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Revising The Supply Chain For An Omnichannel Era

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Following is Part 1 of the feature Supply Chain Management In A Global Marketplace, which outlines how retailers can revise their supply chain operations for omnichannel success. Part 2 will address new complexities that emerge when brands expand internationally.

Retailers across categories, such as Cabela’s, IKEA and Target, are offering new order delivery and fulfillment options to provide customers with a seamless and hassle-free shopping experience.

Tactics such as: ship-to-home and return-to-store; order online and pickup in-store; and even providing anytime, anywhere access to inventory availability all are on the upswing, according to Aberdeen Group research. A recent report, titled: Rethinking Merchandise Optimization In The Connected-Customer Era, indicated that more than 61% of retailers have implemented these fulfillment streams as part of their offerings, up from approximately 50% in 2013.

“Retailers are being challenged to provide omnichannel inventory shopping and fulfillment,” said Bob Heaney, Research Director and Principal Analyst for the Retail and Consumer Markets division of Aberdeen Group.“Today’s customers desire the option to start their shopping process in one channel and finish, fulfill or even return through another.”

To succeed in an omnichannel world, retailers need to meet and exceed customer expectations by supporting them regardless of the channel. This means order processing, fulfillment, pickup and even returns must be seamless.

“Supply chains need to be ambidextrous and flows should be dynamic,” said Raj Kumar, who is a partner and also leads the retail operations practice at A.T. Kearney. “This involves supporting customers with e-Commerce centers and stores, offering store pickup and even offering SKUs not sold in stores. Retailers also will need to have the ability to share inventory across channels.”

Making The Supply Chain Agile And Flexible

Successfully aligning inventory management, order delivery and fulfillment with customer demands requires agility and flexibility across the entire supply chain. 

Most retailers understand this sentiment: 65% of retailers agree or strongly agree that they are going to have to constantly rethink their supply chain design in the next five years because of emerging cross-channel fulfillment, according to Retail Systems Research. In the report, titled: Retail Supply Chain Strategy: The Next Big Thing, 39% of retailers also indicated that how they fulfill orders has changed due to cross-channel shopping.

For example, outdoor retailer Cabela’s has successfully optimized its supply chain operations to more effectively compete in an omnichannel world. The retailer currently has a complex business consisting of 20 destination stores and three distribution centers that house more than 300,000 SKUs from 5,000-plus vendors.

In order to optimize people, systems and capital to meet the needs of its customers, Cabela’s tapped Manhattan Associates for assistance. Using the Warehouse Management, Replenishment and Assortment planning solutions, Cabela’s is able to better predict demand based on geographic region, sporting season and even customer skill level.

Now, Cabela’s can better manage stock in DCs and stores to meet customer expectations. Additionally, the retailer can better manage forecasting and replenishment across its multichannel network and even tailor assortments to each channel.

Coordinating Multiple Brands

The need to constantly coordinate and refine the supply chain is especially important if a customer order consists of multiple brands and vendors.

“There are many inventory process flow issues around order split/merge orchestration and segmentation,” Heaney explained. “At both the order creation and execution level, the fulfillment challenge may require a ‘merge in transit’ as retailers coordinate with supplier or B2B partners to tackle delivery. This requires the capability to virtually have orders coming from multiple sources of supply, met in transit and arrive as one order.”

Managing transportation costs to support rapid fulfillment requires a transportation management system, Heaney noted. This system should be equipped to manage all variables across the transportation network, and have visibility into any and all opportunities to minimize cost and increase speed.

A Supply Chain Evolution

Refining supply chain operations to keep pace with customer demands and omnichannel trends requires constant work and refinement, according to Brandi Slaughter, Senior Solutions Marketing Manager at Demandware.

To help retailers facilitate this process, Slaughter outlined three key tips for retailers:

  • Create a cleaner inventory data set to gain actionable insights into customer preferences;
  • Create packing and shipping “muscle” to enhance the delivery process and timeline; and
  • Adopt measurement tools to recognize the effectiveness of efforts made.

