Analysis: Adapting to change major priority for supply chain bosses

Keeping up with the pace of change in retail is placed among the three main challenges facing supply chain teams by 60% of the leading supply chain directors interviewed for Retail Week’s Supply Chain report in association with DWF LLP. It found 40% of supply chain directors believe adapting their supply chain to meet omnichannel and multichannel demands is the most persistent priority their teams face in 2014, compared with just 12% in 2013.

Virtually all of them say investment in supply chain is increasing and cost-cutting is less evident than in last year’s report. However, improving cost-efficiency remains a constant objective, notably in logistics where agility and shortening lead times are also identified as key drivers.

Putting the customer first

The adaptation of supply chains to multi/omnichannel retailing reveals – and has partly precipitated – a greater customer focus within supply chain functions.

As one director of logistics says: “The biggest priority is the customer. Everything we do, we do with the customer in mind.

“So when we look at sourcing and supply we consider what it is that we are offering the customer, so whether it’s an initial buy or a repeat buy we make sure that we can produce that product to the right quality and deliver it to the customer in the time frame that we have promised.

“We make sure at the beginning of the supply chain that what we are building has the customer at the heart of it.”

In particular, offering a broadening range of fulfilment options to give customers greater flexibility and choice is now a key part of the supply chain brief, and is placing new demands on logistics teams.

Understanding and responding to consumer requirements regarding the immediacy, time precision or destination of deliveries is seen as crucial. Consumer demands in this regard are only expected to become more exacting, and the quality and flexibility of service businesses can provide is expected to become an increasingly important element of commercial success.

At the launch of the report, Retail Week asked several retailers how they are adapting to become even more customer-centric in 2015. This is what they said.

Multichannel is also changing the way store delivery and inventory is managed. Many of the supply chain directors interviewed believe there is potential for bricks-and-mortar retailers to gain an advantage over pure-play retailers by leveraging their estates more effectively and using their stores as warehouses.

On the subject of technology and automation, retailers stress taking a pragmatic view, looking carefully at the suitability of new technologies for their businesses. “The priorities at the moment seem to be: how do we drive technology, digitalisation and omnichannel capabilities?,” says the supply chain head of a leading high street retailer. There is a strong consensus regarding the benefits of warehouse automation, but a number of retailers cite radio-frequency identification (RFID) as an example of a technological solution that will not work for all.

Looking at innovation more broadly, many of the supply chain directors stress the benefits of collaboration between retailers in logistics and expect this to become increasingly common. Indeed, the importance of collaboration and partnership is a recurring theme among the retailers interviewed for this report, summed up by the supply chain boss of a well-known department store: “You can’t work in silos anymore.”

Building closer relationships with suppliers is seen as a key sourcing priority by almost a third of the supply chain directors interviewed, while suppliers themselves are becoming more engaged in the entire business process along the value chain.

About 27% of the retailers interviewed see reducing sourcing costs as a priority, while 20% consider reducing lead times to be an important objective. The rising costs of sourcing from China and the potential benefits in cost, lead time and environmental impact of sourcing more from within the UK and Europe remain live issues for supply chain directors.

Meanwhile, the expanding and increasingly critical role supply chain leaders and their teams play within retail companies is reflected in the senior positions supply chain personnel now occupy. There is a strong sense that the insights and specialist knowledge of supply chain professionals is more highly valued within retailers than it was and they are having increasing influence over business decisions and strategy.

Collaboration critical

Collaboration between supply chain teams and other business functions is increasing and widely recognised as critical. The broader and more influential role supply chain professionals are taking in retail businesses is also said to be helping recruitment, while the new demands being placed on supply chain staff makes training and development all the more vital.

Looking ahead, the retailers expect innovation in the supply chain to be informed by the changing needs and preferences of customers, with multi/omnichannel adaptation and innovation in fulfilment and delivery the predominant drivers.

A third of the retailers identify either technology systems or data management as areas where innovation will happen, but almost as many cite retailer collaboration as an area where new thinking will be brought to bear.

In-house legal counsels are certainly experiencing greater collaboration in their role as they work with numerous parties across the entire supply chain to ensure the smooth and lawful running of a retail business.

From policing data protection laws and controlling complex transport systems, to ensuring there are no blind spots in multiple supply chain networks that crisscross the world, they face a plethora of pressing challenges.

The rapid change seen in retail in recent years underlines the need for a flexible and adaptable supply chain model that can be shaped to a continuously changing retail environment and, most crucially, constantly evolving consumer preferences and requirements.