Is your retail supply chain strategy as unique as you?

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What are the key aspects a of a successful retail supply chain strategy and how can you stay ahead of the competition? Maria Highland investigates.

When it comes to a successful retail supply chain strategy it is not one size fits all. Every supply chain is as unique as the retailer, says MetaPack VP of global solutions Duncan Licence. This is based on the combination of the retailer’s customer base, products and product types alongside the operational practices they use.
A retailer’s supply chain strategy is inevitably driven by consumer demand. “A ruthless focus on delivering the customer proposition wins every time,” says Licence. “We know that securing long term customer loyalty based on customer’s getting what they want, when they want it is absolutely essential and the retail supply chain has to be geared up to meet this demand. Those that do will always keep ahead of their competition.”
Consumers demand value from both product and delivery, and it is this need which drives supply chain strategy. When “it comes to the retail sector, consumers are demanding value,” explains retail sector director at Eddie Stobart Logistics Nick Winder, and “with the increasingly competitive landscape, and the growth of discount outlets, it is imperative that retailers and third-party logistics partners continue to explore value creation in the supply chain.”
So what key aspects should retailers consider when working to stay ahead of the game? Winder suggests “horizontal collaboration between retailers and strategic partners, innovation in equipment used and ensuring that product is moved through the supply chain in the most efficient way.”
Automation would seem like the first step to improving operations, especially as it has been a growing trend over the last few years. Many major retailers have made the switch to automating their warehouses to improve efficiency, costs and visibility. For example, Asda has opened an automated distribution centre worth £100 million. The site is 97 per cent automated and processes around four million cases a week to serve 140 stores in the North of England.
Shop Direct is also investing £200m in a 500,000 sq. ft automated distribution centre at East Midlands Gateway. The centre is to handle all aspects of Shop Direct’s one-man fulfilment operation under one roof. Shop Direct aims to improve efficiency, including processing new orders and returns faster than ever before.
According to research for Conveyor Networks, online retailers require greater automation in their warehouses to ensure they meet delivery schedules and improve customer service. The research was conducted by Sapio Research and found that, based on responses from over 100 online retailers, 83 per cent believe that automation will drive future online retail growth.
“By increasing automation,” says Conveyor Networks managing director David Carroll, “a range of slow, laborious and error prone manual processes in the warehouse can be made much more efficient. Retailers can meet delivery promises more effectively, process orders more efficiently during peak periods, and reduce the number of returns due to incorrect orders.”
However, the level of automation a retailer may want to invest in will depend on “the individual retailer and how their supply chain operation is structured, so the mileage they can get out of automation varies enormously on a case by case basis,” says Licence. “Retailers need to consider the product mix, the cost of automation deployment and maintenance and the trade-off between cost-to-serve and operational flexibility.”
This need for a changing retail supply chain strategy alongside potentially looking to invest hundreds of millions of pounds in robotics and automation can be attributed to changing consumer behaviour. But does the answer lie with automating your operations or does the issue run deeper than that?
Winder explains that “shopping habits have dramatically changed over the last decade and the accelerated growth in e-commerce has changed the dynamics of supply chains.” Likewise, the speed of fulfilment, from source to delivery, has been a factor in increasing the pressure on supply chains to service without significantly increasing costs.
Consumer demand, various delivery options and the growth on online shopping now means that consumer expectations have changed. The benchmark is now next day delivery and speedy returns. “Online shoppers increasingly expect to get their goods the next day, regardless of when they make the purchase,” says DPD chief executive Dwain McDonald. “We also find that many customers now specifically request a weekend delivery for goods like fashion and electronic devices where they want to be sure they are going to be at home to receive it.”
This is something that supply chains struggle with as they “used to be all about store replenishment but increasingly there is a focus on home and PUDO delivery,” says Licence. He predicts that the pace of change will only increase and that the “variety of parcel carriers, the complexity of an increasingly savvy customer’s requirements and the number of international destinations will continue to challenge the retail supply chain.”
