Tech Guest Viewpoint: Supply Chain – The ‘Next Big Thing’

The changes that will come to the retail supply chain are just as profound as the changes that are happening now in the selling environment.



Those changes are being triggered by the same phenomenon that is causing everything else in the retail operational model to change: consumers today actively engage in anytime/anywhere shopping that is enabled by anytime/anywhere access to information via their Internet connected mobile devices – and that gives them a whole world of choices. As all of the RSR partners have said at one time or another, the industry is at a rare “reset moment”.



The retail operational model has three basic parts; the selling (consumer-facing) part, the buying (supply chain) part, and the operational part that “glues” those two together – merchandising, marketing, HR, finance, IT, and all the rest of the “expense departments.”



The reset moment affects each of them. For example, on the selling side, consumers use the power of information to find the best solution, at the best price, with the most desirable availability. When it comes to operational part, consumer omnichannel shopping exposes weaknesses and redundancies in retailers’ operational processes.



And for the supply chain, cross-channel customer order fulfillment, endless aisle and long tail” products challenge the mass merchandising practices that have made so many companies successful in the past. Let’s expand on that.



Since the adoption of in-store scanning in the mid-1980s, most of the industry has focused on commoditization, and as a result the strategy has been based around operational excellence – in other words, driving every penny of excess cost out of the processes that bring supply and demand together. As a result, the most “engineered” part of the retail model is the supply chain. The goal has been to maximize the value created by each product.

However, consumers are definitely not behaving the same way they used to before their digital enablement days. As a result, “Retail Winners” (those who out-perform the competition) worry about how best to respond to unpredictable customer behavior. They note that how they fulfill orders has changed because of cross-channel shopping, fret that consumer shopping behaviors are more unpredictable, and worry that long supply chains and new product introduction cycles hamper their responsiveness. In other words, there’s a lot of friction in what used to be a smooth running operation.



What’s the result of all of this friction? The study notes a couple of startling changes. For one thing, almost half of Winners in our recent supply chain benchmark study said that the volume of returns is increasing as the result of consumers’ cross-channel ordering.



Additionally, while in 2013 only 13% of Winners and 22% of other retailers agreed that there were too many inter-store transfers, now in 2015 those numbers have jumped to 42% and 65%, respectively. Netting it out, the one-way nature of the traditional supply chain is being subverted by new consumer shopping behaviors.



So, we at RSR say that the supply chain is “the next big thing”. In fact, that was the title of last year’s study, and our opinion hasn’t changed. What will the design of the new supply chain? Consider how the next-generation supply chain will be driven these factors:



• Consumer shopping behaviors

• Anytime, anywhere shopping

• More focus on “personalized & relevant” to drive value

• The Ssore is both a destination and a source of inventory (“push/pull”)

• Enabled by 360° of visibility for inventory, product, customer

• New non-transactional demand signals

• New customer order fulfillment options available



Thus the ultimate goal of the new supply chain will be to maximize the value created by each customer.