Retail’s seismic shift

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(From Supply Chain Standard, September 2012)

Retail organisations are facing a seismic shift in the markets they serve – from multiple channels to international expansion. But are the systems in place to fulfil orders and manage returns across this altered and highly complex landscape?

In recent years supply chain execution has become significantly more complex. For retailers in particular, the growth in channels to market, the trend to sourcing of products from distant locations and the expansion of retail operations overseas have converged as strategic influences on execution and, as a result, have radically changed the game-plan for the way companies must manage information to cost-effectively serve their markets.

According to Craig Sears-Black, managing director at Manhattan Associates in the UK: “The trend is for change – and change in retail is all about trying to find new markets. So it’s about how do we fulfil efficiently in overseas markets? How do we find distributors for our products? How do we find other channels and other routes to market? And how do we capitalise on the continued growth of the internet?”

He points out that the challenge retailers face is in addressing this need for radical change. “If you look at most supply chains, they have grown up over the years with an evolution of systems, through either a number of packages that have been acquired and integrated together or that are ‘home grown’ and these are coming to the end of their viable life because they cannot adapt to change.”

Sears-Black postulates that for the great majority of retailers it is time for a step-change in systems and operational capability. “Everything over the last twenty years has been very incremental. It’s been relatively minor change, lets say, closing down one network of DCs or integrating one network with another,” he says. “If you overlay on to that the increased complexity of combining, maybe, wholesale with retail, with direct to consumer, then you can’t use the same techniques to respond to those challenges.”

So how difficult might this challenge of agility be for in-house teams trying to maintain and upgrade “home-grown” systems? Is there enough in-house expertise these days to cope with this growth in complexity? “This is quite interesting… the aging programmer community,” he says, pointing out that a great number of systems may be twenty or more years old. “A lot of people who would have designed the codes and have been modifying these systems are now looking to retire and that is causing a skills gap –that’s another reason why people need to re-look at the long-term future of their IT.”

For Sears-Black the key to managing multi-channel complexity is having global visibility of inventory. “Wherever it [inventory]is in your supply chain you should have visibility of it. This is absolutely, not the case in many places right now,” he says.

“Yes you may know how many purchase orders you have for a product, and you may know when the manufacturing date was, and you may know when the shipment date was, but you rarely have real-time visibility across all channels and across all stock holding locations. It’s a very difficult thing to claim to do. When looking at inventory optimisation, it’s much more about the stuff that’s outside the warehouse than it is about optimising inventory levels within the warehouse.”

Claire Umney, general manager at AEB (International) in the UK, believes that it is critical for supply chain execution systems to be fully integrated with processes such as global trade management and ERP. “When dealing with SCE legacy systems with limited integration options, visibility and collaboration platforms can be deployed to extract and distribute data from a number of systems and supply chain partners for end-to-end transparency and control,” she says.

“Only when the data flow is uninterrupted – from the initial sales order, through to delivery to the end customer – can supply chain optimisation be achieved.” She adds: “When used in conjunction with a business intelligence solution, the potential cost reductions can be even greater.”

Nigel Illingworth, CEO of Merret – part of Retail Assist, sees retailers placing a heavy emphasis on “channelling” and working with a greater number of concession partners. “We now have connections to about 45 – 50 different concession partners with an out-of-the-box solution,” he says.

“Every concession partner has their own formats and views, so we spend a lot of time creating connections to these people, then when our clients expand their business, or we get new clients on-board, those connections and pathways are already there.”

Illingworth says retailers want greater flexibility in the way they fulfil orders, creating the ability to fulfil from DC or retail stores. “You can say, during the week I am going to fulfil out of 100 different stores, then at the weekend, when they are busy, only fulfil out of 20 stores. So you can maximise your stock potential.” he says.

The company has started to work with a couple of retailers on launching a 90 minute delivery service, where an order is fulfilled from a local store directly to the customer’s home. “That’s where things are moving. It’s a just-in-time world. Someone may be going out and want a dress for that evening,” he says.

“They would look on the web and check availability at their local store. If a store is flagged to be a quick-delivery store they put in their post code and then they are given the option to collect from store or have it delivered within two hours.” However, he adds a caveat, “Obviously, for some stores this wouldn’t work – where it would work is in densely populated areas.”