The growing popularity of online retailers coupled with easy returns and fast parcel delivery service has meant that retail supply chains have had to readjust their approach to servicing consumers. This is also poses the question: are high street retailers are on the way out?
Online retailer ASOS boosted its logistics investment, aiming to increase its capacity to reach a target of £4 billion of net sales. “We’ve achieved more than a billion site visits for the first time,” said ASOS chief executive Nick Beighton, explaining the strategy. By accelerating investment in distribution and logistics ASOS aims to gain “a further step in building ASOS into the world’s number one destination for fashion loving 20-somethings.”
Despite the inroads being bing made by e-commerce giants like ASOS, “it’s important to remember the British high street still plays a vital role in society and there are elements of growth among the headline numbers of decline,” says Lisa Hooker, consumer markets leader at PwC. “For example, almost 400 new clothes shops opened last year, even though over 700 closed. And, while four pubs a week closed, at the same time three a week opened.”
“Retailers and leisure operators need to continue looking at their businesses – including their store portfolios – to make sure they have a clear brand and product offering,” suggests Hooker. “The winners at the moment, such as nail bars, coffee shops, bookstores and craft beer pubs, are all flourishing because they serve the needs of emerging consumer segments, such as experience-seeking millennials and offer a differentiated physical proposition that online offerings can’t compete with.”
However, traditional retailers are still looking to change their tactics and get on board with improving their supply chains, getting products to their stores as fast as possible to rival their e-commerce counterparts. “The shift to online has also had a much publicised and obvious effect on the high street,” says Winder, “and this trend is unlikely to change with consumer immediacy demands increasing.”
To combat this, many retailers are looking to ramp up their online offerings. “The customer-centric supply chain combined with an increasingly complex landscape means that retailers are increasingly looking to merge their online and off-line supply chain. A single view of stock with the ability to serve customers from warehouse or store is essential,” says Licence.
Marks & Spencer is currently in the middle of a five-year transformation programme, specifically catered to shaping the company into a faster and more commercial retailer. This includes shutting down its Hardwick distribution centre and working towards creating a single-tier Clothing & Home logistics network that will enable the suppliers to move products to stores faster and more cost-effectively. “Closing Hardwick will help to remove some complexity from our network and speed up our supply chain,” said Gordon Mowat, director of Clothing & Home supply chain & logistics.
Holland & Barrett has extended its online offering and partnered with CollectPlus to enable its customers to pick up and return their online products from any CollectPlus store. “For many of our customers, home delivery isn’t the most suitable option to fit around their busy schedules,” said Geoff Shucksmith, supply chain & logistics director at Holland & Barrett. “Therefore, our online customers will greatly benefit from the added ease that CollectPlus can provide, as they will be able to pick up and, if necessary, return their purchases at any CollectPlus store at their own leisure and at a convenient time for them.”
Retailers can no longer deny a separation from technology and the ease, not to mention profit, it brings to their operations. “As retailers reimagine the entire in-store customer experience, technology is paramount to building a more connected and more personalised environment,” says Simon Fahie, ByBox managing director – global technology. “Digital strategies can no-longer be reserved for online, they are integral to creating a consumer destination that builds brand experience and customer loyalty.”
Likewise, Miebach UK director Michael Boos explains that the “logistics of stationary retail (i.e. physical shops) and e-commerce are now intertwined. Undoubtedly, supplying both shops and consumers from the same facility is the key to stock efficiency and availability.”
There is a higher demand for high-street retailers to provide the same service as e-commerce retailers, to provide fast delivery and online options. Vice versa, there is an equal amount of much pressure for online retailers to match the physical process of buying an item in store and being able to return it hassle free, including the option of try before you buy.
Another issue surrounding the growth of online retail is that “consumers buy in small quantities and expect very swift delivery,” says Boos. As a result, stores are required to order more product and have a longer lead time. The key challenge for retailers is then to process “different order sizes and numbers in a short period of time – usually with a turnaround of a couple of hours rather than a shift.”

