As consumers the complexity in the retail supply chain is usually oblivious to us. We go to the store and pick up the goods that we want. Or we order goods online from our devices at home, in the office, or anywhere for that matter. We consume the items, returning them if necessary, unaware of all of the work that went into making those goods available to us.
A phenomenal amount of activity goes on behind the scenes to make this experience as seamless as possible. I am not saying that it always goes smoothly. Sometimes items are broken. They are late. Or there is some other issue.
But behind the curtain that is Retail there are a lot of people managing a lot of processes and dealing with a lot of complexity earnestly trying to make your goods available to you.
As a consumer you are generally able to buy what you want where you want and when you want with relative ease. Whether you go to a brick-and-mortar store or you order something online the shopping experience is usually easy and consumer friendly.
There is a tremendous amount of complexity which Retailers must navigate to provide this experience. So what makes the Retail Supply Chain so complex?
The Retail Calendar
The Retail merchandising calendar is very dynamic. It puts huge demands on the Supply Chain team. There are numerous seasonal turnover events, along with planned and unplanned promotions. This all requires that all products will be in place at precisely the right time for the beginning of the event.
Most significant is the Black Friday/Cyber Monday period. Retailers want to have a large quantity of the right goods in place to support the busiest time of year. And the Black Friday/Cyber Monday Holiday period is so dramatically busier than any other time of year that it stresses every process, team and facility in the Retail organization.
There is no one way to service a customer in Retail. There are a variety of customer demands. Customers may want to shop in stores or shop online or some combination of the two.
The Omnichannel nature of retail requires a Supply Chain that is tremendously flexible. Customers want to order items in many different ways. They want to have their items available for pick up or delivery through numerous channels. They want items delivered instantaneously. And they want to be able to return items without any hassle. Plus they want it all at the lowest cost possible (and free in the case of shipping).
There is no ability to negotiate with a Retail customer. If they don’t like your terms and conditions for sale they will walk to another store or click their way to another website in one second.
Retail customers want complete flexibility in how they get their goods. Plus they want them fast. They may want to pick up their items in a store. They may want to have goods delivered to their home or to a locker in a different location. Or they could ask their goods to be shipped to someone else.
Retailers in an Omnichannel world must have a Fulfillment solution for all of these demands. This requires process capabilities for ship to store, pick up from store, drop shipping, and direct to customer shipment. Every node in the Supply Chain including Suppliers, Distribution Centres, Partners, and Brick-And-Mortar Stores become a part of the fulfillment solution.
Within Retail having an excellent Master Data Management system and process is critical. For every sku there is an extensive amount of data that must be constantly input, updated, and available for reporting and tracking.
Each channel has its own specific demands on Master Data. If you are in Online for instance you may need product descriptions and pictures unique to Online. You may have unique pricing based on channel specific promotions.
And data integrity and inventory accuracy is key. Incorrect data will quickly lead to dissatisfied customers if prices are wrong or if product is not available despite the system stating there is stock.
And any dissatisfied customer in Retail will translate to an immediate loss of sales. Not only for that customer but for every other potential customer that hears about the poor experience.
Retailers must be adept and highly efficient at managing freight and logistics. Depending on your sources you could be shipping goods inbound from all over the world. All modes of transit will be used.
The timing of delivery is key to ensure that goods arrive in time to support the seasonal turnovers and promotions that are a part of the Retail Calendar.
And from an outbound standpoint Retailers must be able to ship to stores, perhaps other distributors, as well as to each and every single customer. The full range of bulk and small parcel shipments must be managed. Retailers must also have strategies in place to provide for Same Day/Next Day delivery on demand. The number of shipping points is innumerable.
And all of this must be done efficiently at low cost, without fail. A Retailer must have full end to end visibility of the entire flow of goods. Plus the Retailer must be able to provide this visibility to its customers who want to track how their goods are progressing through the Supply Chain.
In Retail you may have unique SKUs for your Brick-And-Mortar stores and for your Online channel. The concept of the Endless Aisle means that customers want to be able to buy a dramatically higher number of items than can ever physically fit in your physical store.
Yet in Retail you need to be able to manage SKUs across all channels. If items are not selling well in one channel the Supply Chain team needs to be able to take action to move the goods where they are selling. Seamless inventory visibility is critical.
On top of this you will have a set of Core SKUs and Seasonal SKUs. The Core SKUs must be constantly managed. The Seasonal SKUs are dynamic and truly have a shelf life for sale. Proper management of this is crucial to avoid lost sales or unsold inventory and large markdowns.
Forecasting and Replenishment and Allocations
The Retail Supply Chain team must be equipped with a set of systems and processes to allow for proper forecasting, replenishment and allocation of every single sku in every single channel.
The methodologies and rules for setting assortment grades, store categories and allocation are numerous. Additionally there are replenishment types, display quantities, and forecasting algorithms. And end of life sku management and disposition is key.
Order management, product flow control, inventory management are core Supply Chain Responsibilities. And the Supply Chain team must direct the work activity and priorities within the Distribution Centres.
And all of this must be done in concert with the Merchant, Distribution Centre, Customer Service, and Merchandising organizations.
There are a myriad of systems required to run a Retail operation. In many cases as Retailers looked to start Online operations they decided to do this apart from their Brick-And-Mortar operations. As a result there can be many disparate systems in the Supply Chain.
Because of the dynamics in the Supply Chain this can be very challenging. If you have one system showing inventory available Online and a separate system showing inventory in Brick-And-Mortar stores this is highly problematic. You are unable to automatically and simply make inventory available where it is best needed. The amount of sub-optimization is huge and the potential for higher inventory, higher markdowns, and lost sales is real.
Depending on your business you may be designing your own products. This requires processes and support for supplier selection and qualification and product testing and qualification. Products must meet all regulatory standards in every market you choose to participate in.
Product labelling itself can be extremely complicated. If you are carrying food products or toys or clothing for infants, for instance, there is a legal standard which must be met before you can qualify, handle, move and sell these goods. All of this requires expertise in the field.
The Retail Supply Chain has to manage vendors in every dimension. Product suppliers, transportation partners, Distribution Centres (both internal and outsourced), and Drop ship vendors all make your Supply Chain run. Without proper management your operation will grind to a halt.
Aside from managing performance the Supply Chain team must manage the flow through all of these channels. This includes managing capacity and timing. And visibility to all of this is critical to ensure that the Supply Chain executes in an orchestrated fashion.
The Retail Supply Chain is highly complex. That is not to say that the Supply Chain in other industries is not complex nor without unique challenges.
The pressures on Retailers are real. Competitiveness is ever more intense. The Omnichannel landscape has further increased the complexity. And the efficient execution of the Supply Chain is a cornerstone for success in the Retail Industry.
The next time you buy something give a passing thought to the hard-working people who made it possible for you to get those items.
Please check out our other blog posts at https://supplychaingamechanger.com.
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