Supply chain delivers retail revolution

A shake-up in retail logistics, driven by internet sales and deliveries, is turning buying and selling upside down, as Jim McClelland reports

So, you have made a last-minute purchase – how would you like that delivered? Would you prefer it sent to the coffee-shop hub with free wi-fi and comfy seats, where you lunch most workdays; by drone into your garden party, just as the fire-pit warms up and the fizz is uncorked; or simply via the drive-thru, to pick up on the way to the hotel, along with fries and a shake?

While such delivery options might still seem the stuff of consumer dreams to anyone sat at home waiting through a three-hour window for a van to appear outside, all are just about realistic near-future scenarios.

From a supply-chain efficiency and logistics perspective, they are adding to the nightmare vision of a system running away with itself. The online store is already expected to have everything customers desire, in all the colours and all the sizes, in stock, all the time.

As if that were not enough, it can even make helpful suggestions for additional or complementary purchases the buyer did not even know they wanted.

Although the likes of slow food and fashion movements are enjoying some success in challenging the consumer need for speed (and supporting local and artisanal supplier outlets), supply-chain and logistics trends seem to be headed pell-mell in the opposite direction, racing faster and faster to keep up with the competition (and the customer), fuelled by cloud computing and mobile technology.

One of the challenges we have at the moment is that many companies do not know if the various channels they are using are making money

Inevitably, with such breakneck speed comes risk. From the legalities of data sharing and competition laws, through cybercrime and card security, to transparency and reputation management, risk is becoming a primary focus for management thinking in the current retail climate.

State of Flux Technologies chief executive Lance Younger explains: “In our 2013 GlobalSRM Research Report, risk was ranked the number-one value driver for retail organisations, followed by cost reduction or improved profit margin and supply-chain efficiency.”

For business, “known unknowns” are little comfort in this scenario, with understanding and application of supply-chain data and metrics widely acknowledged as strategic weak spots.

“Only 43 per cent of companies have good visibility into their supply-chain activities which accentuates the potential impact of risk, but also the missed innovation opportunities,” says Mr Younger.

So, if companies know there is a problem, why are they not doing more about it?

Successful supply-chain performance is becoming increasingly collaborative in operation, less a command-and-control environment, more bottom-up, than top-down dynamic.

According to Joss Tantram of consultants Terrafiniti, in effect this means that retailers are finding themselves in the unenviable position of potentially having to rely on the source of the problem for the solution.

“Retailers are almost totally dependent upon their suppliers to deliver change, though of course collaboration and joint innovation take place. Many retailers are still finding out exactly which parts of their supply chains give rise to which impacts,” he says.

“Therefore, just as they are vulnerable to poor practice in the supply chain, they also depend upon suppliers finding new ways to deliver utility with reduced energy, material and water impacts.”

Professor of supply-chain strategy at Cranfield University School of Management, Richard Wilding, sees development in the supply-chain sector approaching tipping point, brought about by the emergence of omni-channel retailing.

“If you go back ten or fifteen years, we used to talk about multi-channel retailing. You would have had your store channel, your internet channel, most likely then warehouses, customer-service team and so on, all completely separate entities. The problem is now consumers do not think that way,” he says.

“For example, to make a purchase today, I might go into a store and choose the item to be delivered to my home, or order it on my smartphone, or use click-and-collect to fetch it myself, but then put it into the post to return it. So what is happening for retailers is that it has to be seen as one big omni-channel, a whole customer-service offering.”

The drawback with this picture, Professor Wilding argues, is the lack of understanding of supply-chain efficiency, and logistics metrics and data means that, while the system is busy moving goods and materials rapidly around the world in real-time, the value and profitability equations are proving almost impossible to fathom. In other words, the business case is a busted flush.

“One of the challenges we have at the moment is that many companies do not know if the various channels they are using are making money. Do they truly understand the ‘cost to serve’ in the business? With people, for instance, wanting free delivery and free returns, how much does it really cost to serve that particular customer? How much margin are companies making?

“Some companies now are actually saying that their biggest ‘supplier’ is their returns – think about that! More stuff is getting returned from their customers than is coming in new from their suppliers. How do you manage that inventory and ensure you maximise the value?”

One thing is certain, things cannot go on like this. For consultant Mr Tantram, the prospect of transformation represents a positive opportunity for a rejuvenative shift to a more sustainable model. Things will not only be different, they will be better.

“The evolution from ‘supply chains’ to ‘value chains’ to future ‘commodity chains’ is very exciting. As we start to recognise the challenges of delivering products and services to a growing population within emerging, recognisable global limits, we will start to see that such chains will be just as much about stewardship as efficiency,” he says.

For Professor Wilding, change is coming fast and it is going to be big, with consequences: “The next 12 months are absolutely critical. We will learn the true picture of what is actually going on. We will find out who are the winners, who are the losers, probably by about January 2015. Businesses are investing heavily in this – it is the biggest revolution in the retail industry for a generation.”

The revolution is on order; stand by for delivery.