Strategy and sustainability
Where online shopping and next-day deliveries have fuelled the expectation that this kind of service is the norm has a significant environmental impact. This consequently means that “the streets have become flooded with millions of ‘white vans’, often delivering small parcels from competing e-commerce platforms to the same consumer, customer or retail outlet,” says Miebach UK director Peter Surtees.
Likewise, “businesses are now ordering smaller quantities more frequently,” continues Surtees. “They know they can avoid holding stock – and get products delivered direct to their customers if required. The combined effect is more congestion from more polluting vehicles on the streets of our cities.”
To reduce congestions and emissions within its roads, cities are making the switch to low emission and congestion zones. These have an impact on both store and home delivery. “The move towards city centre ultra-low emission zones will undoubtedly place greater focus on minimising the number of vehicles on our roads, in particular those making store and customer deliveries,” says CollectPlus CEO and Yodel CCO Neil Ashworth.
However, retailers and 3PLs are working to overcome these obstacles to bring their customers the quality service they desire. “The introduction of increased environmental regulation will spur innovation in eco-friendly delivery methods (electric, bike, etc) and may push retailers and carriers to collaborate more,” says Licence.
Ashworth talks about some of Yodel’s methods to minimise environmental impact, namely, “bicycle couriers in several towns and cities across the country” as well as potentially “introducing this strategy in more urban locations over the next 12 months.”
Yodel is not the only company looking to reduce its carbon footprint. Sainsbury’s is trialling electric bike deliveries in South London, looking to test how successful delivering groceries by electric cargo bike could be for customers living in busy cities.
UPS has also teamed with Arrival to test electric vans in the city. “UPS is working with Arrival here in the UK because their smart electric vehicles are helping to reduce dependency on fossil fuel. This is a pioneering collaboration that helps UPS develop new ways to reduce our emissions,” said Luke Wake, international director for automotive engineering in the advanced technology group at UPS.
Alongside emission free delivery methods, Surtees recommends consolidation centres (City Logistics Centres – CLCs) to remedy the issue of congestion and pollution. City Logistics Centres operate by consolidating “deliveries by customer and/or postcode and use electric delivery vehicles to reduce the total number of vehicles on our roads and the associated pollution.”
“The challenge with CLCs is avoiding anti-competitive legislation and encouraging cross-business collaboration,” says Surtees. “It seems to me that the solution requires 3PLs to be the ‘neutral party’ servicing multiple players.”
This is elaborated on by Winder, who explains that a “vehicle with a retailer’s livery limits the number of premises it can deliver to, however by working with a 3PL, non-branded livery avoids any brand conflicts and there can be a major reduction in wasted miles, supporting business sustainability goals.”
Consolidation centres may be the solution to city logistics, enabling lower costs, lower emissions and less congestion. With “the growth of individualised delivery, there will be a need to serve the community in equal measure to serving the customer,” says Ashworth. “We have an obligation to both our clients and their customers as good neighbours to protect the environment.”
But what of the use of third party logistics to improve retail supply chain strategy? 3PLs are able to provide retailers with a service that they cannot employ themselves or may not want to invest too heavily in as a 3PL already has the operations in place.
Ashworth believes that 3PLs are able to provide retailers with a helping hand as a “modern retail organisation has a growing need to recognise that in-house supply chain solutions may not be optimised for every modern customer service scenario.
“It is therefore important to recognise the capabilities and competencies of the service partners in the market who can enhance and optimise the service experience,” he says.
However, this depends on the needs of the retailer. “A 3PL is usually right when a retailer is looking to achieve scale in a new market,” says Licence, but “the benefits of an in-house operation soon become clear once the operation reaches a certain scale.”
A retailer’s strategy for expansion, efficiency and increased profit is therefore dependent on its unique needs and operational practices.

This article first appeared in Logistics Manager, June 2018

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