“These three changes give retailers the ability to gain greater visibility into inventory, effectively removing the traditional approach of identifying products as part of online or in-store inventory,” said Slaughter in an interview with Retail TouchPoints. However, this can be an extremely complicated process, as retailers are tasked to constantly re-evaluate the channels customers prefer to make purchases from, and “how to leverage inventory across locations to meet purchase demands quickly and cost-effectively.”

Just as consumers require anytime, anywhere access to product availability, retailers also need to have real-time access to detailed intelligence in order to better understand customer preferences and demands.

“Customers have raised their expectations of retailers,” Kumar said. “So retailers have to focus on their ‘Customer Promise’ offer, which includes speed, assortment, quality, availability and price.”

Speed is becoming especially important, most notably in the grocery and electronics category, according to Kumar. “Same day and next day service is becoming table stakes and split packages are increasingly being viewed as a negative.”

Target, for one, is striving to boost customer satisfaction during the competitive holiday season by offering more shipping and order pickup options. More than 65,000 items now are available for store pickup on Target.com, with 80% of orders now fulfilled within one hour, according to a company press release. The retailer also has plans to offer free shipping on all e-Commerce orders through Dec. 20, 2014.

Free shipping is an obvious perk for consumers who are eager to cross off their holiday shopping lists, but as the number of online sales increases, will Target’s supply chain be equipped to handle the boost in demand?

Target, and other retailers that implement these strategies, must “always be prepared to quickly re-position ‘hot’ products when needed, as well as make sure they’re in the optimal pick location within distribution centers before releasing orders to the floor,” said Jeff Primeau, Senior Manager in the Supply Chain practice at West Monroe Partners. “Failing to do so will only slow down distribution of high-demand items, as it’ll take workers more time to find each product in the warehouse and load it to the truck.”

Aligning Supply Chain Strategies With Customer Demands

As shopper preferences continue to shift and become more unpredictable, a retailer’s supply chain must remain nimble and able to respond quickly.

“There are a number of disruptive trends in play,” Slaughter said. “And these trends, combined with the large percent of retailers that are complacent about their supply chain operations, will generate a number of challenges going forward. To be successful, retailers need to adopt a new operating model that keeps supply chain at the heart.”

IKEA is one retailer that refines supply chain operations based on shopper demands, according to Slaughter. The furniture and home goods retailer has visibility into the development products through to the sale, and shares detailed “stock prognosis” information with shoppers.

“Customers can have a better shopping experience by knowing when the best chance will be to get the product they want from a nearby store,” Slaughter explained. “Not only does this information impact when customers go to a store, but it also influences what consumers are looking for across all other stores.”

Next-Gen Supply Chain: Taking A Customer-Centric Approach To Assortment 

Today’s savvy, technology-wielding shoppers are in control, and they want more relevant product assortments that are available at any time and through any channel.

As a result, progressive retailers are evolving their businesses and supply chains to create unified, customer-centric experiences.

“The supply chain is becoming much more customer-specific,” explained Lora Cecere, Founder and CEO of Supply Chain Insights. “People want localized assortments, they want items when they want them, and they’re not as patient with out of stocks.”

Supporting this point, Aberdeen Group research found that 54% of retailers indicate a need to create tailored, specific and precise merchandise assortments for customers segments and even specific channels.

Retailers have a lucrative opportunity to customize assortments and provide unique products for specific demographics. Yet many retailers are stuck in the old way of doing things, which primarily consists of one-size-fits all merchandising tactics across all stores.

“One of the issues retailers have is their past successes blind them to how they need to prepare and organize for the future,” Cecere noted. “They typically did well with the same mass-merchandising across all stores. But the new retail environment doesn’t work that way.”

Creating highly relevant assortments requires redesigning the supply chain and maintaining perpetual inventory signal. This means keeping a constant pulse on which products are in demand across locations and channels.

“When retailers were selling through a single channel and had more traditional merchandising, it wasn’t as important to have a good, perpetual inventory signal,” Cecere noted. “But as we become more omnichannel, the retailers that are going to win are going to have real-time availability information.”

Moving forward, retailers must focus on revising assortments based on customer preferences and demands. From there, supply chain operations must adapt and ensure product availability across all channels.

Part 2 of the Supply Chain Management feature will appear in the November 4 newsletter.

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