Roundtable: Supply chain overhaul throws up challenges for multichannel retailers

With the explosion of multichannel retailing, taking a holistic approach to supply chain management has never been more important. Yet implementing an end-to-end overhaul across the entire supply chain - from adapting to the increasing complexity in relationships with suppliers, to meeting availability targets and managing customer demand for quicker delivery - means massive technological, organisational and logistical changes.

Last month, retailers gathered at a roundtable discussion, co-hosted by Retail Week and marine terminal operator DP World London Gateway, to share opinions on the challenges of adapting the supply chain to the multichannel retail landscape and why meeting rising customer expectations is so crucial to success.

Guest speaker at the debate was Berangere Michel, head of supply chain development at John Lewis, who shared the reasons why the department store group is at the forefront of supply chain excellence. According to Michel, being a truly omnichannel operator means allowing shoppers to interact with a retailer in any way they chose. “It’s about customer interconnectivity,” she explained.

At John Lewis, online sales account for 26% of total sales, which Michel believes is down to offering shoppers multiple ways to buy. “Research shows 29% of customers research in shop and buy online; 63% research online and buy in a shop; 19% of shoppers use mobile to research before they purchase.”

The channel experiencing the biggest growth, and with the largest potential for future growth, is mobile. “Mobile as a proportion of online sales is growing tremendously, but it’s still just a twinkle in the eye,” she said.

Click-and-collect, which is available in all John Lewis shops and about 200 Waitrose stores, makes up 30% of online sales, and continues to grow.

John Lewis has also begun a trial with Collect+, which allows customers to pick up products bought online at convenience stores and petrol stations.

In the future, John Lewis will consider more locations for click-and-collect, later cut off times and earlier collection times, Michel revealed, but offering this level of convenience in collection brings new supply chain challenges into play.

“These include the speed of response, efficiency of processing, volatility of demand requiring flexibility of resource and absolute accuracy,” she said. Above all, she added, “stock accuracy is vital and making sure speed of service is consistent”.

Varied interactions with customers can not only add to the complexity of the supply chain, Michel warned, but can also erode margins. With smooth cross-channel fulfilment ultimately resulting in higher costs, how can retailers make implementing changes to the supply chain a less costly exercise?

For the past 18 months John Lewis has used a cost-to-serve model, which is used to analyse how costs are consumed throughout the supply chain and demonstrates what contributes most to the company’s profit and what erodes it. “It helps us decide how much things are truly costing and determines what is the scale we need to gain to make it a successful offer,” Michel explained.

Jon Williams, director of merchandising operations at John Lewis, added that the cost-to-serve model is used to inform pricing decisions, rather than dictate them. “We try to take a more holistic view of it,” he said.

Michel also emphasised how important it is to consider the entire end-to-end supply chain when making any strategic decisions. “The fundamental difference in an omnichannel world is that supply chain has to have say in those decisions.”

At John Lewis for the past three years, the operations director has had a place on the executive board, which ultimately means supply chain considerations come into play when making any strategic decisions, she explained.

Timing is of the essence

Around the table there was a general consensus that having a supply chain that enables a wide range of delivery options, as well as providing as much information as possible about the specific time of delivery, is crucial.

At John Lewis, if an order is a week away from arriving in the UK, it won’t be offered to customers. “Customer service is too important,” Michel said.

In contrast, Tim Allinson, UK logistics director for Dixons Retail, said the retailer would sell stock that was in transit if it was coming from a trusted supplier. “If you’re pretty sure it’s on the way and you know when it’s going to arrive we will do that,” he said.

But it’s vital the customer stays informed, according to Allinson. “We will be very clear with customers - what we will do is say if it’s not available and not stocked.”

Martin Rodgers, head of supply chain development at Argos, told retailers that for large items, Argos enables customers to place orders for home delivery up to four weeks in advance.

“We’re in charge of the source coming from the Far East, so when it goes onto the ship we pretty much can be sure it’s going to turn up at that point.”

Rodgers agreed that providing consumers with reliable information is critical. “Customers want more certainty,” he said.

Depending on the item size, customer expectations vary, according to Lindsay Haselhurst, development director for logistics provider Wincanton. “Customers who pay for a large-ticket item like to wait for it - there’s a definite correlation between value and lead time,” she said.

“For large-ticket items, [consumers spend] far more time making the decision and it’s a far more emotional purchase, therefore they’re far more likely to be deeply upset if you fail them. Disappointment is proportional to the level of investment.”

Fashion retailers’ supply chains have their own unique set of challenges when it comes to providing customer assurance, according to Simon Joslin, chief commercial officer, UK and Ireland for supply chain management firm Damco. “With fast fashion it’s more about ‘I want it today’. We as a business have found that quite a challenge to be able to give that visibility, control and flexibility to our clients, who can then offer that to the customer with certainty.”

Reactive supply chain

With heightened consumer expectation around choice of delivery and service options, a reactive supply chain is
critical for retailers, according to Michel. Retailers must have a strategy that’s clear, owned and affordable, she advised. “It’s such a cultural change, as well as a systematic and process change. In developing your strategy, you need to think about what are the various steps you’re going to take to make sure the change is relatively risk free.”

To do this, retailers need to employ experts who understand the omnichannel supply chain. “But finding those type of individuals is not easy,” she warned. Damco runs a graduate training programme to help students get hands on experience. “The last programme had over 500 graduates apply for four places and took on an additional member as well. We see people as an area to invest in,” Joslin said.

The roundtable concluded with the agreement that, despite expectations to meet ever demanding availability targets, there isn’t a necessity to hold more stock in a multichannel world.

As Allinson summed up: “I don’t want the trend to be opening bigger sheds - I want to be reducing stock holding and increasing availability - that’s what we’re all working on. It’s about looking at an end-to-end supply chain and saying, what can we do differently?”