CLOUD SOURCING FOR AN OMNI-CHANNEL WORLD

Transcription

1 CLOUD SOURCING FOR AN OMNI-CHANNEL WORLD March 7, 2013

2 An Industry White Paper Prepared For TradeCard By Patrick Lamson-Hall Managing Editor, Sourcing Journal Online Table of Contents 1. Omni-Channel Retailing Demands a New Supply Chain 2. Consumers Demand a Seamless Experience from Both Ends 3. Technology: The Culprit and Hero 4. Supply Chain in the Cloud 5. Perfect Inventory 6. The Omni-Channel Impact on Revenue 7. Key Takeaways

3 Omni-Channel Retailing Demands a New Supply Chain The omni-channel movement is revolutionizing the retail world. It is changing the ways consumers shop, which is driving the way retailers plan, produce and sell goods. Supply chain visibility across all sales channels, powered by smart deployment of cloud technology, will be the key enabler to tomorrow s omnichannel retail strategies. The Changing Face of Retail An explosion underway today is resulting in new ways for retailers to touch consumers. Consumers can buy goods online using computers, mobile phones, or tablets through catalogs, in-store, or at kiosks, pop-up shops, sponsored events, or discount stores. Same day shipping and in-store pickup have added to the pressure to find new ways to sell and deliver goods. The retailer s face to the consumer has grown extremely complex. As a result, retailers must re-think their supply chain strategy to better suit how they plan, deliver, and sell. Retailers need complete inventory visibility across all channels. They need agility to accommodate any consumer who walks into any store and requests any particular item. The retailer must know the exact location and stock of the item, in the requested color and size, and have it available to the consumer in his or her preferred mode. Power has clearly shifted heavily towards the consumer. Consumers know their options and will buy elsewhere if their needs are not met.

4 Consumers Demand a Seamless Experience from Both Ends Retailers are struggling to keep up. They need to invest and plan in-store and in the supply chain. Channel-agnostic consumers want a seamless brand experience. This requires inventory visibility up and down the chain, including Success Snapshot beyond the enterprise walls. At this year s National Retail Federation Convention and Expo, every retailer expressed the need to invest in mobile apps and improve the in-store experience to capture sales from customers who examine items in-store, but purchase them elsewhere, often with a handheld device. A seamless front-end experience will allow customers to shop when and how they want. But a seamless back-end is missing from the conversation. A seamless back-end experience means delivering goods when and how the customer wants them. Tamara Saucier, VP of Market Development at TradeCard, pointed to fulfillment as the major challenge in sourcing for omni-channel: "Omnichannel fulfillment is all about getting the consumer the product they want, in the channel that they want, when they want it," she explained. This means different things for consumers and retailers. "From the consumer perspective, you want to be known consistently across all channels...for the retailer, it's about seamless inventory knowledge. Having a view of inventory that is precise, and knowing that information is actionable to allow you to fulfill demand, is critical." 1. A retailer connects its entire network on a cloud-based system to handle orders, production, delivery of goods and settlement. 2. Each party interacts and fulfills its transaction obligation in a single cloud-based system. 3. A supplier receives an order, acknowledges receipt, completes the job, and hands the products off to the next party in the transaction lifecycle. These events are tracked in the system. 4. The retailer s sourcing department is automatically informed in real time of any significant delays anywhere in the goods sourcing process. More importantly, it has visibility into items ready to ship or available to expedite. 5. When an early snowstorm hits the U.S. East coast, the retailer has visibility across all inventory in its supply chain, and can re-route or expedite winter coats and sweaters to Northeast stores and DCs for in-store and online sales. What s needed is a supply chain strategy for firms shifting from traditional bricks and mortar storefronts and e-commerce to burgeoning omni-channel sales.

5 According to Edwin Keh, former COO and Senior Vice President of Global Sourcing at Walmart, these companies must focus on transparency and traceability: If you have a shipment stuck at Long Beach, you need to get the information in real time. You don't have the slack to waste 24 or 48 hours. People are now seeking total visibility." Some examples of back-end innovation were seen during 2012 s soft holiday season. Macy s used new order fulfillment software that filled web orders through store stockrooms to keep more items on the company s website. They also deployed a new patch that prioritized items with higher overstock to prevent goods from ending up on clearance. Target, in an attempt to keep up with Walmart.com and Amazon.com, offered same price matching with many websites. This strained their brick and mortar sales, but kept them competitive for the holidays. Centralizing, and creating an all-channel sourcing track can help maximize inventory utilization and keep overhead low, particularly for firms like Macy s that seek to fulfill orders from all channels using any available stock. In that sense, a seamless approach to the consumer must be backed by an equally seamless approach to sourcing and allocation. Technology: The Culprit and Hero Technology is making consumers less loyal, more demanding, and more conscious of brand and price than ever before. Technology further empowers consumers by allowing them to shop on their smart phones or tablets as they walk the aisles. They compare products and prices in real-time. At the same time, technology will be the key to retailers keeping up with today s consumers both in-store and in the supply chain. The latest supply chain technology leverages cloud, mobility, and social collaboration for a truly seamless view of inventory: from in-transit, back to the order, and even into the factory s production line. A collaborative supply chain solution should make communication seamless and traceable, eliminating paper trails and enabling companies to upload all documents to a single point for each order and item. It also integrates communications with inventory management and order systems, connecting the sourcing team, the inventory team, and even the finance team.

