Retail Revolution: Four Ways Supply Chains Are Evolving
Analyst Insight: As consumers’ relationship with retailers changes, supply chains need to become more agile and responsive to fulfill the promise of an omnichannel world. Wholesale, retail and e-commerce supply chains, which have grown independently over the years, are merging – but significant transformation is necessary to help make omnichannel execution more profitable. – Parag Jategaonkar, performance improvement principal, Ernst & Young LLP
Today’s consumers are more connected than ever, and their tech savviness is changing how they interact with retailers. They want to browse, research and purchase through every channel — brick-and-mortar, online and mobile — and retailers are tailoring their offerings to this desire to shop anytime, anywhere, without disruption. Customers also want to receive their purchases more quickly than in the past, as two-day, one-day and even same-day delivery become more common.
In order to meet consumers’ dramatically heightened expectations, retail and direct-to-consumer supply chains need to transform across four different dimensions.
Network and flow path strategy
Omnichannel execution expands the universe of possible flow paths to the consumer, resulting in a wide range in potential levels of service, at varying costs, using multiple infrastructures. As supply chains come together, companies need the ability to enable or disable flow paths based on a known cost and service level. Understanding this cost to serve at a detailed level is critical to setting the right strategy.
Order execution and returns
Distributed order management can intelligently route customer orders, via the best method, to the optimal fulfillment location based on configurable rules such as service level, freight cost minimization or markdown avoidance.
Questions to consider include how orders will be sourced and what rules will be applied to each order. Inventory visibility is a must, and shipment policies will need to be established, from shipment sizing to minimum order quantity. Similar rules need to be in place for returns — in many cases, it may not pay to move the product at all, making it more cost-effective to simply give the customer a credit.
Supply-chain planning and inventory management
With more options available to fulfill orders, supply-chain strategies will need to be based on flexibility. For example, it may be more efficient to stock inventory at stores rather than at warehouses. As stores become fulfillment centers and new product flow paths are enabled, forecasts can no longer be channel-independent. In addition, inventory managed as a single, cross-channel pool changes deployment and allocation strategies, including opportunities for retailers to offer a non-stocked assortment.
Metrics and analytics
Traditional supply-chain metrics are unable to capture the breadth of omnichannel planning and execution. The next generation of metrics will incorporate customer service, sales, cost and execution components, including customer segment and geography perspectives. More sophisticated analytics will be required to mine data at this more detailed level, visualize it and use it to adjust strategies.
In an omnichannel world, the most successful companies will be those that effectively transform their operations — from strategy through planning, execution and measurement — simultaneously delivering on consumers’ desired experiences and making omnichannel operations more profitable.