08 SCS:VIEWPOINT
RETAIL
Managing at the
speed of reality
What’s in store for supply chain and retail management
professionals in the decade ahead? Prediction is very
difficult, yet it is certain that the retail industry will
continue to be among the most challenging and
competitive sectors. This complexity should cause
retailers to rethink how they manage the impact of
these challenges on their supply chain.
Over the next decade, information-driven
collaborative supply chains will form the core of
retailers’business models. Today, most supply chains are
built on inventory. Inventory reserves are quite
common to ensure that risks are balanced with just-incase
demand requirements. Companies have built-in
safety stocks to adjust for inconsistent supply sources,
which instills a level of constant‘buy-more’trade off to
make up for those suppliers who can’t ship on time.
To meet these challenges, the retail industry is
beginning to look at the supply chain as a strategic
opportunity within a broader company strategy.
Retailers who have made the paradigm shift to
information-driven supply chains have the visibility to
RETAIL
Fulfilling
your destiny
A supply chain strategy
linked with operational
excellence can provide
success for the company,
and its customers.
SARAH TAYLOR
Integrated multi-channel fulfilment can
halve costs, generating a benefit
equivalent to six per cent margin – is it
every retailer’s destiny? RAY FOWLER
Multi-channel retailing has become a way of life, and it
is an essential customer offering for store retailers. One
third (18 million) of all UK consumers have purchased
online. More and more retailers are online, even in
those retail sectors where the web experience was
previously less appealing – 55 per cent of the top 130
UK fashion and footwear retailers now have
transactional web sites.
But many retailers are still offering multiple channels,
rather than a truly integrated multi-channel offer,
particularly when it comes to order fulfilment. When
established store retailers set up online retailing, for the
first few years they usually handle customer orders
outside the main distribution chain, in separate
fulfilment centres. This is a sensible way to launch a
sense, predict and plan demand at granular levels
and in real-time.
In a 2006 report from the Economist Intelligence
Unit, CEOs’top five priorities focused on driving
operational excellence, streamlining innovation,
managing risk and compliance, driving revenue growth
and maximising shareholder value. These goals may be
more difficult to achieve than others, but in retail, when
you mix competitive environment, uncertainty in
global markets, thin margins and volatility of consumer
spending – it makes the objectives seem impossible to
achieve. What we do know is that the supply chain is
shifting and the demand side is more demanding than
ever. Managing at the speed of reality has become the
new channel, because it reduces complexity,
investment and risk.
But when online sales reach any sort of scale, the
additional cost of a bolt-on fulfilment solution
becomes high, compared with integrated distribution
centres with the capability to store, pick and dispatch
product for both stores and online customers. Running
separate fulfilment centres can cost twice as much per
order as fulfilling from integrated distribution centres
and erode up to six per cent of margin.
The analysis counts the end-to-end cost of order
fulfilment, and highlights in particular the high cost of
offering in-store collection options. The reason for such
a significant extra cost to run fulfilment centres is that
the overall process becomes much more complex, with
duplicated product handling and storage. The more
COST TO FULFIL ORDER
(EXCLUDING DELIVERY)
Separate FC £2.07 £2.81
Fulfilment solution Integrated DC
£1.04 £1.08
Source: Verdict Research, 2007
Benefit of integrated DC £1.03 £1.73
Margin equivalent 3.4% 5.8%
OCTOBER 2008 SUPPLY CHAIN STANDARD
www.supplychainstandard.com
new norm. Retailers must transform their business to
focus on a supply chain built on information, instead of
inventory. Inventory turn is a common metric used in
retail. The calculation is simple; turn is equal to cost of
goods sold divided by inventory. The challenge for
retailers is to focus on more productive uses of
inventory. Also, with globalisation and global sourcing,
retailers must look to optimise supplier networks to
decrease supply variability while still delivering on
customer expectations of more products on the shelf.
Success will be measured by how well supply chain
professionals can use information to improve overall
business value. Transformation, in the global landscape,
requires retailers to take a fresh look at:
complex processes can also lead to slower customer
response times and increased risks of stock-outs or
unsold stock at the end of the season. The argument
for integration is compelling, so how can retailers bring
fulfilment into their established distribution centres?
Achieving integrated fulfilment is challenging, even
for sophisticated retailers. The barriers to overcome are
in physical infrastructure and processes, inventory
management and organisation, as well as IT systems.
Retailers will need to modify the layout and
processes of existing DCs serving stores, to be able to
pick products for individual customers, and collate and
pack these for cost-effective delivery. Requirements
need to be assessed for seasonal peaks, which will often
coincide with the busiest times for store replenishment.
The solution will depend on typical order profiles, the
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