Opportunities in retail: supply chain & logistics in times of e-commerce and omni-channel retailing
By Gino Van Ossel, professor at the Retail & Consumer Goods Centre (Vlerick Business School)
These are turbulent times for the retail sector. Certainly in the Netherlands, where the economy is not doing well and the number of empty shops in the commercial districts is rising fast. But do opportunities still exist in the retail sector? And what are the consequences for the supply chain and the logistics? 120 managers looked for answers to these questions during an IMCC event in the Dutch town of Veghel.
After I gave the first speech of the afternoon, we listened to presentations by Xenos (part of the Blokker Holding), BCC (part of Dartygroup and a sister company of Vandenborre) and Wehkamp (the largest webshop in the Netherlands).
This event can be summarised in 15 conclusions.
1. Stores are alive and well!
It is certainly not all doom and gloom in the physical retail sector. Xenos is currently undergoing a major expansion into Germany. BCC, despite being active in the difficult consumer electronics market, opened two new stores last year. Action and Primark are continuing to grow without having webshops of their own. These and numerous other chain stores provide daily proof of the fact that physical retailers can also look forward to a better future.
2. E-commerce is alive and well!
At the same time, e-commerce continues to experience significant growth. For this reason, Wehkamp has built the largest e-commerce distribution centre in the entire world. E-commerce and physical retail therefore both have winners and losers.
3. The logistical challenge: better and cheaper despite increasing complexity
The internet has brought about increased transparency. With one click of the mouse, customers can not only compare prices but also consult stock levels. As a result, the margins are under pressure and any stock shortages translate into lost sales. The logistics must therefore become more efficient and more effective. At the same time, complexity is increasing throughout the chain. Not changing anything would inevitably lead to reduced efficiency and effectiveness!
4. The range as the initial cause of the increasing complexity
Everyone is experiencing increasing complexity within the range. Xenos is expecting the number of products in its range to increase by almost 40% by 2020, mainly because of the expansion into Germany. Product lifecycles are also becoming shorter all the time, allowing for the constant innovation of the range. Finally, the search for growth is also leading to the constant expansion of the range.
5. E-commerce as a second source of complexity
Anyone who sells online will be faced with a significant number of returns. These are naturally highest in the textile sector, but Wehkamp has also reported that refrigerators are being returned. For the physical retailers, the fundamental differences between the logistical flows involved in e-commerce and retail sales also need to be taken into account: sending lots of small orders to many different consumers instead of sending a few large orders to the small number of stores in the company's own organisation.
6. New forms of cooperation with suppliers & further chain integration
Finally, new forms of chain integration are creating new opportunities but also extra complexity. Integrating the supplier's stock into the retailer's own range on a virtual basis gives the consumer more choice, both in the retailer's webshop and via an in-store kiosk ("endless aisle"). Orders can also be dispatched by the supplier ("drop shipping") or from the store ("ship from store"). You can read more about this in my book "Omnichannel in Retail" which will be published in April.
7. There is no single truth.
One size doesn't fit all. For Xenos, which buys most of its products in the Far East, drop shipping is not a particularly obvious option. Wehkamp and BCC, however, make extensive use of drop shipping. While BCC works closely together with suppliers to predict the demand (CPFR or Collaborative Planning, Forecasting & Replenishment), Xenos has to predict the market demand autonomously.
8. The culture of failure
In this digital age, the future is extremely uncertain and changes are taking place at lightning speed. For this reason, some people also advocate a culture of failure in which managers base their decision-making more on testing and experimentation than on research and intuition. The decision-making process is getting faster and faster as a result.
9. Logistics & the culture of failure
Logistics is also experiencing significant volatility and fast-paced changes. It is therefore extremely important to be able to change course quickly and achieve operational flexibility. However, this is countered by the fact that significant sums must already be invested today in the logistics of tomorrow. It is therefore impossible to avoid having to make predictions about the future. If Wehkamp and Xenos decide to build a new distribution centre, this cannot take place on the basis of trial & error. In the supply chain, experiments therefore have limits.
10. Making choices
For this reason, it is essential for a company to make choices. You can only succeed by choosing a strategic direction and sticking to it. This is certainly the case if there is no single truth, while you still need to invest resources into long-term investments. You should therefore evaluate the extent to which mono-channel, cross-channel or omni-channel would be sensible options for your company. Then choose one of the relevancy models and stick to it. When it comes to the implementation of the model, make sure that you excel in this choice.
11. Logistical choices are marketing choices
Because of the increasing complexity of the range (including web-only, long tail & endless aisle), the distribution of the stock (central DCs for the stores and for the webshop, virtual stock with the suppliers and finally the stock in the stores) and the various parallel flows of goods (deliveries, collections, purchases in the store and returns), logistical choices immediately also become marketing choices. After all, anything which is not available cannot be sold. In the digital age, the logistical function therefore gains in strategic importance.
12. Measurement means management
Whether we are talking about experiments or ongoing processes, when it comes to logistics, quantitative performance monitoring remains of crucial importance. Only measurement will provide you with precise insights and allow you to introduce targeted improvements. This will not change in the future.
13. Integrated and synchronised data is becoming increasingly important
The increasing complexity is bringing about an evolution to a different kind of data, and more of it. The integration of different systems, both within the company's own organisation and externally with suppliers, logistical service providers and customers, is gaining in importance. Synchronisation of all the data is the order of the day. Big data is becoming a reality.
14. The smarter use of data to achieve better performance in the retail supply chain
Data collection, exchange and analysis will get you nowhere if they are not used for better policy decisions. Chain-wide thinking and actions, marking a departure from silo thinking, are the key to a supply chain which manages to provide better service levels at lower cost. This is despite the increasing complexity. You can request the interesting white paper "ISO 2014.VOCS" on this subject.
15. Opportunities in retail!
In these difficult but exciting times, there can therefore be no doubt that major opportunities still exist in retail, both for the physical retailers and for the e-tailers and omni-channel players. If you want to help shape the future of retailing, make sure you sign up for our Retail Leadership Programme which starts in September 2014, with modules in Brussels, London and Utrecht.