Forward thinking retailers are re-organising their entire supply chains around the customer: using customer information to personalise offerings, and creating retail environments that are relevant and reflect core customer values. As a result, the store is no longer the endpoint. Instead it is one of many links of a supply chain that ends with the customer.
Research – ‘Turning Shoppers into advocates’ IBM Institute for Business Value Study 2006 – highlights that putting the customer at the forefront of your operations is not just a marketing ploy. It delivers real benefits.
Key to future retail success in this world of open information, operational complexity, and tough competition, is the ability to get customers to advocate and promote your products and services. Thirty one per cent of customers pass on bad experiences, but 79 per cent will actively commit to a deeper relationship after a satisfying experience. Therefore creating the right value proposition and delivering on these promises clearly wins the hearts and minds of the customer.
Many organisations focus their efforts on the right website and the right ‘multi-channel offer’ however real retail differentiation comes with the ability to offer customer enticing services and to deliver against bold commitments. Circuit City’s ‘24/24’ offer, Argos’ ‘Click&Collect’ and Sainsburys’ ‘One-Hour Delivery’ are great examples of the ability to marshal cross-department resources to get it right for the customer.
This is a common theme for retailers today: The ability to make and commit to an increasingly complex set of service promises, driven by the need to keep up with market and customer demands. Committing on these promises is today’s retail supply chain imperative. Pressure is being levelled at the logistics teams, to ensure marketing and sales promises are 100 per cent fulfilled. Retailers are reexamining their supply chains to best service these new commitments. Innovative solutions are being applied to help traditional product-oriented supply networks to mature into customer-centric supply chains, with the retail store as a key component.
Three emerging trends
Despite huge growth in on-line sales, three emerging trends are reinstating the retail store as the central focal point for the customer: greater brand reassurance from a physical presence as brands are extended; the need for a physical pick-up point to collect goods ordered on-line; and the negativity associated with web returns.
However customer centricity requires a new look at how these stores are replenished and managed, to get true value to customers. Today’s shopping experience is typically driven from an inside-out view. Putting the product before the customer risks turning customers into antagonists. Changing to a customer-centric view forces supply chain teams to think differently, developing more appropriate capabilities such as:
The ability to find stock across the supply chain and inform the customer of availability. Retailers are investing in wider track-and-trace solutions to understand the stock position across the supply chain – in DCs, in transit, in back-of-store and on-shelf.
The ability to reserve specific product for specific customers regardless of its position in the supply chain. This ‘Available-to-Promise’ approach dramatically improves conversion rates and increases basket sizes.
The ability to more accurately forecast demand. Top of most logistics capability lists, wasted stock, and the cost of fulfilling unwanted stocks, is extreme. Retailers are now using the rich information available from other more realtime channels to better predict demand.
The ability to organise supply more closely around customer segments and local markets. A retailer recently told us that while 70 per cent of their ranging is generic it is the store specific ranging that makes the stores profitable.
A rationalised list of products enabling the retailer to buy, fulfil and deliver consistently.
Metrics based on product performance and customer satisfaction/profitability. Argos have created ‘first time serviceability’ performance indicators that measure customers and not percentages, and includes the factors customers are concerned with.
A dramatic change
As a result, the store is becoming an essential axis in a supply chain that ends with the customer. However, changing these ‘process light, customer friendly’ operations, into customer-friendly rigorous supply points, requires a dramatic change in the management of all store processes.
There are common customer-centric implications for the
supply chain here:
- A consolidated and accurate view of stock across supply channels – stores, the web, and call-centres, to improve service to customer
- A consolidated and real-time view of orders to support ‘Available-to-Promise’
- Extending the supply chain to include the store, allowing customers to use the store as a point of collection and a replenishment point that reflects local, within day, market demand
- Access to information on demand with the ability to integrate customer feeds into supply chain processes
- Real-time feedback into buying, with iterative planning to refine local assortments
- Consistent view of products across all channels and customer interactions
- A wider range of customer centric performance measures, with appropriate monitors to allow retailers to gauge customer satisfaction far more accurately, and re-calculate fulfilment and supply choices.
But where are the benefits of a customer-first approach for the supply team?
Customer centricity may help the marketing organisation better promote the brand, but does it lead to false promises that the supply chain team cannot fulfil? The answer is sometimes yes. Knee-jerk reactions, with retailers committing to services based on a ‘me too’ mentality, often bypass the critical stage of understanding how selling, buying and moving can be brought together, to provide a service – that does not lose money.
There are numerous examples of retail supply services failing to deliver: Broken dot-com Christmas promises, failures in grocery on-time home delivery, and inaccurate reservation of in-store stock – because the organisation has not understood the effect on demand, on resources and the implications on quality.
