Modernizing the Retail Supply Chain

Stephen DeAngelis

March 11, 2020

When most people think about the retail sector, they think about front-end selling. Without the back-end supply chain, however, retailers would have nothing to sell. Melanie Tymm, Head of Pre-Sales at Maginus Software Solutions, writes, “It used to be a lot simpler. Manufacturers would supply retailers, who would then resell the goods to consumers — therefore dealing with complaints or queries from the end consumer. Now, thanks to an increasingly competitive landscape, the whole process has changed, meaning the supply chain needs to evolve with it, and fast.”[1] In fact, things are changing so fast Steve Banker (@steve_scm), Vice President of Supply Chain Services at Arc Advisory Group, insists we are experiencing a retail supply chain revolution.[2] He writes, “Without a doubt, the biggest ongoing trend changing supply chain management is the retail convenience revolution. It has never been easier to be a consumer. Amazon is driving the revolution.”

In response to the retail revolution, most retailers have adopted an omnichannel operations strategy. Isabelle Bouchoucha, a Senior Manager, and Déborah Samama, a consultant at Univers Retail, explain, “The consuming process has changed and is now mainly Omnichannel (physical and digital). This is why Omnichannel transformation needs to be operated in Retail. The objectives of an Omnichannel approach is to provide a smooth and easy shopping experience to consumers, whether they are shopping online from a desktop or a mobile device, or in a store. This approach has huge impacts on retailer organizations because they need to unify harmoniously the physical and digital dimensions and this implies more and more integration between sales, marketing, channels, supply chain, and all other back-office services.”[3] Cognitive technologies are playing an important role in this revolution. The editorial staff at Digital Information World, reports, “In retail, artificial intelligence is being adopted rapidly — between 2016 and 2018 there was a 600% increase in adoption. Unfortunately, the adoption rate is still relatively low, ranging from 26% for home improvement stores to 33% for apparel and footwear. If AI can make such a big difference, why isn’t everyone adopting it?” Good question.

Changing retail supply chain environment

Tymm writes, “Direct to consumer, the green agenda, 3PLs — the supply chain is going through quite the revolution.” Concerning direct-to-consumer operations, Tymm writes, “Direct to consumer already makes up 16% of all manufacturing sales, and is set to provide a £13 billion [$16.9 billion] boost to the industry over the next five years. However, this cutting out of the middle-man is disrupting the supply chain, with manufacturers now needing to work more closely with suppliers to ensure customers are satisfied and demand is met. This is not without its challenges, and, without doubt has deterred some manufacturers due to the responsibility for every touchpoint along the supply chain.” On the subject of “the green agenda,” she writes, “The rise of the conscious consumer means retailers and manufacturers are in the spotlight when it comes to packaging and single-use plastics. … Food manufacturers to logistics companies will increasingly face audits and pressures from those they work with to help those at the top meet their sustainability goals, which are increasingly being driven by the end consumer.” Banker notes, “Millennials have embraced both sustainability and convenience. Unfortunately, these are not currently compatible.” That can present a conundrum for supply chain professionals as well as retailers. Finally, concerning third-party logistics services, Tymm writes, “Omnichannel retailing has put more pressure than ever on warehousing. Suddenly, consumers are buying across multiple channels yet want the product instantly, meaning distribution hubs need efficient processes to get the goods out the door fast.”

According to Fernando Moncayo Castillo, Co-founder and Managing Director at Inspectorio, keeping up with this fast-changing environment requires leveraging cognitive technologies. He explains, “Supply chain networks need to provide greater visibility into every aspect of operations, from initial sourcing to the last mile, including fulfilment. This can be achieved through machine learning, which can help improve the success of a supply chain by: Shifting from a reactive to a preventive approach to quality; enabling dynamic risk-based interventions; [and] optimizing prescriptive decision making. The ultimate goal is to provide every member of a supplier network with the opportunity to be proactive in how they manage and lead every aspect of supply chain sustainability, transparency, and visibility. This is made possible by machine learning, which leverages data to not only predict issues before they happen, but also prescribe where improvements need to be made.”[4]

Responding to changes in the retail supply chain environment

Banker lists a number of things retailers are doing to adapt themselves to the changing environment. They include:

1. Adopting omnichannel strategies. Banker notes, “Large retailers announce buy online/pick up in store, or new locations and partners for returning ecommerce orders, or daily delivery services of their own on an almost weekly basis.”

2. Improving last-mile delivery. “In support of the retail revolution,” Banker writes, “announcements of new ways to improve last mile deliveries are plentiful. Last mile is the most expensive part of the delivery process. Cargo bikes, drones, last mile robots, and autonomous delivery vans are all being trialed.” He also notes, partnerships are being formed that allow consumers to buy on-line from one company and pick up their purchase from another company.

3. Placing warehouses closer to large populations. In today’s marketplace, speed matters. Placing inventory closer to urban areas can speed deliveries. Banker notes, “These urban warehouses are often smaller, carrying fewer products. They are often automated, not just to support faster deliveries, but because high density storage allows more products to be fulfilled from small footprint warehouses.” Jessica Lyons, a Content Marketing Specialist at Flexe, reports, “The number one reason online shopping carts are abandoned is because shipping costs are too high, but the only way to reduce last-mile costs is to get inventory closer to customers.” One way to do this she notes is to leverage brick-and-mortar stores as fulfillment centers.

4. Embracing automation. Banker notes, “Picking to support online orders is particularly labor intensive.” As a result, he reports, “Warehouse automation is improving rapidly.”

Lyons asserts optimizing the forementioned strategies will boost profits.

Concluding thoughts

Banker concludes, “Every year ecommerce grows at a double-digit rate, while traditional retail sales are growing at less than the rate of inflation (in real-terms they are shrinking). That is the key driver for the revolution we are seeing in retail supply chains. Technological innovation and experimentation is at the heart of this revolution.” Tymm agrees. She explains, “To keep pace and prepare for further changes, supply chain companies need to ground their operations in technology — to not only provide agility thanks to insights but also to help deliver data sharing. Advising retailers that X% of sales are coming from specific areas, could help deliver logistics solutions which save both parties money; or if OMS systems flag up that certain customers continually buy items in the wrong size, therefore requiring more information before purchase — cutting costs and environmental impact for both. The importance of the supply chain can never be underestimated, but all areas now need to pull together to keep consumers happy — which means harvesting insights — in whichever form to influence operations and drive successful outcomes.” Cognitive technologies, like the Enterra Supply Chain Intelligence System™ (powered by the Enterra Cognitive Core™), can provide the insights manufacturers and retailers need to keep pace with the changing retail environment.

Footnotes
[1] Melanie Tymm, “How can the supply chain keep up with evolving retail practices?Supply Chain Digital, 15 February 2020.
[2] Steve Banker, “The Retail Supply Chain Revolution,” Forbes, 31 December 2019.
[3] Isabelle Bouchoucha and Déborah Samama, “The Digitization of Retail Supply Chains,” DynaSys Blog, 10 December 2019.
[4] Staff, “Three Ways Machine Learning Can Ensure a Successful Supply Chain,” Supply & Demand Chain Executive, 16 December 2019.
[5] Jessica Lyons, “How to optimize your supply chain: 3 strategies for retailers in 2020,Flexe Blog, 21 November 2019.