Retail. White Paper. The Challenges of Cross-Channel Fulfillment to the Retail Supply Chain - Part I
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1 Retail White Paper The Challeges of Cross-Chael Fulfillmet to the Retail Supply Chai - Part I
2 About the Author Prasaa Iyegar Cosultat, Busiess Operatios Trasformatio, Retail As a Cosultat workig with Retail Idustry Solutios Uit of Tata Cosultacy Services (TCS), Prasaa specializes i helpig retailers assess the curret performace of their busiess processes ad idetify ay gaps that ca be addressed through process or techology itervetio. Prasaa works with leadig retailers to develop solutios that help them remai competitive ad relevat i the moder eviromet. Prasaa holds a Masters degree i Operatios Research from a premier Scottish uiversity, ad is also a Lea Six Sigma Black Belt from the Idia Statistical Istitute, Bagalore. He has worked i cosultative roles i the UK, USA, Cetral America, ad Idia, across Maufacturig, Retail, Cosumer Packaged Goods, ad Bakig.
3 Globally, retail sales volumes ad margis have bee uder tremedous pressure give the declie i cosumer spedig followig the ecoomic crisis. Cosumer cofidece is ebbig ad there is pessimism i the ecoomy. These tough ecoomic times have brought ito sharp focus the reality of chagig cosumer behaviors, fuelled by the rapid adoptio of techology. The pervasive use of techology has direct implicatios o the retail idustry. As the multiple chaels of egagemet with the customer have matured, customers have begu to expect a seamless shoppig experiece across all the chaels; that is, they wat the same brad experiece irrespective of the chael of iteractio. Retailers have to make a umber of radical chages i order to satisfy this moder customer. The strogest impact will be felt by the retail supply chai, which will eed to adopt a umber of techology eabled best practices to remai relevat i the moder eviromet. This two-part white paper examies the challeges posed to the retail supply chai i the moder cross-chael retail eviromet. Part 1 examies the customer drivers pushig retailers towards cross-chael adoptio, ad focuses o aspects of the supply chai that eed to be trasformed. Part 2 highlights recommedatios that retailers ca adopt i order to successfully make the trasitio to the cross-chael eviromet.
4 Cotets 1. Cross-Chael Retail 5 Customer Expectatios 5 Specific Needs 6 Cosistecy 6 Coveiece 2. The Role of the Supply Chai 7 Cotiuity 7 Ivetory 7 Logistics 8 3. Coclusio 9
5 1. Cross-Chael Retail 1 The Ebeltoft Group 2012 Global Cross Chael Retailig Report defies cross-chael retailig as a operatio that drives sales, customer commuicatios, ad the availability of products across multiple sellig chaels such as web sites, stores, catalogs, mobile commerce ad social media. The retail ladscape is costatly evolvig. Product assortmets keep expadig to maitai competitive advatage as well as to fulfill the ever chagig expectatios of a more aware, better read, ad well-travelled moder cosumer. The proliferatio ad diversificatio of sellig ad fulfillmet chaels create ew challeges daily. Customers expect, ay, demad, a seamless shoppig experiece across the may shoppig chaels available to them. With customers spoilt for choice, the retailers are costatly egaged i a battle to maitai customer loyalty ad wallet share, while keepig their ow operatioal costs low. Customer Expectatios Customers today demad a cross-chael shoppig experiece that is delivered seamlessly across multiple chaels such as i-store, mobile devices, the Iteret, catalogs, call ceters, ad self-service kiosks. I other words, they wat the traditioal i-store shoppig experiece to exted across multiple shoppig platforms. For customers, the retailer is a sigle etity who is expected to provide the same experiece, products, discouts, customer service, delivery optios, trackig facility, after sales service, ad coveiet returs, irrespective of the ature ad/or the umber of touch poits through which they coect with the retailer. Coected & empowered Pressed for time More iformed Impulsive Socially coected The Coected Cosumer Evirometally aware [1] Ebeltoft Group, Global Cross Chael Retailig Report THE (UN)CONNECTED STORE (2012), accessed April
6 Specific Needs Cosistecy Three aspects that moder customers rate most importat i their expectatios of retailers are: Same price for same product across all the chaels Same product assortmet available through all the chaels Idetical returs policies regardless of what chael the item was purchased from High broadbad peetratio ad the rapid adoptio of hadheld devices such as smartphoes ad tablets have meat that moder shoppers have real time access to the Iteret. They wat to be able to leverage this access for makig purchase decisios by havig real time visibility of stock prices. I additio to visibility, they wat retailers to offer a virtually edless product assortmet that they ca fulfill via multiple fulfillmet modes. Shoppers wat retailers to be able to shield them from the impact of a stock out by leveragig the multiple chaels. I the cross-chael eviromet where there are multiple ad, ofte real time, touch poits that the customer is able to iteract with the retailer o, failure to uderstad ad deliver these expectatios ca result i a fragmeted brad experiece ad cofused customers. As more chaels such as mobile ad social media eter ito the maistream, it becomes imperative for retailers to cosider the impact of these chaels upo each