Supply Chain Challenges

BY Farla Efros

Today’s consumer is driven by an “I want it now” mentality, yet retailers are still not prepared to deliver. Reducing the time it takes an order to arrive at a customer’s home is every retailer’s objective, but while quicker fulfillment makes customers happy, it comes at a cost.

Although retailers are working hard to transform their supply chains to provide consumers the same ease, convenience and value regardless of channel (mobile, online or in-store), 80% of merchants are not prepared for the changes required to implement a customer-centric, omnichannel model.

This finding was revealed in the HRC Advisory’s “2015 Supply Chain Transformation” study, which also identified the challenges presented to retailers by their pure-play e-commerce counterparts, expensive online returns and cannibalization of in-store sales.

So how can retailers be better prepared to enable the transformations required?

Strengthen Supply Chain and Fulfillment Capabilities

Retailers currently lack the capabilities necessary to compete with their pure-play e-commerce counterparts, as only 35% of those surveyed had online capabilities, such as vendor drop-ship, or order in-store and deliver to the customer. Meanwhile, their e-commerce competitors have spent years investing heavily in these supply-chain capabilities.

Recent announcements of same-day, and even one-hour shipping, in addition to free shipping (e.g., Amazon Prime), are applying further pressure to conventional retailers. These competitive shipping offers are forcing traditional retailers not only to set up fulfillment centers in order to compete, but also to reconfigure their supply chains in order to service this new model. Wal-Mart’s announcement of plans to spend between $1.2 billion and $1.5 billion this year on global e-commerce efforts, amid ramped-up competition from Amazon, is indicative of the urgent challenge brick-and-mortar retailers are facing to catch up.

Reduce Returns of Online Purchases with Ship-to-Store

Ninety-five percent of retailers acknowledge that their biggest hurdle in transforming the supply chain is how to mitigate online returns, which can run as high as 30%. Even returns to a fulfillment center or direct to a supplier incur incremental freight costs, the risk of shipping-related product damage and a lost opportunity for a replacement sale in-store.

One solution, which can help to drastically reduce the rate of returns overall, is to have online purchases shipped to an actual store for pickup. When consumers come into the store to pick up their product, they are likely to touch and feel the fabric, try the garment on to test size and fit, or examine how the product actually works — all of which can reduce return rates to a more acceptable 15%.

Shipping to store can be advantageous for both the retailer and consumer. Consumers save on shipping costs they may incur by having the product delivered to their home (plus additional costs of return shipping, should they decide against keeping the item). Retailers enjoy the benefit of increased store traffic, and the likelihood that once captured in-store a shopper is more likely to make additional purchases. A win-win for all.

Leverage E-Commerce Sales In-Store

Seventy-five percent of the retailers surveyed indicated that their e-commerce sales are cannibalizing sales that would have otherwise been made in stores. And while e-commerce sales growth rates are often 10% to 15% greater than physical store growth rates, nearly three-quarters (70%) of retailers surveyed said they are still struggling to develop a profitable economic business model for e-commerce, while simultaneously maintaining acceptable store profitability.

While there is no simple remedy, retailers can begin by leveraging e-commerce sales in the physical store. We’re already seeing several smart retailers using kiosks as a way to sell merchandise not offered or available in the store.

This strategy allows the retailer to free up cash flow and space by maintaining less inventory in the store, while still offering the full online assortment to their brick-and-mortar shoppers.

Update Integration Between Physical Stores and E-Commerce Fulfillment

In order to successfully accomplish any of the above, retailers need better integration between the physical store network and e-commerce fulfillment. This integration has proven to be the best way of providing better inventory availability, increased gross margin, reduced shipping/fulfillment costs, lower return rates and increased foot traffic in stores.

However, more than half (52%) of the retailers surveyed admitted that they do not have the systems or processes in place to provide the required visibility to accurate inventory on hand in each store.

Eighty percent of the retailers surveyed identified inventory visibility and accurate assortment planning between online and physical channels to be the top two challenges in enabling fulfillment capabilities. In fact, only half of the retailers surveyed (53%) are currently able to present customers with accurate inventory information and to fulfill the entire order at the time of online purchase.

Further, only half of the retailers are able to ensure fulfillment from the closest location, when an item is available in multiple locations and distribution centers. To be most cost-effective and efficient, retailers need to be able to identify and present all inventory from store distribution centers, e-commerce fulfillment centers and physical stores as a single shared inventory pool.

Despite the working capital and operating cost challenges of funding, storing and distributing inventory for each channel in separate distribution facilities, 55% of the retailers continue to have dedicated fulfillment facilities for each channel. And only 25% of these retailers are launching initiatives to combine these facilities in order to serve both channels more cost-effectively and optimize their working capital investments in inventory.

With online and omnichannel customer demand growing rapidly, extremely high shipping costs and high return rates, retailers are working hard to transform inventory processes from the traditional inventory push model to a responsive, customer-centric model that provides flexible purchase and return options to the customer, and allows full access to all inventory across the system.

The primary challenge for retailers is to ensure they maintain consistent, high service levels for their customers regardless of the channel in which they shop, pick up orders or return goods, while maintaining profitability during this time of major transition.

Farla Efros is president of HRC Advisory, a leading strategic retail advisory firm focused on increasing retail profitability.


