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How is the supply chain changing as a result of omni-channel retail?

Omni-channel retail has radically changed customer behaviour and expectations, and supply chain teams are struggling to keep up.

There has been a rapid, exponential increase in customers’ options to buy and receive goods. This has heaped pressure onto supply chains that were already struggling with a long list of business as usual problems, including:

  • Increasing own brand and new product introductions (long lead times, no history, difficult to forecast)
  • Rising promotional activity (peaks and troughs in demand)
  • Slow sellers (most lines in retail sell < 1 unit per store per week)
  • Returns (especially when back to stores where not ranged)
  • Unseasonal weather (disconnect between demand and supply)

Being able to balance on-shelf availability with stock investment was always a challenge, but now with omni-channel retail, on-shelf has become on-demand.

Omni-channel retail means constantly shifting demand patterns and additional costs

From a supply chain perspective, omni-channel retail means constantly shifting demand patterns and additional costs to serve. Demand shifts by channel, format or fulfilment route mean that forecasting is much more complex. Many retailers are concerned about losing visibility of customer demand and are unable to fall back upon historical demand as any kind of indicator of future demand.

Additional costs are being driven by the variety of purchase and fulfilment options available to customers (reserve and collect, pay and collect, ship from store etc.), and the related infrastructure and processes required to support them (warehousing, logistics, store staff training etc.). Decisions as to where to place stock should be a science in these days of big data, but instead are still very much an art.

Teams involved in the supply chain are often still working in silos

On top of this, teams involved in managing the end-to-end supply chain are on the whole still operating in silos. Marketing is prone to creating demand without aligning merchandising (i.e. stock levels); or supply chain capacities are being exceeded because phased intake has not been consolidated and communicated. Before omni-channel retail these were serious drains on profitability, but now they could be disastrous.

Supply chain teams need to adapt their ways of working to optimise stock in the omni-channel retail era

Supply chain teams need to make a number of fundamental changes in their ways of working to regain the upper hand.

Firstly, demand must be brought under control by aggregating all demand signals from across the business, such as (in addition to sales) lost sales, aggregated demand (e.g. for slow sellers), unfulfilled orders, localised demand patterns, product searches, page views, reviews, ‘likes’ etc., and presented to the trading teams as actionable reports. Merchandising specialists should then turn this data into plans and forecasts that account for differences between channels, formats, customer profiles and product types.

Secondly, modelling that accounts for all of the costs involved in omni-channel fulfilment should be used to inform stock placement and fulfilment strategies. Stock should be held centrally as long as possible to allow for flexibility in reacting to unexpected demand shifts, and to reduce costs. In this way, availability can be balanced not only against stock investment, but also against true profitability. At the very least, the types of omni-channel retail activity that are unprofitable should be visible even if they remain in place for customer-related reasons.

Thirdly, the internal teams must work together across the supply chain. If this needs to be done by enforcing a more rigid cross-functional, business-wide critical path, then the appropriate roles and reports needs to be put in place to manage this.

The supply chain has changed as a consequence of omni-channel retail. The questions supply chain teams must ask themselves now are:

  • How can we gain full visibility of how demand is shifting, on an ongoing basis, so that we can forecast accurately?
  • How do we gain full visibility of the true costs of omni-channel retail operations so that we can build this into our stock decisions?
  • How can we ensure that our teams work together to optimise stock investment across the supply chain?

FIND OUT MORE about Javelin Group’s End-to-end Retail Operations practice.