other ad rethik the traditioal operatig models i relatio to techology, ifrastructure, ad orgaizatioal operatios. Coveiece Shoppers today wat access to iformatio about products they wish to purchase o each of the chaels that they ca trasact from. This implies access to detailed product descriptios, the ability to compare features, applicatios ad prices with other products, ad iformatio about the product s availability ad shippig costs to facilitate the buyig decisio. I additio, shoppers cout o receivig proactive otificatios from the retailer o purchase opportuities, promotios specifically relevat to frequet purchase categories, ad detailed order ad periodic shipmet updates. Shoppers wat to use multiple chaels as touch poits across the purchase lifecycle. I additio to researchig about the product they wish to purchase ad iitiatig the order o ay chael, they wat to modify, complete, ad track the order o ay of the available chaels. Shoppers wat coveiece ad cotrol over where ad how they choose to collect purchased goods, ad also where ad how they wish to retur the merchadise. There are multiple reasos drivig this behavior; coveiece ad cost of shippig beig the strogest drivers. With cost of shippig beig the ubiquitous compoet of olie shoppig, the optio to avoid shippig costs ad cotrol the time of pickup to suit persoal coveiece is a strog driver for explorig multiple fulfillmet optios that leverage the stores ad distributio ceters. 6
7 2. The Role of the Supply Chai I the traditioal physical retail eviromet, the primary role of the supply chai was to keep the store shelves stocked with what the customer wated. Customer wats were predicted usig forecastig techiques that primarily relied o historical data to determie quatity ad product assortmet. The eviromet was relatively static ad ot equipped to respod to the dyamism that has become the orm today. The advet of multiple chaels has itroduced complexity to what was oce a simplistic model. Multiple chaels offer optios where shoppers are able to shop from the coveiece of their home or office ad have the purchases delivered to them. Further, retailers have bee able to expad their product assortmet as, especially o the Iteret, they are able to display virtually ulimited merchadise without the costrait of physical shelf space. Retailers have take otice of the opportuities by offerig multiple egagemet chaels to their customers. However, their respose has addressed the more feasible short term view by augmetig their existig operatios istead of radically revampig the supply chai. This short-term approach to supply chai revampig has led to fragmeted customer experieces. The followig sectios discuss aspects of the supply chai that eed to be addressed to achieve a customer-cetric, cosistet cross-chael fulfillmet model. Cotiuity Retailers ofte offer varied assortmets o differet chaels, alog with separate promotios, customer service, ad policies goverig returs ad refuds. The roles created to get the multiple chaels goig sometimes coflict with the core busiess of the retailer. Aother challege is maagig the market expectatio that olie purchases ought to be cheaper. A lot of retailers iitially wet with differet price structures across the multiple chaels. Ivetory Supply chais of the past were desiged to service the predictability of siglechael operatios. Iitial efforts at offerig multiple shoppig chaels to customers exteded the same approach treatig each chael as a idepedet etity. There has bee very little focused effort at esurig the cotiuity of customer experiece. Supply chai costs were traditioally kept low by movig pallets ad truckloads across the legth of the supply chai, ad oly breakig them dow ito idividual item levels oce they reached the store. I order to facilitate this, sourcig egotiatio was udertake for items to be procured i bulk. With the store beig the chael of sale, the costrait was the limited availability of shelf space. For this reaso, retailers focused o stockig ad sellig oly the most popular items with high ad frequet cosumptio. Log tail assortmets were aggressively miimized i favor of items with high turover. As multiple chaels were itroduced, the typical approach take by most retailers was to treat the ivetory for each chael separately. This worked util the demad from multiple chaels was small. However, as demad ad usage across multiple chaels has grow, ecouraged by the peetratio ad advacemets i techology, the 7
8 ivetory has spiraled out of cotrol, chokig the supply chai ad impactig service ad bottom lie performace. Re-aligmet of ivetory maagemet i a maer that addresses visibility ad availability2 of products across all chaels is key to achievig a profitable cross-chael fulfillmet model for retailers. Logistics Warehouse operatios were always tued to the primary eeds of bulk quatity, low frequecy, ad stable demad of the supply chai. I order to support this, warehouses were desiged to shift bigger packages ad pallets. A degree of automatio ad the use of forklifts were sufficiet to cater to these eeds. Lea operatios ad ecoomies of scale esured that trasport ad logistics costs were kept to a miimum. This kept the logistics costs per item at a miimum. The trasport routes were stable ad kow, as were the quatities per ru. The deliveries were made primarily from the distributio ceter to the regioal distributio ceters, ad from there o, to the etwork of stores. Retailers were able to fulfill these eeds efficietly ad i a cost effective