Fashion retailing is increasingly a global business. Brands that have succeeded in one territory are keen to replicate that success in other countries. But the chances of failure can be high.

Successful supply chain execution in overseas markets requires consideration of a number of key factors. Helen Wilkinson, business development, Unipart Consumer Logistics, says the web site is the first imperative. “Some companies have attempted to serve overseas markets through their domestic web site, but this is rarely operationally satisfactory, or convincing to demanding and suspicious consumers.

A local website is vital, in the local language and adopting local usages – British court shoes are pumps in the US – but also reflecting local factors such as customer pricing – for example, sales tax.”

Wilkinson believes locality reassures the consumer about all-important service levels. “Fashion customers are accustomed to next-day or 48 hour fulfilment – a foreign web site suggests a four or six-day cycle or worse, which seems like a lifetime in this market,” she says.

Similarly, consumers are keenly interested in returns policies. “In fashion, it can be almost de rigueur to order three pieces, choose one and send the others back. Returns, which typically run at 20-30 per cent of deliveries, are not failures, they are part of the process,” says Wilkinson. “Consumers need the assurance that both the physical return process, and the re-crediting to their accounts, will be swift and painless. At the same time, the ability of the vendor to convert returned items back into available stock, within the often very short life-cycles of the fashion industry, has a critical effect on margins and profitability.”

She points out that to an extent, getting product out there, even internationally, is relatively straightforward – handling returns is not.

Wilkinson believes that as long as returns are within the system, the retailer is still buying and holding possibly unnecessary stock. “As returns materialise, it is imperative to move them swiftly back to the (virtual) shelves, otherwise, excess stock may be ordered and at the end of the season – which for some lines may only be a couple of months – margin-destroying markdowns become inevitable,” she says.

According to Wilkinson, “It may for some retailers be feasible to supply, say, US orders from the UK. It does not follow that it makes sense, in terms of time or money, to bring returns all the way back to UK DC’s, if it may be resold back in the United States,” she says. “On the other hand, if the returned item is just as likely to be resold in say Germany, it may make perfect sense.”

She emphasises that, “there are complex issues around inventory and systems, as well as costs, duties, taxes and tariffs – which may also be influential. We have considerable experience in helping fashion retailers expand internationally and in analysing and balancing these complex factors of global supply chains.”


But just how efficient are our supply chains in terms of exchanging product information to effect execution? GS1 is a not-for-profit, global supply chain standards organisation for retailers and manufacturers, with UK board members that include the likes of Tesco, Sainsbury, Diagio, Proctor & Gamble, Kraft and Unilever.

“In terms of mass development and execution of GS1 standards the retail sector is very mature in identifying products, exchanging orders and invoices using GS1 standards – however, there is still room for improvement, especially around product information exchange,” says Harshal Gore, membership services manager, GS1.

In the last few weeks GS1 has introduced TrueSource 2.0, an upgrade to a cloud based solution launched eighteen months ago for sharing product data between brand owner and retailer. “TrueSource 2.0 is a service we have developed to try and support the industry in sharing standard and trusted product data between brand owner/supplier and retailer – and ultimately, then with the consumer,” says Tom Beston, TrueSource programme manager at GS1 UK. “By having a tool or a service like TrueSource, where brand owners can enter product data once and then share it with multiple trading partners, it means the whole of the industry, plus the consumer, has the same view of that information. This drives new technologies and improved experiences for consumers and gives greater accuracy and trusted data.”

However, it is quite a task trying to get everyone to subscribe to such a service. “What we have done is create TrueSource as a low-cost entry point for suppliers and we have developed it with our membership in mind – an awful lot of our members are SMEs. Around 97 per cent that joined us last year were SMEs, with many coming from the online retail environment,” says Beston.

“There are many different providers of online catalogues or data pools, and that’s the whole point of it. It’s a standards based network so there are other providers out there who provide similar services, but because they are using standards, the data can be shared between trading partners efficiently and ultimately, can be seen as trusted product data because it has come directly from the brand owner.”

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