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Moving Customer Engagement Forward


Chain Store Age recently spoke with Jason Miller, chief commerce strategist of Akamai Technologies, about how mobile technology can serve as a key component of omnichannel customer engagement strategies.

What benefits does responsive Web design (RWD) offer retailers versus designing separate sites in native device formats?

One of the benefits of RWD for retailers is that they can serve all of their customers from a single URL while maintaining a single code base for both their desktop and mobile. This is because RWD utilizes a fluid design that resizes and reorders the page elements to fit the screen size.

This removes the need for duplication of work to maintain separate mDot and desktop sites, and provides a level of “future-proofing” for new device formats. It also has the benefit of streamlining marketing efforts. For example, it removes the need to create separate landing pages per device for email promotions, SEO optimizing and social sharing.

This is a multiscreen world, and customers will use many different devices to interact throughout the day — perhaps mobile in the morning, desktop at work and tablet in the evening. RWD allows retailers to create a seamless customer experience across all these different devices.

How can mobile technology help retailers offer in-store customers a shopping experience with the same type of personalization they receive online?

Retailers can use geo-fencing to offer coupons or e-receipts based on users’ proximity to stores. For example, Starbucks uses this functionality to enable its order-ahead feature to choose the nearest location, and in store beacons like the iBeacons used by Shopkick allow retailers to capitalize on data-driven retail experiences.

With iBeacons, retailers can provide product recommendations, track customer movements and send push notifications about merchandise to shoppers when they are in close proximity to the item. In an interesting role reversal, some Web-only retailers are opening retail outlets that are essentially fitting rooms where you can try on items before you order from the website.

How can mobile devices serve as a seamless shopping assistant for customers?

It is undeniable that mobile devices have become a key component of the shopping experience, whether the customer chooses to conduct the entire process online or partially in-store. Mobile stands out as the preferred research device for products and services.

Retailers are also taking advantage of the ubiquity of mobile devices to act much like a personal shopper with apps guiding shoppers to products, or allowing them to take a picture of a product, or view product availability for similar and recommended products. Enabling Web, mobile and video experiences both online and in-store is key for shoppers who wish to utilize their mobile devices as shopping assistants.

What are some ways retailers ensure security for customers shopping with mobile devices?

In order to ensure a secure mobile shopping experience, retailers should employ the same best practices they use for overall website security and PCI compliance. While desktop and mobile platforms may have their differences, the reasons and strategies for securing them are the same. Retailers don’t want the bad guys to exploit their technology, so they must stay current with the latest methods to mitigate security threats.

Customers want to know that the way you handle their personal information is secure. Making sure it’s obvious that data is encrypted and providing third-party trust seals can help increase customer confidence.

What mobile solutions and services does Akamai offer retailers?

Akamai’s services include cloud security, Web performance, media and delivery, and professional services and support solutions. One of the more recent offerings from Akamai includes Cloudlets, which help retailers manage and solve specific business or operational challenges by offloading decisions to the Akamai edge, resulting in increased flexibility, resource offload and control.


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What will your company do with the tax-reform windfall?

CIO Focus

BY Marianne Wilson

These are challenging times for the nation’s chief information officers — and speed is of the essence.

An annual survey of global CIOs found that digital innovation is actively causing disruption to business models, requiring IT leaders to move quickly to deliver new infrastructures, platforms and applications to meet customers’ fast-changing needs. An overwhelming two-thirds of all CIOs believe digital disruption is now a very significant change to business, according to the “Harvey Nash CIO Survey 2015,” done in association with KPMG.

And while last year’s survey suggested that chief marketing officers (CMOs) were owning and leading the digital agenda, the 2015 survey detected a change in the wind. It described a “boomerang” effect, with IT organizations either collaborating with the CMOs or taking on the responsibility for themselves. Forty-seven percent of respondents claimed shared ownership of digital by IT and marketing, up from 40% last year.

Digital Officers: In a revealing statistic, there has been a significant increase in the number of chief digital officers appearing on the IT landscape. Almost 1-in-5 CIOs now work with a chief digital officer — up 7% from last year. An additional 5% report that hiring is underway for a digital officer.

“What’s most striking about the results is the speed of change,” said Albert Ellis, CEO of Harvey Nash Group. “In the 17 years we have conducted the survey, we have never seen a new role grow so quickly as we have the chief digital officer. We have never seen demand for a skill expand so quickly as we have for big data analytics. As technology increasingly becomes focused on the customer, the IT, marketing and operations teams are increasingly working together in new ways.”

The survey finds the role of the chief digital officer varies by companies. In companies where the position exists, only 47% have the designated digital officer take full leadership of the digital strategy. The remaining companies prefer to have the CIO, CMO or CEO take the lead.

In other key findings:

  • Retail CIOs responded that nearly 7% of their companies’ annual sales are spent on IT.
  • Over half (56%) of CIOs believe the most important component of successful digital activity is having an IT infrastructure that allows greater innovation/agility, alongside using digital to create new revenue streams (56%), and using mobile platforms to engage with customers (54%).
  • As in previous years, software development and data centers remain the most favored outsourcing functions by CIOs. However, demand for software application development is falling, while data center demand is growing. Networks and software maintenance outsourcing seems to be going out of fashion. Both have seen steady declines over the last six years.


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What will your company do with the tax-reform windfall?