E-Commerce - Transforming Australian Supply Chains
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- Darrell Butler
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1 E-Commerce - Transforming Australian Supply Chains Increasing customer expectations - greater choice, transparency in price and product substitution, to top it all off there are a range of highly competitive delivery offerings Less tolerance for getting it wrong as reverse logistics is expensive, unit pick costs are high. Stock transparency via real-time data and managing stock obsolescence becomes more critical
2 About GRA and the Authors GRA is Australia s premier, expert consulting firm specialising in supply chain & logistics strategy, planning and execution. We offer consulting, professional services, supply chain systems, training & education and benchmarking across a broad range of industries. James Allt-Graham Partner GRA Sydney Shanaka Jayasinghe Senior Consultant GRA Sydney Phillip Diao Consultant GRA Melbourne
3 Our Perspective This year has been challenging for retailers. As the economy struggles to pull itself out of the most recent financial crisis, consumer confidence is low which is negatively influencing discretionary spending. The warm start to winter also saw apparel retailers with greater import lead times slow to respond to changes in demand. Contrasting promotional strategies from leading retailers such as Myer and David Jones highlighting how some supply chains are more exposed than others. Supply chains are becoming more complex. Australian retail supply chains today must be capable of managing increasing customer expectations (lead-times, pricing, options), channel diversification (online, store, multi-channel, omni-channel) as well as increasingly complex product sourcing strategies. A step-change in supply chain design and capability is required if retailers are to remain competitive in the long-run. The unseasonable weather could arguably be a one-off, but e-commerce is not. The emergence of multi and omni-channel retailing requires structural changes for Australian retailers. Online means business strategies and customer value propositions are evolving Supply chain design is currently based on supporting the traditional bricks & mortar business strategy This is prompting a step-change in supply chain design to deliver this new business strategy
4 Why is online challenging? Consumer expectations are shifting as they take more of their spending online. The latest Productivity Commission report projects growth of up to 15% per annum in online sales. Driven by the proliferation of the internet and smart phones, Australians are increasingly making their clothing and electronic goods purchases from the office or the comfort of their homes. Because of this, many brick and mortar (B&M) retailers are taking their offerings online. In this rush, companies with supply networks designed to support their B&M stores cannot adequately serve their online customers without impacting their bottom lines. The challenge is making ecommerce work for the consumers and the business. In this paper we will explore these challenges to understand the opportunities and constraints. Transparency Increased pricing pressure E-commerce Low Cost Communications Greater Expectations Product Proliferation Supply chain step-change Information Processing Shorter lead-times
5 Why is online challenging? Online Complexity Planning (ranging and availability of product) Execution (responsiveness & price) Online complexity Greater choice and transparency in price and product; with information readily accessible, consumers are more informed than ever about the products they want. From online reviews and comparisons customers have already made up their mind on what they want to buy before going to a store website. Highly competitive delivery offerings with free shipping and prompt shipping offered by most online retailers. Studies have indicated almost half of all carts are abandoned due to shipping charges and respondents said shipping charges weighed heavily on their choice of on line retailer. Getting the delivery offering right can be a competitive advantage. Planning becomes even more pivotal to success Ranging and availability to offer same or next day delivery means optimal stock must be on hand. Warehouse space is limited, when ranging for online, SKUs have to be carefully selected to offer the customer value but must also have sufficient margins. Servicing customers profitably and range planning for each channel is vitally important if a retailer is to survive e-commerce profitably. Stock transparency is crucial, giving customers the assurance that any orders placed will be fulfilled in a timely manner. This requires an IT infrastructure that will allow for up to the minute inventory tracking. Proper inventory tracking will also allow the business to be more agile and smarter about stock management. Execution and physical network requires re-design Less tolerance exists for getting it wrong as reverse logistics can be expensive, unit pick costs are inflated and stock transparency via real-time data as well as managing excess stock becomes more critical. Picking costs are higher since items have to be picked at the unit level. Traditionally done by the customer in-store, unit picking for online sales have to be done by staff as an added cost. Reverse logistics can be handled by B&M stores or via return shipping; with the aim of returning sellable products to inventory quickly. How do we ensure a seamless and pleasant experience for the customer at a moment where we can either earn their loyalty or lose future sales?
