Zumwinkle and Standish
OPERATIONS

Running a Profitable Supply Chain in an Integrated Marketplace

In a world where it is possible to shop at any time, and in virtually any place, consumer expectations have never been higher. Retailers and CPG brands operating in an integrated marketplace, spanning multiple touch-points, are striving to meet consumer demands for value, convenience, relevance and experience – differentiated by personalization and purpose.

Already, some retailers are struggling to cope with exponentially growing online sales volumes. Fulfilling these orders is costly and challenging, jeopardizing retailers’ margins. Add in popular new channels, such as digital personal assistants, and meeting delivery targets looks even tougher.

On the positive side, we are seeing some progress. Retailer performance on Cyber Monday improved this year compared to last, with retailers delivering goods to consumers in an average of 1.9 days (compared to 2.6 days in 2017), according to the 2018 Holiday Shipping study from Kurt Salmon, part of Accenture Strategy. However, growing expectations around free and fast delivery mean that the majority of retailers have to improve much more to satisfy consumer demand around the holidays. Fifty-four percent of consumers expect holiday orders – with free shipping – to arrive within 3 days. However, the majority of orders placed arrived after one week.

Retailers do not lack for ambition: the most forward-thinking envisage their supply chains playing a vital role in customer services. But the practical challenges of meeting surging demand – and coping with issues such as a 30 percent return rate in online fashion retail – are considerable, particularly given the investment of capital and time required to improve supply chain infrastructure.

Four Steps Toward Greater Purpose
Running a successful supply chain in an integrated marketplace is certainly not impossible. End-to-end transformation may not be achievable overnight, but incremental change to the network will deliver margin improvement, releasing savings for re-investment in services that enable the differentiated customer experience for which retailers are striving.

Think of this change as a four-step process.

Step one is to establish a purpose-led supply chain strategy. With consumers spending 31 percent more with retailers whose purpose they rate highly, it is imperative that brands consider how they are perceived. Retailers that can clearly define their purpose take an approach to supply chain strategy that integrates proposition and service goals, as well as physical infrastructure and IT assets.

This holistic context yields quick wins as well as longer-term gains. If they have a clearer view of what they are trying to achieve, retailers can identify opportunities for immediate savings through rationalization, process redesign and operating model transformation. New technologies, including automation, AI and analytics, will be part of the picture, but simpler changes – a new consumer data capture form, say – also yield dividends.

Step two is to reconsider how to serve discrete micro-segments of the customer base. Collaborating with an ecosystem of partners to achieve a differentiated sourcing model will be a much more effective means of serving these segments than trying to do it all from a single supply chain function – faster, more flexible and less costly.

With an asset-light supply chain comprising many third-party networks, the best combination of partners will come together to fulfil the different order and service requirements of any single customer. Using smart technologies and a more agile IT architecture, the retailer sits at the center of a customer-focused network, delivering with speed and reliability.

The third step is to drive down costs by developing a range of new supply chain capabilities. For example, optimizing inventory management, with better visibility and accuracy of stock, including the ability to serve micro-segments. Existing approaches to this challenge include sharing stock between retail and online channels, employing ship-from-store to increase online availability and enabling a buy-online-pick-up-in-store solution (BOPUS). At the same time, new technologies, such as analytics and AI-driven sales forecasting, offer further benefits.

Elsewhere, automation can drive significant savings. That may mean small initiatives to begin with – fully robotic fulfilment centers take time to develop – but areas such as order management offer compelling efficiencies.

Improved visibility and responsiveness through a traditional “control tower” approach, supplemented by advanced analytics, should also be a priority, giving retailers the ability to monitor supply-chain performance in real time and drive improvement. Innovation in the “last mile” is necessary, too, as this is the part of the supply chain most visible to customers and therefore offers the greatest personalization opportunities.

Finally, focus on step four: the development of customized products and services to serve micro-segments, such as a sports brand developing a wellness program tailored to an individual’s specific lifestyle preferences.

With customization in mind, retailers are realizing that a wide partner network allows them to offer much more to the customer. In the US, for example, the on-demand delivery platform Instacart can deliver groceries to 70% of all households from a string of different stores, while Staples has a deal with National Assembly Services to have its furniture put together by professionals.

Getting these steps right is critical, as their purpose-led supply chains provide a means with which to compete against the digital pure-plays who are causing disruption. With a renewed sense of purpose, underpinned by a streamlined supply chain function, retailers have every chance of building on their well-established brand value to succeed in the new integrated consumer marketplace.

Jill Standish is senior managing director and head of retail at Accenture; Lori Zumwinkle is managing director and North America retail lead, Accenture.

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