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An Introduction to Supply Chain for Retailers
“Leaders win through logistics. Vision, sure. Strategy, yes. But when you go to war, you need to have both toilet paper and bullets at the right place at the right time. In other words, you must win through superior logistics.” Management Thinker, Tom Peters
Successfully managing a retail supply chain is a military operation. Which isn’t that surprising because that’s where the term ‘supply chain’ originated.
Coined by the forces to describe the process of getting food, weapons and ammunition to the front line, modern retail supply chains are far more advanced. Horses and carts have been replaced with HGVs and paper lists with digital technology.
But supply chain management is far more encompassing than this. In this article we ask:
- what is supply chain?
- why is it so important for retailers?
- what is supply chain management?
- what advanced supply chain technology is available to help?
What is Supply Chain?
Supply chain is all about making your products and services available to customers at the right time, in the right place at the right price. It’s one of the most critical elements of retail management: after all, if there’s nothing for your customers to buy, your business is in trouble.
The way you go about supplying your business is not just a commercial must but a point of competitive difference. Make your supply chain as efficient as possible and you’ll save money. Get it wrong and your business will face significant costs, can lose market share and suffer reputational damage. Think Tesco not having enough turkeys at Christmas.
What is Advanced Supply Chain Management?
Traditionally, retail supply chain involved sourcing a range of products from various providers and transporting them to a single endpoint: store shelves. Customers came to retailers to buy in-store making the supply chain as large as the number of providers being bought from and the number of shops being stocked.
As consumers have increasingly gone online and demanded more choice and greater convenience, supply chains have become increasingly complex.
Now retailers must be able to deliver via multiple channels to a far wider geography. For example, a shopper may visit a store to look at an item, order online and deliver to their home. Which means:
- having sufficient stock in-store for them to view
- the capability to order online with a range of delivery and pick-up options
- the ability to deliver to the customer’s home, wherever it may be within the agreed time slot
With the internet comes the potential for overseas fulfilment and the need to manage a global supply chain. For multinational retailers this requires less stretch, but for national retailers global supply chain requirements add another layer of complexity.
Retailers are now also expected to provide a whole range of services – like next-day delivery or in-store pick-up – with a huge range of different start and end points.
What is Supply Chain Technology?
To deliver in this increasingly complex and ever-changing landscape, retailers need advanced supply chain management capability supported by a range of core technology which includes:
- Strategic network design – to meet your service goals you need to be able to optimise dynamically. This means understanding the optimal location, number and size of stores and distribution centres and other facilities.
- Demand, inventory and replenishment planning – advanced supply chain management software helps you forecast demand using artificial intelligence (AI) and machine learning (ML). As the software learns your business’ peaks and troughs it can help you predict and plan more effectively. Which ensures the right products are in the right place when your customers need them.
- Warehouse management – cutting-edge warehouse management systems mean you can see the stock available and organise work and resources appropriately to satisfy customer demand.
- Transport – getting goods to stores and customers relies on optimising the routes taken and meeting agreed delivery times while controlling costs. This can be achieved with systems that link in-store and online inventories giving a global supply chain perspective.
- Performance Management – supply chain analytics and reporting are critical in understanding what’s worked well and what hasn’t. This closed-loop analysis allows your business to continually learn and improve, particularly if you leverage AI and ML within your systems.
With the shift to multichannel retail, incorporating additional ecommerce deliveries while controlling margins in a dynamic environment is too difficult for the human brain to compute. Which makes advanced technology critical to effective supply chain management.
Why is Supply Chain Management so Important for Retailers?
Retailers must be able to adapt as ship-from and ship-to locations increase significantly. There are two major stumbling blocks for retailers in this new world:
- Next-day delivery is not always possible due to the lack of distribution centres – with larger national geographies to cover, two-day delivery is usually manageable but next-day can be a challenge.
- Supply chains are optimised for stores, not online, which is often treated as a separate bolt-on business – this leads to poor cross-channel communications, siloed inventory pools and cost challenges due to additional requirements for pickers and distribution centre space.
In a world where free and next-day fulfilment is the expected norm, retailers are struggling to deliver on all fronts while keeping costs down.
According to McKinsey, the right supply chain technology can deliver:
- significantly higher distribution centre throughput
- a one-to-two-day reduction in customer lead time by reconfiguring distribution centre footprint and improving the speed of the supply chain
- lower distribution centre and labour costs by moving to lean processes, store-friendly execution and by moving work upstream
- significant reduction in the likelihood of marking items down by moving inventory across channels and locations to achieve higher full-price sales
- reduced working capital by optimising deployment of inventory and workflow design
- higher revenue from reduced out-of-stock products and an improved customer experience
Supply chain management is the backbone of every retail business. Receiving goods and ensuring they reach the right places in a timely, cost-effective way can make a significant difference to a business’ bottom line.
With multichannel retail and additional consumer demands for convenience and flexibility, national and global supply chains face a challenging time. The only way to continue to adapt and deliver is to adopt advanced supply chain technology for superior competitive advantage.
If your supply chain needs some help, get in touch with one of our specialist consultants on +44 (0) 808 200 7375.