The clever retailers are making self-funded, tactical decisions, that all lead to an agreed and defined strategic end-point. John Lewis offering financial services from Greenbee.com is an easy entry into offering new product ranges since there is no fulfilment needed. Tesco did the same and now, once their marketing, promotions and ecommerce capabilities are established, have invested in logistics to diversify into flowers, pharmacy, electricals, furniture and more.
Trusting the brand
The benefits of this brand extension are customers buying wider ranges of products and services, because they trust the brand, and retailers can offer these new services. Customers are demanding this new level of choice. Research – ‘turning shoppers into advocates’ IBM Institute for Business Valude Study 2006 – shows that shoppers using all three of the web, store and catalogue channels spend four to six times more than store-only purchasers. This is great for the retailer but hinges on the ability to fulfil.
In addition to the benefit of wider retail growth and profitability that comes from service success, there are direct advantages for the supply chain organisation. This new found profitability can be used to fund improved systems, which maximise the growing sources of information, to bring improved efficiencies – including realtime planning, scheduling, and execution, from vendor to warehouse, store, and right up to the customer’s doorstep.
With the case-for-change well established, and leading retailers such as Tesco, Argos, Circuit City, JC Penney and others leading the way, retailers are now investing in improving their store oriented supply chain capabilities in a number of notable areas:
- Accurate real-time tracking of stock, to improve store onshelf availability. This benefits the retailer, with better in-store conversion and the ability to offer in store reservations. Supporting investments in this area include RFID, in-store inventory management and end-to-end track-and-trace.
- Tightly integrated store and DC replenishment. This allows retailers to better respond to true demand, and replenish the right stock to the right store at the right time. With the Institute of Grocery Distributon stating that on-shelf availability is averaging 94.5 per cent in Europe, there is clear room for improvement. Major UK retailers are looking at new technical solutions that bolster the supply chain, by feeding warehouse planning and execution systems with real time-demand. Coupled with synchronised transport, major improvements in store-replenishment will be achieved in the next few years.
- Moving from delivering thousands of orders a day to stores, to millions, direct or via stores to customers. This is creating a new competency in the ability to manage orders, known as consolidated order management – allowing retailers to offer cross-channel and direct-to-customer services. Industry analysts regard consolidated order management as one of the main supply chain investments in next few years. Customer centric retailers are using these solutions to understand what order commitments have been made and, importantly, how to best recover when the complex chain of buying, moving and delivering fails.
- Warehouse your data more than your stock. Maximising the use of information to improve every aspect of store supply. Retailers are investing in new techniques for demand forecasting by integrating customer basket analysis, social events, competitive promotions and local market feedback to improve stock flow.
Collaboration brings benefits
Collaboration with suppliers, sharing of real demand, and accurate tracking of orders helps reduce the lag from manufacturer to shelf, or doorstep. Leading apparel retailers are now dramatically reducing their sourcing time by sharing and providing real-time information to their manufacturing points.
Developing a customer focused business model is a critical requirement for retail survival. Improvement programmes should not be treated as a patchwork of applications, weaving in specific point solutions to fill holes in processes – instead all processes need to be addressed, with a cohesive and consistent customer-centric strategy, which joins up stores, customers, returns, the web, and operations management. It is a transformational journey that will change everything – business processes, alignment, metrics, organisation, and IT.
Customer centricity requires a cross department and channel view of processes. Retailers need to re-examine how they forecast, buy, replenish and deliver. The integration of real-time information into merchandising and supply decisions will not only improve service, but also reduce the inflexibility of masses of safety stock holding.
The art of developing customer centricity is in the integration of the supply chain with the customer.
Danny Bagge is an associate director in IBM Global Services. E-mail: firstname.lastname@example.org
Keith Burgess is a senior managing consultant in IBM Global Services Supply Chain Practice. E-mail: email@example.com
How product-oriented retailers turn customers into antagonists
- No access to stock availability: When a customer enquired about shelving availability at a well known furniture retailer, the comment from the sales agent was ‘the computer says it’s out of stock but you may be lucky and find some downstairs on the end of aisle 12’
- Stock management which doesn’t span channels: A customer wanted a new tumble dryer immediately and so reserves one online and selects his local store for pick-up. On arrival at the store he finds they do not have any in stock and is told to drive to the next nearest store instead. On arrival at the other store, they could not accept the order (as it was not their store) and the whole process had to be repeated.
- ‘When it’s gone it’s gone’ and large quantities of discounted lines in store, highlighting an inability to correctly predict demand: A leading electrical retailer had a successful promotion on flat screen TVs and sold out quickly. Jubilation quickly turned to concern when they had to ask themselves had they got the price and volume right.
- Separate marketing plans by division and channel: A large grocery retailer has seven different product references for the same item across its supply chain systems, affecting their ability to correctly consolidate, replenish and improve onshelf availability.