Revealing the unknown
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- Rosaline Ryan
- 7 years ago
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2 In the digital age every one of the retail supply chain s functions from procurement to execution directly impacts the customer experience. And that makes supply chains key to securing customer loyalty and driving profitable long-term growth. Yet, despite rapidly rising customer expectations and mounting levels of uncertainty around them, the supply chain remains most traditional retailers weakest link: lacking the insight to anticipate change, and the agility to respond Continuing to operate with a traditional supply chain just isn t viable. It could kill customer loyalty, drain away profits and damage long-term growth. It might even put some companies out of business altogether. But most retailers still don t appreciate the urgency of the supply chain transformation challenge. True, retailers have invested in digital innovations designed to deliver the swifter, more seamless service today s customers demand. But these are costly. Accenture analysis shows that the increased logistics costs associated with online the operating margin of a retailer with a 10 percent higher cost-to-serve. With market trends indicating that logistics costs are set to margin hit as they scale their online services. None of this has to happen. Instead of the tactical approach to supply chain transformation that most retailers have adopted, they could take a more strategic view, enabled by scenario planning, a more agile supply chain, and hybrid fulfillment models. Such an approach would not only boost customer loyalty. It would also help realize the supply chain s potential as a growth driver. Here s how. Revealing the unknown Accenture research confirms that execution is a critical factor in securing the customer loyalty that drives growth. 59 percent of shoppers say better subscription program. While 22 percent boost their loyalty. 1 But, although the same research shows that 28 percent of shoppers want next-day delivery and 24 percent demand a same-day service, former, and far fewer (15 percent) are capable of ensuring the latter. Even the click-and-collect services that 25 percent of shoppers say they use more often than they did a year ago are That s hardly surprising, considering the cost of click-and-collect. For most retailers, these items in store, rather than selling. Collection areas, moreover, can consume valuable store sales space. Indeed, the situation clearly shows how simply investing in new capabilities and running a higher-cost supply chain can be a money-losing proposition for many players. 2
3 By leveraging scenario planning, however, retailers could develop capabilities with the right breadth, depth and timing (at the right cost) as consumer behavior evolves. Scenario planning is especially useful in highly uncertain situations because it gives retailers insight into the unknown. It enables retailers to engage in what if? simulations, and work out the consequences across the entire supply chain. Done right, it can also help justify the huge investments that retailers are making in improving supply chain performance by targeting those investments Consider, for example, the retail dilemma over fast and free ecommerce shipments. Few would dispute the need for some sort of free shipment, but the debate over how fast and how free is a heated one. What s needed to enable free same-day/next-day shipping cost, scale and capabilities to what s required for free two-day shipping on all orders over $50. Scenario planning, however, would allow retailers to understand the implications of both in full: the commonality and inherent uncertainty of the various end-states. And this, in turn, would allow them to construct lower risk roadmaps and investment plans. In short, retailers would have considerably more confidence in their ability to execute on their plans. Agility and speed Of course, all the scenario-planning insights retailer can adjust its supply chain operations fast enough to respond to new situations. Which is why retailers also need to focus on improving the agility of their supply chains. Accenture experience suggests that supply chain agility hinges on the right mix of good governance and targeted investments. Retailers need to ensure that all their management teams have both full accountability and the right competencies to handle a diverse set of circumstances, as well as the ability to distinguish between everyday and more strategic decisions. They should be investing in analytics and data to give supply chain managers deeper and fuller insights. Retailers should also arm their suppliers, customers and partners with the resources, information and tools they need to take decisive action. And a culture attuned to making critical decisions at speed would help harmonize the actions of all stakeholders. By measuring results, retailers will be able to course-correct quickly. Case in point: a leading consumer electronics retailer that recognized the need for more flexibility in its fulfillment capabilities. The retailer knew that more level inventory was the key to getting closer to consumers and that it needed to move fast. Thanks to the right governance structure, a clear change imperative, and a tenacious will, this retailer enabled click and collect and ship from store across most of its national fleet in just one season. Hybrid fulfillment Tailored and expanded assortments across multiple formats and channels from multiple points of origin and at multiple delivery speeds: today s consumers want all this, and more. Eighty-nine percent want to be able to order out-of-stock items for home delivery, for example. While 63 percent think that consolidating orders into one delivery is important. And more than one in four reckon that the ability to check product availability across channels would best enhance the seamless shopping experience. 2 3
4 But as online businesses scale, fulfillment services need to be flawlessly executed. If analysis indicates that a loss of market share of just 5 percent a realistic scenario in an era of slow growth and aggressive competition could pull earnings before interest and taxes (EBIT) down by at least percent (see Figure 1). Figure 1. A 5% market share shift could pull EBIT margins down by 25% Sales Cost of Goods Sold Gross Margin Fixed Costs Before After Impact EBIT Margin 4.9% 3.6% -26% Source: Accenture analysis % -5% Because they re linear and static, traditional supply chains simply can t handle all of today s fulfillment challenges. So retailers need to develop and optimize segmented, hybrid fulfillment models that can deliver any product to any customer from any location, One leading US-based department store, for example, has fully optimized its store fleet and turned its online presence into a true, omni-channel experience. As a result, the department store has complete visibility into its entire inventory across all of its channels, and can thus determine which fulfillment options are possible and which will maximize both customer satisfaction and its own margins. In a recent mystery shop, this retailer fulfilled a last minute, late-season, multi-unit order by sweeping the last units of inventory from multiple stores. The consumer received all units of the product at the right price and at the right time, while the retailer was able to maximize its margin by clearing out store inventory without resorting to markdowns. - Strengthening the link A strategic approach to retail supply chain transformation leveraging the insights of scenario planning, as well as building agile supply chains and hybrid fulfillment models would help turn a weak link into a remarkably strong one. But where do you begin? Start by asking yourself the following, critical questions: Do I have a clear view of what my customers want in terms of supply chain capabilities, now and in the future? Do I have a clear plan to address those requirements? If I had to materially re-configure large portions of my supply chain could I analyze, plan and accomplish it in a matter of months? Is an any product, from any location to supply chain? If the answer to any of the above is no, you need to act now to cope with the fundamental changes sweeping the retail landscape. The methods of the past will only take you so far. They must now coexist with new realities especially the need for full inventory visibility and the escalating demand for flexible fulfillment. By starting with the customer, embracing the need for speed, and adopting a bold approach to discovering how new supply chain models and paradigms can help improve the customer experience, you can become a winner. The future is, of course, uncertain. The time to start preparing for it, however, is now. 4
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