of its stock – whether it’s held in a centralised distribution or store.
There is also a trend of blurring seasons, moving away from the traditional S/S and A/W ranges, which (compounded by Northern and Southern hemisphere retailing) means the need to quickly react to consumer demand is more challenging than ever.
Disruption is the norm
We are already seeing how leading retailers, such as Amazon and ASOS, are disrupting the landscape. Uniquely placing themselves in front of the consumer and offering unparalleled convenience and choice. So much so that the established brands are increasingly seeing these market places as areas of volume growth and they are having to adapt and change their supply chains to accommodate. This, in turn, dictates the customer offer and has a huge effect on the supply chain, especially if it needs to maintain those service levels.
Zalando’s experience is a good illustration of where the disruptive marketplace is having a significant impact on fashion supply chains. The company is investing heavily to battle fierce competition from other online retailers, particularly Amazon. Zalando aims to offer increased convenience, such as same-day delivery and easy returns, as well as enhancing the digital consumer experience. However, this is driving fulfilment costs up and is changing the perception that online retail is cheaper.
Around the corner, a new wave of private equity backed ‘pureplay’ retailers are set to challenge the fashion industry in the coming years. All these factors, coupled with no-cost returns, price comparison sites and reviews, puts real pressure on the retail market.
What does this mean for the supply chain?
Unfortunately, a recent report by McKinsey found that many supply chains are optimised for stores – not online or omni-channel – and this results in poor cross-channel coordination:
“Many of today’s retail supply chains are simply not set up to handle this demand for speed and convenience in a cost-effective way, and are already creaking under the strain of the new multichannel world. Either retailers build a transformative set of supply chain capabilities to compete in this new world or they will struggle to survive.” McKinsey The Future of Retail Supply Chains.
The optimum performance metric in a supply chain is lead-time reduction and shortening the timeframe from concept to cash. The lead-time from product conception, through initial design and testing, supplier on-boarding, distribution and logistics to finally receiving cash in the bank must be as short as possible. This rapid turnaround means that every link in the supply chain must be strong. The move from ‘on-shelf availability’ to ‘on-demand availability’ is particularly relevant in fashion retail; production lead times differ wildly across retailers and across categories anything from 30 to 90 or more days. If inefficiencies cause delays of multiple days to a week along the way, it can not only lose a customer, but also significantly impact cash flow.
A buyer who has a significant capital outlay on a new range will ultimately be looking at how quickly that investment can net a return. However, retailers are not just concerned with ‘shipping stock’. To protect their brand, there are very many steps in the expanded supply chain that must take place before product can leave the factory. Retailers must be highly diligent in how they source product. They must be ethically compliant, conduct stringent product testing, pass quality assurance, packaging and labelling requirements need to be arranged, as well as ensuring the product passes local market legislation. This chain takes time, with multiple stakeholders across a wide geographical reach handing off to each other through the supply chain, and each stage creating potential bottlenecks that impact speed and reaction time.
In the world of transport and logistics one, two or three days’ delay is critical and yet in the expanded supply chain, with multiple hand-offs and milestones, delays in the product lifecycle process can often stretch to three times this delay.
On the flip-side it also means there’s a lot of opportunity in many retail supply chains to cut out redundant time. Some might say that in the evolving consumer-led retail market we live in, it’s a necessity.
So how do retailers develop these capabilities?
Closing the physical and non-physical gaps in the supply chain
The physical supply chain focuses on the time it takes to produce and ship a product. The non-physical supply chain deals with the time it takes for order processing and administrative elements such as pre-planning, buying decisions, cost analysis and placing orders.
Zara and Uniqlo are often cited as best-practice in terms of lead-time reduction. Zara actively takes feedback about garments in-store and gathers insights into what’s selling or not selling. This means they can move the right stock at the right time for shorter lead times. While Uniqlo intends to reduce its design-to-delivery cycle down to 13 days.
Achieving lead-time reduction in a supply chain
Many third-party logistics providers and software companies get caught up in different elements of the supply chain and lose sight of the bigger picture. Some still talk about systems replacing spreadsheets. But in logistics today, leading providers have gone way beyond disjointed systems. The market requires sophisticated systems that deliver not just data, but root-cause analysis and actionable information.
Allport Cargo Services is concerned with the bigger picture and improving retailers’ ability to manage lead-time in their supply chain. To do this we work closely with sister-company and supply chain platform, Adjuno.
There are big wins to be made in having a responsive, agile system that captures data accurately, identifies the critical path, chases by exception and allows you to actively manage your supply chain. Retailers can use insights to identify trends using business intelligence tools. For example, if sampling is supposed to take three days and it repeatedly takes five, what action can be taken to improve this?
Allport Cargo Services and Adjuno have developed the critical path tools of Liberty (upstream) and LIMA (downstream), which means we’re uniquely placed to show end-to-end where efficiency can be improved:
The challenge for retailers
Ultimately, it’s all about velocity of cash in the business; the longer the lead-time, the more cash is tied up, the less it’s worth to your business. It’s only once retailers have designed a fast, lean supply chain that they can become more nimble and reactive to changing consumer needs. Simplicity is key in creating a supply chain that can adapt quickly in a complex environment. Tools like Liberty and Lima, which help retailers manage their critical path, all support the objective of time compression and ensuring diligence at each step of the concept-to-cash process. This is where the supply chain can truly enable a business and success is as much about process excellence as it is technological excellence.
Authors; Clyde Buntrock, Vice President Sales & Marketing at Allport Cargo Services & Rowena Roberts, Solution Design Director, Adjuno.