6 What can we learn from overseas? The Australian market has some unique characteristics that limits the effectiveness of replicating models from overseas. Therefore, a solution that can be customised for the Australian environment is required. Three key challenges to overcome: Volume requirement: Centralised fulfilment due to the economies of scale is more efficient, however, critical mass in volume is required. Arriving at such volumes for most businesses is challenging in the Australian market. Ranging Discipline: Multiple sources of supply and increasing global import trends mean bricks and mortar retailers require well defined and disciplined ranging policies to drive volume in a range that does not become overly exposed to obsolescence. Warehouse design: Most existing warehouses are designed for bulk storage to cover production & overseas lead times, and efficient store replenishment, not discrete item level picking which is typically required for online fulfilment. These challenges are not insurmountable. Many businesses are already restructuring their supply chain networks, incorporating omni-channel retail in its design, turning these challenges into competitive advantages. Pure online Start up challenge is to grow to critical mass and get efficiency - businesses initially lose money and buy market share Once they achieve critical mass they are very price and service competitive. E.g. Kogan. Who in 8 years are now the biggest online electronics retailer and can now even source their own branded product due to volume sales and buying power Lower corporate overheads with focus on IT, product and 3rd party contract management Bricks and mortar Are looking to protect market share and face dilution of sales from current stores and struggle with the consequence of unprofitable stores Many are trying a variety of store fulfilment, separate online fulfilment center models as a protective measure rather than a strong growth strategy High corporate overheads to manage property, people, finance.
7 Currently many Australian online retailers are not well positioned to increase profit through their online business Recently GRA purchased product from over 25 major retailers on line. We found that many had challenges in delivering the required products on time. Poor performers all incurred significant costs of being unable to deliver: Transaction costs/reverse logistics where errors were made in pick / pack Increased warehousing /labour costs where product was sourced from alternative sources Unsatisfied Customers where orders were not delivered or delivery windows were not achieved Follow on damage to brand and customer loyalty due to a poor service experience Those that delivered well demonstrated the following characteristics: A well laid out and intuitive website Clarity of what stock was available for ordering Ease of ordering and payment Delivery on (or earlier) than promised Good presentation of product upon arrival A positive service experience that builds brand loyalty and repeat sales
8 Some key attributes of what works and what can go wrong online When it goes well Order Stock Available Single Pick and Pack Speedy Shipment Happy Customer The difference in number of transactions involved, cost and ultimately customer satisfaction can be significant When it goes wrong Partial Pick Delayed Shipment Unsatisfie d Customer Re-ship Order Stock Out Partial Pick Shipment Re-pick Contact Customer Re-stock Return Logistics Incorrect Shipment
9 There is a significant opportunity if you get it right... When it goes well Order Stock Available Single Pick and Pack Speedy Shipment Happy Customer Substantial opportunities exist for retailers that implement a well-designed and executed multichannel strategy. Enter new markets and interact with new customers. The reach of online retail is only limited by the reach of your supply chain networks. There is greater opportunity to grow your customer base as your supply chain matures. Availability of real time transactional data is one opportunity that has been leveraged by many retailers. Even greater opportunities are offered by real time browsing data. Leveraged effectively, this insight can offer greater supply chain agility and ensure the right products are available in the right volume at the right time. New KPI s such as lost sales can now be tracked. Insight into previously hidden avenues can be utilised to evolve customer value propositions.
10 Retail and delivery offerings are likely to continue evolving Online retail is on the path to becoming increasingly personalised and agile. Same day delivery is becoming increasingly common, novel delivery methods are being explored... Business that can provide personalised service and are responsive to customers while growing their margins in this competitive channel will become the future leaders in retail. The pace of change is accelerating, businesses slow to react will face diminishing market share. Retailers replicating solutions ill-suited to their business are seeing shrinking margins. The key to creating a competitive advantage is a tailored supply chain that suits both the business and the customers. Amazon has gained much publicity for its Amazon Prime Air concept, in which automated aerial drones deliver products directly into your backyard. Automated logistics from unmanned aerial drones to self-driving cars, automation is a developing area in the logistics space. As regulations have worked out, automated vehicles will become more prolific. Another initiative is on anticipatory shipping. Leveraging large amounts of customer data, purchases can be predicted and sent to hubs near the customer prior to the order being placed. This allows the customer delivery times to be reduced while using traditionally cheaper but slower forms of transport. Uber is likely to be another disruptor in the logistics fulfilment space, particularly last mile fulfilment. Currently their main business is as an on-demand car service however Uber are looking to leverage this driver network and have conducted many promotional activities delivering products such as Christmas trees and ice creams to customers within minutes. An example of this is Uber s recently launched Corner Store.
11 Is your business ready? How many of these boxes does your business tick? Up to date and visible stock tracking at fulfilment locations Order analytics to gauge supply chain weaknesses and strengths Low cost or free delivery, and expedited delivery options Tracked packages and deliveries made within the promised window Efficient unit level picking capabilities suited to operational scale Well presented and protective packaging Distribution network configuration suited to product and delivery promise Streamlined returns process and rapid re-stocking capabilities (03)
12 Find out more At GRA we understand the complex challenges retail organisations are facing. We can help you with not only designing an optimal retail supply chain, but also ensuring that your inventory is optimised to ensure that the highest possible service levels can be achieved at the lowest possible cost. To find out more, call (03) or visit
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