Retail 2020 Challenges: Collaborating for Growth through Supply Chain Efficiencies. Jeff Holmes Managing Director, Retail and Consumer PwC

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2 Retail 2020 Challenges: Collaborating for Growth through Supply Chain Efficiencies Jeff Holmes Managing Director, Retail and Consumer

3 Retail 2020: Redefining Supply Chain Collaboration to Drive Growth October, 2013

4 So we are going to talk about the four 3 s today Factors changing your business Drivers of success in 2020 Questions you need to ask yourself Strategies that may help you win 4

5 3 key factors are dramatically changing your consumer, your business, your supply chain Informed Price Sensitive Consumer Digital Revolution Big Data 5

6 Changing demographics and proliferation of mobile devices will disrupt existing operational strategies In 2020, ongoing demographic fragmentation will create two distinct cultural, societal, and retail reference groups. Source: Kantar Retail analysis, 2012 Number of Smartphone users in the U.S (millions) is expected to grow 60% Statista 2013 Source: emarketer *Forecast 6

7 Increasing appetite for online retail and research could be your biggest competitor or best ally Online Retail Sales = $250 Billion By 2014 e-commerce = 30% of total retail sales growth e-commerce sales will represent 12% of all retail sales in the U.S. by 2020 Multichannel consumers spend 4x more than single-channel shoppers 77% of total sales will be influenced by online visits by 2016 Source: 7

8 The digital shopping future is unfolding now and your consumers will change how you serve them Real-time comparative shopping Greater levels of sophistication and personalization Better data on consumer needs, preferences, real-time behavior Consumers are in the driver s seat 8

9 Being able to translate Big Data into actionable business decisions will be the key to win and keep consumers Companies must be able to harness consumer likes, tweets and check ins to drive additional interactions with consumers... Source: Intel and real time visibility in to product inventory will be key to satisfy the need for instant gratification Source: ChainLink Research 9

10 What does this mean for you and what should you do? These trends are not fads rather a structural transformation of the consumer interaction Consumers expect similar interactions where ever there is a sale to be made the industry must collaborate to make this happen Revenue growth and enhanced margins will go to the best conversationalist with the consumer Is the shopping experience a continuous conversation across multiple channels before, during, and after a stay? Are infrastructures in place linking disparate data sources to personalize the right story, at the right time? Are operating models, organizational structures and data architectures integrated to monetize the conversation? 10

11 3 drivers of success in 2020 Creating connected experiences for omni-channel consumers Consumer-centric organizations capable of meeting the needs of omni-channel shoppers Creating and executing omni-channel operational capabilities to deliver on the Brand Promise 11

12 3 interdependent collaborations that will help you win 1. Consumer centric operations: Redefining your operational strategy to collaborate around consumers not functions 2. Changing together: Re-imagining collaboration with your partners to serve consumers where and how they want to be served 3. Winning from within: Changing your organizational DNA with the right structure, talent to better understand your consumers changing needs Are you ready? 12

13 Collaboration is required to deal with the complexity of Omni-channel fulfillment Channel Order characteristics Picking Shipping Direct to Few Lines/Few Units; Each or Case from stock Parcel or TL Consumer Quick Fulfillment Expectation (store delivery for store pickup) Wholesale Many Lines/Many Units; Pallet or Case from stock LTL or TL Customer Controlled Scheduled Delivery Windows Retail Store Distributions or Replenishments (Many Stores/Many Units); Retailer Controlled Delivery Windows Cross Dock/Flow Through Pallet or Case from stock TL Returns High variability from individual units from store and DTC to multiple cases/pallets for retail/ wholesale merchandise pull backs or end of product lifecycle Dispositioning at the store level for retail and wholesale Unit picking/packing by customer for DTC Wholesale LTL Retail LTL DTC Parcel, store drop off, 3 rd party 13

14 This drives industry leaders to implement a new organizational operating model Aligned / Integrated / Seamless / Digital Commerce Merchandising Information Technology Digital Commerce Retail Operations Supply Chain 14

15 Better organizational alignment will be required People Processes Structure Technology 15

16 Enhanced human resources will be required to operate supply chains in 2020 More skilled employees needed in management information systems to operate more complex global systems. Job creation can be expected in: Warehousing operational positions Logistics information systems Instructors/trainers Sales, Marketing, and Account Managers Corporate Service positions with a supply chain management emphasis 16

17 Is there a sufficient supply of well-equipped professionals for the skilled jobs needed in 2020 Critical skills and knowledge required Projecting/Forecasting Cost analysis International business practices Laws, compliance and regulations Transportation, logistics Languages Success factors Better retention policies Clear career pathways Transfer of knowledge and experience to future leaders 17

18 Leading companies are implementing consumer focused supply chains Beyond the delivery notice Dynamic order fulfillment Retail postponement, product customization Rapid change of product innovation and assortment Automatic replenishment of staples Faster Less Risk Less Cost More Agile 18

19 And building resilience into their supply chains Protect your supply chain! Diversity of sourcing Information sharing Legislative and regulatory standards Culture of risk management Risk assessment frameworks Alert/warning systems 19

20 With a new collaborating model with business partners that goes beyond the transactional level Strategic collaboration is key between brands and retailers as consumers today are moving away from the world of brands and channels, and opting for lifestyle affiliations suggests several key strategies that can lead to effective collaboration: Start small, then go larger Define the collaborative agenda upfront Agree on how success will be defined and measured Use data judiciously 20

21 Data collaboration will be required for both suppliers and retailers to align supply with demand In store Pricing Product placement Promotion Packaging Layout/Adjacencies In-Stock ratios Regional/local store data = micro trends Logistics management Trace problems to the source Respond quickly to changes in demand Real time: inventory levels, sales and product forecasts, shipment destinations and arrival status 21

22 In summary: Implications for a consumer focused organization Losing supply chain economies: managing efficiencies on a transactional level The new organizational imperative, moving from the functional to a value chain organization Virtual integration, how the store will survive The new operational footprint is GLOBAL: Operating Globally, Thinking Locally Showrooming: decrease shelf and store size, rapid replenishment and same day delivery Stock balancing with omnichannel fulfillment: effective use of inventory Fight for the customers wallet: retailer vs. supplier Leverage IT systems: consumer patterns and supply chain visibility 22

23 Some suggestions for action Supply chain & operations Pilot an end-to-end fulfillment operational design using one (or more) categories Design a true omni-channel supply chain without need for separate ecommerce DCs. Use inventory optimization as the opportunity. Design a supply chain to support global expansion Determine the value of your brand and its drivers by market segments Re-energize S&OP to be more dynamic Customer impact Determine the value of your brand and its drivers by market segments Digital Transformation Increase collaboration to include sales and marketing and merchandizing 23

24 You can win from within: 5 key principles to effectively stay ahead of market shifts 1. Does my company have a clear strategy in place to capture these new and emerging business opportunities, and does our organizational structure support that strategy? 2. Delivering a consistent brand experience, both internally and externally, across all possible technologies and channels 3. Having the right talent in place to enable both above 4. Understanding and the changing the organization s culture, and the way that it will support or undermine organizational change efforts 5. Putting the right metrics in place to gauge success 24

25 Thank you! 2013 PricewaterhouseCoopers LLP. All rights reserved. refers to the United States member firm, and may sometimes refer to the network. Each member firm is a separate legal entity. Please see for further details.