6 Success Snapshot A sporting goods provider allows consumers to go to its web site and order individual custom hockey sticks personalized with their name and number. The web site sends orders to the sporting goods brand and feeds directly into a cloud-based supply chain system, creating a PO for one hockey stick. The process is completely automated, going straight through from consumer to web site to brand to supply chain platform to manufacturer. The factory puts the name and number on the stick, item scans it and creates a packing manifest for one stick, labels it and ships it out via UPS, directly to the consumer. The brand manages three order types in the cloud: distribution center orders, direct to store, and direct to consumer. Consumers order personalized sticks and skates from the web site and a file moves into the cloud creating a PO. The PO is delivered to a factory and the factory produces it. The PO includes customer information and the factory executes it and creates a shipping label with customer info, and then ships. The packing list is produced in the cloud. The factory selects the carrier on the cloud system and a label is generated for the carrier to track. The cloud system enables the brand to process and ship custom orders direct to consumer from Asia, eliminating a full layer in the supply chain. No inventory is held in the U.S. The process saves time and money and even reduces the carbon footprint. Most importantly, it enables the needs of an omni-channel environment. Supply Chain in the Cloud More and more businesses everywhere are embracing cloud technology. Brands and retailers are finding that cloud-based solutions are a reliable and efficient means for managing the global supply chain. For example, instead of updating 10 or 20 trading partners regarding changes to an order, a more collaborative approach using cloud allows brands to post their updates in one place, where they are viewable by the entire supply network. This is similar to updating a LinkedIn or Facebook profile. Everyone sees the update instantly. Connecting the entire supply network in the cloud opens the door to new possibilities for speed, efficiency, savings, visibility and agility. These are all essential to omni-channel. Processes from planning to purchase order, through settlement and delivery can be streamlined better when all parties are connected in the cloud. How does this make a retailer omnichannel ready? Perfect Inventory Cloud software is being complemented by improved tracking technology like Radio Frequency Identification (RFID). RFID uses radio-emitting chips to

7 identify each product on a factory floor, and to track each product through every stage of production, distribution, and sale. In theory, this technology could eliminate even the smallest inaccuracy in inventory accounting. Many retailers already use RFID technology at the distribution center level, and as tags become less expensive, they are appearing on shop floors and in production facilities. Industry sources say that the shift to RFID could be as monumental as the last generation s transition to barcode scanners. It will streamline the omni-channel system by allowing web-based sales and bricks and mortar sales to use a single tracking system, making inventory interchangeable. The best stores are already eliminating the distinction between web inventory and store inventory, and in ten years, sources say, there will be two types of companies those that made the jump to collaborative supply chain and RFID, and those that went broke. Many companies are pursuing the development of bricks and mortar stores as micro distribution centers for web sale, though some have criticized the practice, as it can result in depleted store inventories. Companies are advised to set thresholds and use their supply chain solutions to monitor shipments, and to place a fulfillment priority on non-discounted orders. Web and store inventory can be integrated so that shoppers and floor staff know what's available at each store, and customers can elect to pick up their online purchases in-store. The Omni-Channel Impact on Revenue In 2012, Macy's gross margin was up 0.4 percentage points, its total revenue was up by over $700 million dollars, and its e-commerce division jumped 40% to over $2 billion. At the same time, store managers noticed more customers checking prices on their smartphones, essentially using the store like a showroom a place to examine products, but not buy them. These trends are not unique to Macy s. Apparel e-commerce was up 20% in 2012, doing $48.6 billion worth of business. Apparel sales are the fastest growing segment of e-commerce, and online sales are the fastest growing niche in the apparel business. Meanwhile, the latest numbers from Nielsen indicate that 54.9% of consumers have smartphones. Growth is always good, but profitability is about more than consumer demand. If a company can t efficiently manage inventory and procurement across multiple purchasing channels, the customer experience will suffer and they ll lose business.

8 Keh points out that there are many advantages to focusing on e-commerce. It s cheaper to run a website than a bricks and mortar storefront, and it s easier to keep products in stock, because sold-out products are immediately and simply removed from the website. That can backfire if a nimble competitor (like Amazon.com) has the product in stock. "It's a great situation to be in, he concluded, if you can fulfill the order. But a lot of people are stuck with legacy, where doing this type of fulfillment is tough." Key Takeaways The use of robust cloud-based supply chain and inventory management systems, in tandem with RFID in warehouses, retail floors, and into production sites, will make real time tracking of goods compulsory. Once this technology has been paired with a unified e-commerce portal, customers will be able to see, at a glance, whether a product is available in the DC, is in transit, or is available for in-store pickup, same day delivery, or traditional purchase. In an omni-channel world, the tenets of a successful business plan are transparency, flexibility, and technology. Consumers will continue to demand seamless shopping experiences. Smart retailers will learn to deliver.