maer by owig ad maagig their ow fleet. With stores beig the primary chael for outward sales, reverse logistics challeges were limited to facilitatig the retur of merchadise at stores, ad maagig the flow of the goods back through the supply chai. The existig fleet was capable of achievig this. Further, retur of goods at the store offered touch poits to up-sell ad crosssell. The modes of fulfillmet that customers today expect ad leadig retailers have begu to offer are: Buy olie, pickup i store Buy aywhere, ship from store to home Research olie, reserve i store Buy olie, retur i store The multiple modes of fulfillmet have raised a umber of questios for the traditioal retail supply chai. Existig distributio ceters reserve a certai amout of stock for the fulfillmet of these orders. The order maagemet process is ofte maual ad takes the form of s ad maual processes. The supply chai ow has to be able to take o the additioal resposibility of fulfillig idividual item requests from ay poit i the supply chai. There are multiple implicatios of this, such as a balace of ivetory to stock i-store versus distributio ceters ad warehouses, the eed for piece pickig capability ad techology withi distributio ceters ad warehouses, ad stores equipped to be able to pick ad pack orders either for i-store pickup or shippig to customers. Reverse logistics has become eve more complex with the offerig of multiple chaels. Especially i the case of fashio, where previously customers were able to try differet sizes ad colors i the store before purchasig oe, they ow just order multiple sizes ad colors ad sed back the oes they do ot wat. Such issues were maageable i the medium term whe the multiple chaels were still ascet i their offerigs ad adoptio. However, as the chaels have become more successful the ecoomics of such issues ca o loger be igored. [2]. Supply Chai Stadard, Supply chai challeges of multi-chael retailig (Oct 2007), accessed April
9 3. Coclusio A techological ad busiess process upgrade of the retail supply chai is a key factor for retailers to be able to achieve cross-chael fulfillmet. The existig supply chai has to absorb the challeges throw by multiple chaels i terms of fragmetatio, ivetory maagemet ad logistics without compromisig o cost ad performace. The approach so far has largely ivolved leveragig the existig supply chai for fulfillmet of demad from other chaels. Retailers do ot have sufficiet data from olie chaels to optimize ivetory levels. Where previously, merchadisig ad assortmet plaig had bee doe proactively o the basis of historical data ad market research, with multiple chael offerigs, retailers are workig i ukow territory ad have adopted a silo approach, by developig each chael separately with separate ivetory, ad separate promotios, policies ad procedures. This has led to a disparate ad fragmeted shoppig experiece across each of the differet chaels. Part II of this paper presets recommedatios o the steps retailers ca follow to trasform their supply chais i a way that helps them create a cross-chael uiverse; oe i which the customer is able to see the retailer as oe brad, irrespective of the chael they use to coect with the retailer. 9
10 TCS Retail Idustry Solutios Uit The Rules of Retail have chaged. These New Rules brig ew opportuities for the retail idustry opportuities that might themselves become game chagers. More ad more, iovative retailers usig brilliat strategies, advaced techologies, best practices, ad operatioal excellece grow reveue by deliverig satisfyig buyig experieces, wherever their customers are ad wheever they wat to buy. Tata Cosultacy Services has partered with eight of the top 10 US ad five of the top 10 UK retailers o this jourey. Our iovative busiess solutios, ad comprehesive portfolio of offerigs, help retailers use these rules to guide them ad build deeper ad stroger customer relatioships, reduce cost ad icrease efficiecy through our itegrated IT, BPO ad Ifrastructure services ad proprietary Retail Idustry Solutios. Cotact For more iformatio about TCS Retail Solutios, cotact retail.solutios@tcs.com Subscribe to TCS White Papers TCS.com RSS: Feedburer: About Tata Cosultacy Services (TCS) Tata Cosultacy Services is a IT services, cosultig ad busiess solutios orgaizatio that delivers real results to global busiess, esurig a level of certaity o other firm ca match. TCS offers a cosultig-led, itegrated portfolio of IT ad IT-eabled ifrastructure, egieerig ad assurace services. This is delivered through its uique Global Network Delivery ModelTM, recogized as the bechmark of excellece i software developmet. A part of the Tata Group, Idia s largest idustrial coglomerate, TCS has a global footprit ad is listed o the Natioal Stock Exchage ad Bombay Stock Exchage i Idia. IT Services Busiess Solutios Cosultig All cotet / iformatio preset here is the exclusive property of Tata Cosultacy Services Limited (TCS). The cotet / iformatio cotaied here is correct at the time of publishig. No material from here may be copied, modified, reproduced, republished, uploaded, trasmitted, posted or distributed i ay form without prior writte permissio from TCS. Uauthorized use of the cotet / iformatio appearig here may violate copyright, trademark ad other applicable laws, ad could result i crimial or civil pealties. Copyright 2013 Tata Cosultacy Services Limited TCS Desig Services I M I 12 I 13 For more iformatio, visit us at
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