New report highlights the major supply chain issues facing retailers today
A new report confirms that the top business challenge facing retailers is unpredictable consumer demand. As consumers gain power, not only do they start shopping in more complex ways, but they expect retailers to be able to fulfill their increasingly complex demands quickly and accurately.
The report by Retail Systems Research (RSR) titled Retail Supply Chain Strategy: The Next Big Thing additionally asserts that consumer unpredictability is the new normal and store-centric retailers’ operating models need to change to reflect that.
The problem is the majority of retailers are just starting the conversion from a store-centric retail operation to a true omni-channel offering.
According to the report “Retail Winners” show a marked preference to “modify, not replace.” Retail Winners in particular seek to hold more work-in-process inventory (rather than finished goods) at points of manufacture, to be able to respond more flexibly to changing consumer preferences. The majority of all retailers are also exploring sources closer to the point of demand, recognizing that the time it takes to ship product is a key factor in speed and flexibility.
Once inventory gets to the retailers’ DC, then supplying local demand is key. Winners, concerned that they have the wrong inventory in their stores, have found that there is no “one size fits all” DC model. They are thinking about how inventory movement profiles differ depending on the markets each DC serves, and even distribution methods inside the DC.
Real-time Visibility is Key
The study found that there is no single “to do” more important for retailers han creating the ability to accurately “see” inventory anywhere in the enterprise at any time.
The more a retailer emphasizes cross-channel fulfillment options to the consumer, the more critical this is. But even in operating models where cross-channel fulfillment isn’t perceived as an important option for consumers, retailers simply can’t get away from the fact that consumers have many more choices than before, and so assortment relevancy at the local store level is critical to success.
Retailers must be able to predict demand with more confidence and respond more quickly as demand changes. Those capabilities are enabled by being able to “see” the business as it is happening. Retailers have to understand that the business has become a real-time anytime/anywhere shopping experience. Failing to provide real time accuracy into inventory creates the conditions for either too much inventory or too many out of stocks.
Quicker Response To Customer Orders
The next-generation supply chain not only needs more flexibility on the supplier side – retailers know that they have to be quicker on the customer side, too.
Retail Winners in particular are focused on meeting consumer demands for shorter order-to-delivery cycles, with capabilities like same day ship, drop ship direct to consumer, and drop ship vendor direct to stores.
According to the report, in retail “it’s not about what you want to sell, it’s when, how, and what consumers want to buy.” As a result, the imperative for the next generation supply chain isn’t “how to get goods to market in the most efficient way,” but “how to service customer demand in the most efficient way?”
The report recommends that retailers design the customer experience from end-to-end. How that customer experience is designed will dictate the extensiveness of changes required on the supply chain side to service the selling side.
Retail Winners believe that their best bet is through continuous improvement of their processes, keeping what’s best in their current supply chain design, but not resting on their laurels, instead challenging assumptions in the context of the new customer experience.
However, this new model won’t be static – and so it must be designed with flexibility in mind, giving retailers the ability to bend without breaking as new demand emerges.
Click here to view the complete report.
The 2014 MHI Annual Industry Report: Innovations That Drive Supply Chains named omni-channel fulfillment as a strategic priority for supply chain executives. To learn more, click here to download the report.
