The era of the customer-facing supply chain is benefiting consumers and retailers, but how are the operational challenges being converted into commercial opportunities? Emma Herrod investigates the projects that retailers are undertaking to keep up with consumer demands.
Omnichannel retailing means retailers need to have stock in the right place for when customers order it and even predict when they will want it in those locations so that it’s ready to despatch. If an item isn’t in stock, customers want to be able to see if and when it’s due in. In certain cases, they want to know the provenance of what they are buying, have a transparent view of it from sourcing and manufacturer through to their front door – maybe even personalising the item along the way. Supply chains have certainly moved a long way from simply moving product from supplier to store.
US ethical fashion retailer Zady gives customers full visibility of products from the factory to the shop floor. Every product on its site displays the provenance of the materials and where, how and by whom each garment is made in order to fulfil its promise of “no more production with questionable roots”. It says it is re-envisioning the future of fashion “from field to garment”.
Chrysler, meanwhile, is using video to show prospective customers exactly how the 2015 200 model is made in a state-of-the-art manufacturing centre in Michigan. The company says: “Researching the Chrysler 200 should go beyond the showroom, reviews and looking under the hood. To truly know what you’re getting when you purchase a new car, you need to research the factory that builds it.” Trevor Hardy, CEO of Future Lab, backs this premise, saying: “Chrysler’s ‘more than just a car factory’ tour allows customers to see what they wouldn’t normally reach as a customer.”
But do brands have to be completely open about their supply chain in order to connect with customers? The majority of the audience at the recent Oracle Industry Retail Forum believes that it’s not necessary to go to the extremes of being completely open but Hardy says that if you want to attract ethically minded consumers you need to “make your supply chain sexy”.
Transparency in the supply chain extends beyond the ethically-minded consumer, though. Retail is built on trust and brands stand or fall based on the trust that customers have in them and their products. As 2013’s meat scandal (in which horse and pig DNA was found in a range of products labelled as containing 100% beef) highlighted, traceability throughout the whole food supply chain was not completely transparent even to the end retailers.
Risk management, compliance issues and consumer demand are all putting pressure on retailers to increase the visibility of data on all of their products. Customers ask whether milk is from China, palm oil is responsibly sourced or textiles came from a collapsed factory in Bangladesh.
Over the past fifty years, German cash and carry group Metro has seen demand increase for information on product ingredients, contents, sourcing and provenance. Simon Darkin, manager QA IT systems, and Sarah Blanchard, head of quality systems, strategy and innovation, at Metro Cash & Carry, explained at the Oracle retail event that if an ingredient is called into question, Metro needs to know which of its products contain that ingredient and be in a position where it can pull those products from its shelves at a moment’s notice.
With products sourced from more than 4,000 suppliers in 18 countries, obtaining data that enables it to reach this level of transparency is not simple; recording it and being able to retrieve it is not straightforward either. The company is working with Oracle Retail Brand Compliance to bring together all of the data from across its supplier base and promote collaboration and transparency.
Some of Metro’s suppliers are able to enter details directly into the system, whereas in other parts of the business the data is collected over the phone from suppliers, something the contact centre in Russia is doing. Others have hired a pool of students to carry out the task. “If the processes aren’t working, an IT team won’t fix it,” says Blanchard.
Looking to the future, the company says it will work out “how to deliver product information from the farm to the customer at the click of a mouse or swipe of a finger”. It adds that it will also be looking at how the information can be linked to and used by other systems, such as an app which would show customers with allergies what they can and can’t have in a particular Metro restaurant.
Once the data has been collected, the product still need to manufactured and shipped to various destinations, whether it’s customers’ homes, or the stores or DCs. Adding to the complexity is the need to have the right stock in the best place for customer orders through every and any channel.
Sally Beauty, which operates a wholesale and retail business, has recently refocused its entire business around the supply chain, a transformation that rolled down from the top to the bottom of the business with everyone consulted about issues with inventory, its importance and ways in which processes could be strengthened. A year was spent working with stores to increase the accuracy and to embed training, so anyone who touches stock now understands their responsibility in ensuring data accuracy.
Louise Baker, head of supply chain, Sally Beauty UK & Ireland, says the company puts the customer at the centre of its operations. She adds that this customer centricity is more pronounced than ever because the customer is more savvy and has access to better technology than the business. “We’re trying to give customer excellence on the journey all the time, not just compete on price and product anymore but on the capability of our supply chain,” she explains.
“Availability is still king,” she adds, explaining that out of stocks have massive implications for turnover so there’s a balance that has to be made between the amount of inventory held and the level of service offered. “It’s either just in time or just too late.” She says the company had to strip down all of its systems and processes to gain a single view of stock and enable it to calculate the optimal inventory level. “Is the inbound the same as the outbound?” she asks, since what’s in the middle is buffer stock so an expense on the bottom line.
By working more collaboratively with its suppliers and making use of the latest technologies, the company has better aligned its inventory management with customer expectations. If it’s quicker to send products to a customer direct from a supplier then that’s the option chosen. “It’s about a partnership with our suppliers,” says Baker. Where previously 40% of out of stocks were due to incorrect data, including wrong lead times from suppliers, stock in shops is now more than 90% accurate. Suppliers are also fully aware of the cost of out-of-stocks and ring-fence stock based on forecasts. “We know when we send the customer to a shop they are likely to get what they went in for,” she says.
“Everything came back to accuracy. Accurate inventory enables omnichannel success,” she adds. “The flow of stock can be optimised through accurate data and efficient IT systems.” However, Baker cautions that change management is harder than system change.
Consumers know what they want: access to the right products, at the right price that meet their expectations. They want brands to have all the answers about provenance and potential allergens; they also want to be able to trust the brands with which they choose to shop.
The worldwide cost of overstocks, out-of-stocks and sales returns has hit a staggering £1.15 trillion annually in lost revenue opportunities. While it’s better on the bottom line to be able to predict accurate stock level requirements and not to have buffer stock sitting in a warehouse, analysis, prediction and transparency throughout the end-to-end supply chain is a winner for retailers and customers.
This feature first appeared in the fourth print edition of eDelivery magazine, EDM04.