Retail supply chain leaders are faced with extraordinary challenges to lower the cost of service, while the very business model by which customers are served is changing. With improving, even "cautiously optimistic", but still shaky retail and consumer sentiment as a backdrop, they are being tasked with innovating for growth and adapting to ever changing product assortments, packaging, suppliers, regulations and priorities.
The retail business model is in transition, as e- and m- commerce force new priorities and practices. In 2010 e-commerce channels clearly demonstrated that they are the new growth vehicle for retailers, and the volume of announcements around the growth of web sales at leading retailers only grew louder as the year went on. As a result, growing "same shopper" sales while attracting new consumers to e-commerce and m-commerce sites will be the new standard in retail.
Retail supply chains are challenged by this shift to improve supply chain execution to take, manage and fulfill omnichannel orders, without increasing the cost of doing business. This is a tall order, when customers have come to expect free shipping and an array of shopping, pick-up and delivery options. Further, what makes sense today, may not make sense tomorrow and the scenarios that are most cost/service effective for different products for each retailer will vary. It is time to rethink and redesign retail supply networks, with an understanding that the dial is moving… agility, flexibility and responsiveness are crucial.
The three major tenets of our Supply Chain Predictions for 2011 are as follows:
• E- and m- commerce Growth Changes Everything. Retailers will examine how their immediate DC design/product flow/capacity, distribution and supply networks satisfy customer order fulfillment needs as order volumes shift across channels. The issue at hand is maintaining or improving operational efficiency, while planning for demand variability, amidst intense pressure on inventory cost control. This requires the seamless integration of information and processes across channels.
• Sustainability matters. In this context, I am referring to organizational sustainability, which encompasses the financial, social and environmental aspects. It is difficult to separate these pillars of sustainability in retail because many "green" initiatives contribute to higher levels of efficiency and ultimately financial success, based on implied notions of fulfilling brand promise, transparency and attention to quality and value.
• Agility, flexibility and responsiveness are crucial. The globalization, localization and socialization of retail and the shopping experience are driving retailers towards a tipping point in customer driven responsiveness and service. This tipping point will force a fresh view on supply chain strategy and tactics. Retail has always been dynamic and customers somewhat unpredictable, making scientific analysis and forecasts necessary, but only near perfect for a moment in time. Supply networks will have to be tuned regularly, accounting for perpetual shifts in customer demand and product supply. Agility, flexibility and responsiveness must not be forsaken in the drive to efficiency.
The 2011 Global Retail Supply Chain Predictions
Prediction #1: Companies will seek methods and business models to help manage complexity while calibrating to an uncertain economy.
Our surveys suggest that reducing costs and efficiency are paramount. However, business and broader economic and global pressures will drive innovation in intelligent supply networks. Expect the following:
• Top line improvements tied directly to supply chain performance.
• A relentless drive to efficiency and responsiveness.
• Internal and external collaboration improves as applications embed collaboration into the workflow
Prediction #2: Retailers get back to basics, by investing in technologies that make complex supply networks less complicated, more productive and attentive to the customer.
Retailers will embrace real-time analytics for integration of planning and execution to respond to demand variability at the point of consumption. Supply chain professionals will have end to end visibility with decision support to adjust the flow of goods in response to demand variation. Expect the following:
• BI and analytics tools enable supply chain organizations to improve decision-making at the strategic, tactical and operational level.
• Global access to actionable information.
• Visibility with decision support enables responsiveness
Prediction #3: E- and m- commerce success upsets th status quo in retail supply networks.
As e- and m-commerce channel sales grow in volume and importance, retailers work on multi-level omni-channel inventory optimization to minimize total landed cost of product to consumer and maximize the customer experience. Additionally, supply network strategy and distribution tactics need to be reevaluated as business moves online. Expect the following:
• Strategic supply network planning needs to happen more frequently.
• Redefinition of sourcing and distribution tactics.
• Implementation of multi-level omni-channel inventory optimization to minimize total landed cost of product to consumer and maximize the customer experience.
Prediction #4: Retailers invest in intelligent, instrumented and interconnected capabilities to achieve competitive advantage in the supply chain.
An increased need for unit level distribution and shipping will drive automation in the DC. SaaS and cloud capabilities increasingly help retailers invest in technologies now, enabling faster innovation and transformative investments for the future. Sensors, telematics, mobility and GPS enable new levels of automation and warehouse efficiency. Expect the following:
• Retailers apply current best practices and automation to improve product distribution flow, especially as it relates to unit level distribution.
