Many retailers are caught in a dilemma between service level and inventory. Missed revenue opportunities, unhappy customers – both scenarios are highly damaging to retailers in today’s digital era.
As it is, retail is hyper-competitive. Once a retailer faces an unexpected stock-out and is unable to satisfy a consumer’s needs, chances are the consumer’s attention will be diverted to (and held by) competitors. It’s no better if the situation is an unhappy customer who’s waiting for an unfulfilled order; in today’s terms, it’s akin to a broken promise. Negative customer sentiments can rapidly proliferate on social networks – disastrous in a world that now depends on user testimonials and feedback, especially by social influencers, for purchases.
However, stocking months of inventory in advance to avoid these issues significantly raises retailers’ inventory and warehousing costs. How then can retailers maintain the fine balance between service levels and inventory?
By becoming optimized for omnichannel commerce.
Optimizing the supply chain for omnichannel
Traditionally, most retail organizations are organized in silos. There is little collaboration across channel teams or functions such as supply chain, marketing, and procurement. The supply chain has also remained fairly linear from suppliers, to warehouses, to stores, to customers. This model offers little support in allowing customers to shop across channels – something that is almost an expectation today. Consumers expect to be able to buy from anywhere, for delivery anywhere, sometimes for pick up anywhere, pay anywhere, and even return anywhere.
“Amazon did not kill the retail industry. They did it to themselves with bad customer service.”
Bain & Company highlighted the truth that retail’s most valuable customers are engaging across all channels: physical store, mobile, social, and online. And these omnichannel customers typically spend more – some as much as two to five times more than customers who buy in only one channel.
Clearly, omnichannel retailing is critical. But to facilitate that, a transparent supply network is required.
Let’s look at the increasingly common example of omnichannel retail: “Click and Collect,” in which the purchase is made online and the product is picked up in the store. This requires orchestration and quick decision-making across the online channel, in physical stores, and across the merchandising, marketing, and procurement functions. The online channel needs to know in real-time whether the goods are available at the point of order and in which stores. Marketing needs to know customer preferences to be able to up-sell and cross-sell, as well as the availability of the products it is trying to promote – also in real-time. Stores need to receive the order and package the goods in time for pickup. To enable all of this, retailers need full visibility of the entire supply chain in the moment.
These capabilities simply cannot be achieved in a siloed model because the different silos speak different languages. By the time the silos sort it out, the proverbial game is over.
Rather than grappling between improving service levels and reducing inventory costs to maintain or increase margins, retailers must organize themselves for omnichannel commerce and build a customer-centric supply chain to mitigate the classic dilemma. At the same time, they gain new capabilities to enable innovative propositions.
A customer-centric supply network
By placing the customer in the center with the traditional silos (supply chain, marketing, and procurement) networked, retailers can anticipate demand to get the right products to stores and customers at the right time, to fulfill demand from anywhere, and exceed customer expectations.
The customer-centric supply network also enables the retailer to reinvent its business models to stay ahead.
A good example of a company that understands this is Maui Jim, a U.S.-based manufacturer and retailer of sunglasses and accessories. As Maui Jim’s customers evolved, the retailer knew it needed to offer innovative new propositions. It wanted to deliver online orders in the same day or less to its customers. Maui Jim also wanted customers to have the freedom to touch and choose among its product selections; it wanted to be able to deliver multiple pairs of sunglasses to customers and allow them to return the ones they did not want, either in stores or by delivery pick-up.
Maui Jim achieved this by bringing a partner into its supply chain – embedding an UberRush microservice within its technical retail infrastructure – a noteworthy achievement. First of all, such extensive coordination among so many moving parts in the supply chain would have been impossible if the retail organization were still in siloes. The fact that Maui Jim had moved towards a transparent customer-centric supply chain scenario enabled this potential.
Furthermore, it would have been impossible to bring partners into the supply chain had Maui Jim not transformed it into a customer-centric supply network. Traditionally, to include this kind of functionality, IT would have to build or integrate with a complete delivery ecosystem. Thankfully, owing to Maui Jim’s agile supply network empowered by a digital core, the retailer was able to bring a partner onboard and implement the innovative value proposition in 60 days.
Now, Maui Jim knows – in real-time – the minute a customer places an order, and the optimal location(s) for him or her to pick up the sunglasses based on availability. Its customers enjoy speedy deliveries and top-notch service, helping Maui Jim maintain its edge over competitors.
It boils down to fundamentals
The speed at which retailers like Maui Jim are evolving their businesses is rapid. But this is what retailers should be expecting – if not from themselves, then from their competitors. Indeed, if “change” describes today’s business landscape, then “exponential” depicts the rate of it in the retail scene.
What we’ve been discussing – transforming the supply chain – is an important step forward in the right direction that can significantly improve both customer satisfaction and the bottom line. But even so, such efforts will get nowhere without strong fundamentals that allow retailers to evolve with the necessary speed and agility – and that means superior systems and processes as well as a flexible and strong digital core.
In fact, with innovation cycles that are becoming five to 10 times faster, retailers need to start thinking about the digital core of their future value networks and start to connect consumers, suppliers, workforce, and the Internet of Things in real-time. The ability to capture every opportunity and leverage digital transformation for increased business value in an industry-specific manner is an exponential advantage. And it’s a solution that’s already available.
Want to know how retailers can create a compelling competitive advantage? Discover more here.