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How Fit is Your Supply Chain?

Like sweating it out with a personal trainer in the gym, retailers know they should spend time building their supply chain capabilities. But, like the common New Year’s resolution of ‘getting fit’, retailers expect their supply chain to get in shape without putting in time and effort.  Too often, retail investment is focused on the sexy, customer-facing stuff (e.g., merchandising, sprucing up stores and primping websites) at the expense of investing in vital supply chain initiatives (enhancing distribution center capabilities, optimizing transportation networks, and building intelligent supply chain software)

This is like putting a shiny, colorful bandage on a wound that desperately needs medical attention. Or building an aesthetically beautiful bridge that seriously lacks structural integrity, and is destined to crumble. The point is, you can’t have a great customer experience without an exceptional supply chain.

Customer expectations of retail supply chains are shifting rapidly.  What was once viewed as cutting edge is practically table stakes today. Consider free returns a case in point. ASOS was one of the first to offer free returns, and customers rejoiced. Now, shoppers shake their fists disapprovingly when having to pay to return a purchase. Best Buy was an early adopter of click and collect, forcing competitors to quickly rush this service offering to market. Although click and collect was initially offered without seamless integration between digital and bricks & mortar systems, today leading retailers must aspire to offer a fully unified customer experience. As one retailer put it in a recent meeting “with the ease of comparisons provided by e-commerce, as soon as one retailer offers a service, that soon becomes the new minimum customer service bar for all the rest of our supply chains.”

How have supply chain expectations changed?

  • Online visibility of in store inventory
  • Online purchases based on in store inventory
  • In-store purchase of online inventory
  • Same day shipping
  • Same day delivery (It’s a moon race to the fastest delivery time!) 

Without spending time and effort on Supply Chain Fundamentals, none of the exciting new customer experience functionality that brands strive for is possible.

Three supply chain imperatives for a 21st century retail experience:

1. Accurate Inventory Visibility 

Real time inventory availability across the enterprise must be readily accessible by all parties (e.g., online customers, store sales associates, merchants, supply chain organization, vendors, 3rd party logistics providers).  According to a 2014 RSR Research survey, only 47% of retailers report having “high system-wide inventory visibility” . This figure is largely unchanged in two years since the previous survey.  Many factors are to blame, including:

  • Batch updates, hours or days after inventory transactions occur
  • Multiple data formats across systems
  • Lack of automation in parts of the system-wide supply chain (frequently at manufacturing or logistics partners)
  • Lack of accountability, to create “single-version-of-the-truth” 

2. Cross-Channel Master Data:

While it seems like a “no-brainer”, a basic requirement of unified commerce across channels is a single item master for all channels or at a minimum an easy to use cross-reference table to translate SKU numbers between channels.  Since many bricks and mortar retailers started their e-commerce channel as a stand alone business, with autonomous non-integrated systems, SKU numbering was never aligned between channels. Retrofitting systems to a single data format usually requires significant effort and rarely makes the cut as a capital investment. 

3. Consistent Use of Product Descriptions & Attributes

In order to optimize opportunities for cross-selling, personalization, demand forecasting, etc, it is critical that usage (including spelling) be the same in all channels and systems.  Frequently, attribute fields are “free text” resulting in multiple spellings of the same word and inconsistent assignment of attributes like colors (e.g., wine, burgundy, maroon) or other descriptors (e.g., s/s, short sleeve, sht slv).  This complicates automated grouping of similar styles for substitution or ‘cloning’ of new styles to previous ones for allocation and demand forecasting. 

Here is an example of trying to take shortcuts and introduce new customer experience offerings without first addressing core fundamentals from a recent shopping experience:

  • This retailer attempted to rollout tablets to enable associates to check online inventory from in-store, without first implementing uniform SKU numbering across channels (or at a minimum a cross reference table). The rush frustrated both customers and associates due to the need to search for an item number before checking inventory instead of just entering the SKU used in the store. ​​​

Another common problem in retail is ‘hidden’ inventory from the available-to-promise quantities, in order to not disappoint customers if their systems only update via overnight batches and display inventory levels from the previous day.  This results in both lost sales and poor customer service by telling the customer that no inventory is available when they could have been sold items from ‘hidden’ stock.   

Here are two examples of investing in the supply chain fundamentals to enable a better shopping experience:

  • P&G’s Consumer Driven Supply Network (CDSN) leverages visibility into their retail customers’ real-time inventory and sales to manufacture based on actual store shelf sales instead of sales forecasts. 
  • Another major global retailer in apparel is in the process of not only implementing a single SKU number across the enterprise, but also is developing a global garment tag that meets all the labeling requirements in each country where they operate. This means they'll have a true single global inventory so merchandise can be easily moved between countries to quickly respond to demand changes. 

The retail industry consistently develops new ideas to enhance the Customer Experience.  Retail Supply Chains need to have the fundamentals “in shape” to keep up with both customer expectations and all the new services that retail marketing thinks up.  It's no coincidence that 60% of the companies on Gartner’s top 25 Supply Chain rankings (and both companies on Gartner’s Supply Chain Masters list) are also among the 50 most profitable US companies.  Leading companies clearly have recognized the importance of Supply Chain to their bottom line, and invest their efforts accordingly. 

Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.

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