• Retailers that invest wisely in cloud computing, automation, mobility, GPS, telematics and sensor technologies will be able to deliver unparalleled value from supply chain operations.
Prediction #5: Retailers realize fulfillment excellence is just as important as the customer shopping experience.
A great customer shopping experience falls apart if the final leg of the transaction fails with a poor delivery, receipt or returns process experience. Expect the following:
• Omni-channel demand requires fulfillment excellence.
• Investments are made in order management, order execution and order fulfillment applications, logistics, warehouse and labor management tools.
Prediction #6: Ensuring product quality and value demands new vigilance in attention to detail and internal and external standards.
Our 2010 SC survey results indicate that retailers hold quality as the #1 supply chain initiative. Simultaneously attaining superior quality and value metrics demands attention to supply network, processes and consumer expectations. Leading retailers will set a new bar for transparency enabling, consumer visibility to item information and product traceability. Expect the following:
• Retailers focus on quality, synchronizing their supply network with consumer expectations.
• Leading retailers set the bar on standards and process control.
• Traceability initiatives engender higher levels of consumer trust and loyalty. Leading retailers realize these initiatives are much more than compliance and recall/returns efficiency programs.
Prediction #7: Product lifecycle management increasingly becomes central to private brand success.
Retailers will seek to improve product management process and productivity while building competitive advantage - reducing complexity when possible and better handling innate and necessary complexity – with product lifecycle management (PLM), traceability and compliance investments. PLM enables:
• Brand and quality assurance.
• Responsiveness to trend.
• Shorter cycle times.
• Efficient process and workflow.
• Improved data management and data sharing.
• Reduced risk.
• Improved internal and external collaboration.
• Integration to voice of the customer initiatives and product co-creation.
Prediction #8: A master data quality imperative (re-)emerges, particularly related to item, as inadequate master data management capabilities cause unnecessary application integration pain and an inability to innovate for the customer.
Master data excellence enables transparency and innovation, while eliminating wasteful processes. Expect the following:
• Omni-channel integration requires a single view of accurate data.
• Customers want access to unprecedented levels of inventory and product information, requiring exposing data. This demands accuracy at the peril of losing customers if unsuccessful.
• Inefficient master data management processes slow innovation because of unnecessary complexity and the higher relative costs of innovation.
Prediction #9: New levels of inventory management excellence are achieved with RFID and inventory visibility applications.
Supply chain visibility climbs on the IT application priority list as retail companies increasingly identify critical use cases to drive both cost savings and improved service levels. Expect the following:
• RFID initiatives, particularly for apparel and footwear retailers help drive inventory costs down.
• Inventory handling productivity skyrockets.
• RFID enables shrink reduction.
Prediction #10: Sustainability becomes integral to the retail brand.
Sustainability, while it implies many things, is integral to the retail brand. The customer wants the retailer to know best how to ensure safe quality products at a reasonable value. The retailer that receives customer loyalty is trusted retailer that stays in business because it makes smart business decisions. Expect the following:
• Audited corporate sustainability reports become more commonplace
• Retailers achieve marked improvements in their ability to measure and manage sustainability and embark on:
• Implementing supplier sustainability scorecards
o Conducting collaborative product design for sustainability
o Reducing energy consumption via site management tools, utilizing more renewable energy and building energy efficient stores, DC’s and office.
o Renovating supply networks for optimal balance of landed product cost vs. CSR impact
Summary
Retailers will need to focus on simultaneously delivering value, enabling quality and providing visibility to performance, product information, inventory and orders. In summary, the primary areas of strategic focus for retail supply chain organizations include the following:
• Delivering Value – Reduce cost of service
o Leveraging SaaS, Cloud Computing, wireless networking and automation
o Rethinking distribution and supply networks, over and over again
o Focusing on fulfillment excellence
• Enabling Quality– Rationalize product portfolio, create unified data models and orchestrate workflow
o Implementing MDM and PLM
o Integrating merchandising and supply chain across channels
o Collaborating up and down the supply network, including around products, packaging, compliance, and traceability
• Providing Visibility – Integrate the channels
o BI and analytics inform and drive best practices
o Enabling a single view of item information, inventory and order.
o Implementing RFID (apparel and footwear now) and Traceability (food first, then broader CP)
A full supply chain predictions report with essential guidance for retailers is forthcoming. Please check back at www.idc-ri.com in the coming weeks.