By Jason Shorrock, Retail Strategy Director, JDA.
The growth of online and mobile commerce continues unabated, with recent figures from eMarketer estimating that the global e-commerce market will be worth nearly $2.5 trillion by 2018.
While from the outside this appears broadly positive for retailers, the reality is many are struggling with the challenge of making their omni-channel operations profitable. According to the latest annual survey of global retail CEOs, conducted by PwC on behalf of JDA, only 16% of CEOs said they can fulfil omni-channel demand profitably!
The 'Omni-Channel Fulfilment Imperative' report surveyed 410 CEOs across North and Central America, the United Kingdom, France, Germany, China, Japan and Australia. The report highlighted the key challenges and threats facing retail CEOs in the face of increased competition, volatility and change in today's marketplace.
Indeed, the move towards omni-channel is having a number of ramifications for today's retail businesses; more than a third of retail CEOs (35%) stated that a failure to meet customers' expectations across multiple channels was most likely to impact on their business. Closely followed by a failure to re-engineer business processes to align with the changing role of the store (34%), with a failure to manage the costs of fulfilling omni-channel expectations (33%) in third place.
The changing retail supply chain
Today's retail supply chain is a far cry from the relatively simple networks of a decade ago; where its job was to move goods from suppliers, through distribution centres to stores in bulk, in the most efficient way. This change has been driven by the huge growth of online and the challenge of how to make the 'last mile' experience as frictionless as possible for customers.
Retail supply chains must handle many more fulfilment locations, increased singles picking for customer orders and must also operate in real-time to fulfil orders within hours or minutes. In addition, it must operate flawlessly through the peaks and troughs of Black Friday, Christmas and the New Year sales. Such complexity represents a disruptive change to those supply chains of yesteryear, which were optimised for bulk movement from supplier through to the store.
Getting ready to deliver
Today customers are demanding 'anywhere, anytime' fulfilment services that are fast, convenient and reliable. No longer are they prepared to wait at home for hours for a courier to deliver a parcel, or wait for days before they can visit a store to collect their goods. 66% of the retail CEOs surveyed said the threat of online and traditional retail giants offering same or next day delivery was likely to occur in the next 12 months, with 40% saying it would impact them "to a great extent". It is hardly surprising then, that more than a third (36%) of CEOs cited the ability to offer next-day and crowd-sourced delivery as the most important capability in meeting customer expectations, when it comes to omni-channel fulfilment.
Fulfilment excellence clearly comes at a cost; two-thirds of respondents say their cost to fulfil omni-channel orders is increasing. When asked to rank their highest costs for fulfilling orders, 67% said shipping direct to the customer and a further 59% said shipping to the store for customer pick ups. However, it was product returns that were cited as the biggest fulfilment cost by 71% of retail CEOs. The very nature of online results in an increased level of customer returns, as customers will habitually order more than one size to try on at home and then return the unwanted items. Clearly, if this is left unchecked and unmanaged, it can escalate into a huge cost burden to retailers' business.
Intelligent fulfilment
The CEOs in the survey clearly understand the challenges they face when it comes to profitability in omni-channel fulfilment; 71% stated that omni-channel profitability was either a high or a top priority. Furthermore, they are starting to put their money where their mouth is, investing on average 29% of their total capital expenditure for 2015 on improving their fulfilment capabilities.
Ultimately, retailers will need to become much smarter about how they use their key assets of staff, stores and inventory to fulfil customer requests in an intelligent way. Beyond this, retailers in the future will start tailoring offers on a personal level based on the lifetime value of the customer – managing profitability on a per customer basis. This could be through variable delivery and returns charges, variable stock availability offers and variable price and promotions. This combination of a best-in-class fulfilment operation, with deep customer insight and tailored offers will enable retailers to succeed in this new world of profitable customer commerce.
The journey facing retailers will be a difficult one – requiring a much more sophisticated and complex operation, supported by robust planning and intelligent fulfilment execution. However, technology solutions are emerging to make profitable fulfilment a reality – it is now up to retailers to re-invent their supply chains to become a much more agile and responsive operation.
Add a Comment
No messages on this article yet