Two faces of retail

Retailers are facing challenges and opportunities, both in the way they serve their customers and how they interface with suppliers. Nick Allen asks, what are the winning scenarios?
Retail organisations are starting to realise the importance of streamlining their supply chain operations across multiple sales channels, rationalising inventory to consolidate and reduce inventory holdings, as well as improving customer service to capture more sales. Many retailers are now offering a range of customer-centric models where consumers can buy either in-store, online, by mobile phone or catalogue and are able to choose how they receive the goods, whether that be by ordering online for home delivery or for pick-up from store. There are great opportunities for retailers to broaden their offering and increase sales, but an important consideration for retailers is to ensure consistency across the channels – poor service from any one channel may negatively impact brand perception and reputation.
Delivering consistency across multiple channels presents a significant challenge for retail organisations, something that requires a clear understanding of the customers’ preferences for service, an ability to work across operational silos and a complete and joined up view of order management to fulfilment through each of the channels.
Central to achieving these objectives are cross-silo visibility, planning and execution. Manhattan Associates has been working on this for some time and introduced Zero Disappointment Retail which aggregates inventory, order, pricing, promotion, merchandising and order execution information across all channels.
Brian Kinsella, senior director, product management at Manhattan, says: “The ability to share inventory across channels drives up your service levels across all channels, that’s for sure. But when you look at store service levels (the percentage of the time that a customer walks into a store and finds exactly what they’re looking for) the nearer you get to 100 per cent service levels, the higher the investment in inventory required… it becomes prohibitively expensive.” However, Kinsella suggests there is a way of maintaining affordable in-store service levels and “save the sale” at the top end of the scale. “To do this, management acknowledges that you’re going to have out-of-stocks a certain percentage of the time, but you put in place a safety net – so, when you don’t have the right product in the right place at the right time you have access to the broader pool of inventory throughout the retail enterprise,” he says.
This approach to securing the sale when the product is out of stock in the store requires an order management system that reaches across the multiple channels of the retail enterprise – a distributed order management application, as Kinsella refers to it. “Sales staff on the floor can be equipped with mobile devices that give them the necessary visibility and functionality,” he says.
Mobile distributed selling could soon become a common way for retailers to save the sale, and for the customer, it could be the end of a long wait while the sales assistant goes off to the stock room, or makes a phone call, in the hope of finding the required product.
Having a single pool of inventory for all channels makes great sense. Prima Solutions supply multi-channel IT solutions to the clothing, footwear and accessories retail and wholesale market. Clients include Mulberry, Joules, and Start-rite Shoes.
“All of our customers are in the highly price-competitive fashion and apparel retail sector with many now operating as true multi-channel businesses – stores, concessions, mail and telephone order and now online sales,” says Prima managing director John Norman.
“The biggest challenge for retailers has been changing their business processes and systems so that they really are getting the benefit of managing inventory from a single pool of stock – knowing what they have, where it is and if it is available to sell,” he says.
The benefit of this is that they can maximise margins from each product line by allocating and re-allocating stock to different sales channels according to demand and sales margin. “In the case of one of our customers, Start-rite Shoes, a new online direct sales channel gave them a completely new revenue stream – they don’t have their own stores, but sell through independents and concessions, so being able to service both wholesale and retail customers from a single inventory has meant that they can effectively sell down to the last item. From our recent customer survey, it is obvious that apparel suppliers are having to spend much more time on product sourcing and nurturing their customers so they need to remove costs and make greater efficiencies in the day-to-day operation, to maximise sales margins.”
Norman points out that advance ordering by stores has declined making it more difficult to predict demand and meet customer expectations. “Having integrated systems in place across the business for improved demand planning and real-time information on stock availability means that retailers can meet customer expectations, source products based on more accurate forecasting and make informed decisions on product sales through each channel to maximise sales margin,” he says.
Along with the increased opportunities and complexity in dealing with the customer facing side of the supply chain, retailers are also presented with significant gains from trading electronically with suppliers – however, there are complex technical issues that may be seen as a barrier to uptake. EDI is notoriously difficult, expensive and time-consuming.
Multiple connectivity protocols such as AS2, FTP and SFTP, as well as legacy protocols such as X25 and X400 create complexity and keeping up with this great variety of formats is daunting for retail IT departments.
Wesupply managing director David Grosvenor says complexity exists, too, in selecting from the EDI VANs or web-based portals, and the data formats that are commonly used – such as Tradacoms, EDIFACT, EANCOM, XML, along with proprietary formats.
“What’s more, these formats vary by customer and change occurs with irritating regularity,” he says. “Even if a given customer uses a well-established standard, such as Tradacoms or EANCOM, these may well be interpreted or implemented in slightly different ways. Minor tweaks to documents, such as adding a new mandatory field, all present challenges that make maintaining links with customers or suppliers a real headache.
“Managing all of this variety and change is expensive and time-consuming for the IT function and can hardly be described as value-added work. Outsourcing to a full service B2B provider overcomes many of the technical constraints. Sainsbury’s recently took the decision to consolidate electronic trading with 4,000 suppliers onto our B2B platform on a SaaS basis.”
Dumping ground
According to Tony Hardy, managing director at Daylight Supply Chain Services, technology’s role is no longer limited to acting as an information dumping ground. To really add value, technology needs to facilitate the three Ts of any successful supply chain: time, transparency and trust.
“Technology now has the capability to bridge the gap between suppliers and partners and join up the supply chain dots,” he says. “By opening up access to data and providing a holistic and transparent view of the entire supply chain terrain, technology can encourage better and more collaborative working practices within the vendor community. This, in turn, leads to increased efficiencies and better service levels to the end user.”
Andrew Kirkwood, senior vice president and executive director, EMEA sales at RedPrairie, sees a growing role for joined-up supply chain IT. “As we move towards a demand-driven model of the supply chain and manufacturers, 3PLs and retailers adopt a more joined-up approach, the ability of systems to integrate with each other to enable the flow of data between these parties will also become more important. We are already seeing on-line portals being used for this purpose and the popularity and sophistication of these will grow.
“Until recently, most supply chain software has focused on inventory however, given the significance of labour costs to most distribution operations, the performance of teams and individuals, such as those in the warehouse, will come under closer examination. The technology that enables the effective management of this performance is taking off and will become commonplace as understanding of this area grows.”
To maintain margins, retailers must manage the balance between customers’ requirements and the commercial returns for the services delivered. LCP Consulting suggests that a one size fits all approach does not exist. Identifying the profitable product – service combinations and enabling the fulfilment routes to support them across the supply chain has become an increasing focus. Integrated cost, activity and capacity planning capabilities will, they say, be required to provide a clear understanding of what can be done profitably at a product level. Product segmentation and cost-to-serve methodologies will be able to provide real insight to the implications of offering services across sales channels, at product level.
One thing is for certain, retailers are going to have to confront these complex issues if they are going to provide a competitive and profitable multi-channel offering to a highly demanding marketplace.