A New Model for a New Retail Supply Chain

My girlfriend recently tried to return a dress to a New York City department store. What should have been an easy process turned into a hassle for one reason: she had purchased the dress through the store’s website. We bounced back and forth on a wild goose chase from the checkout counter to the customer service department as they struggled to process the return.

In today's omnichannel retail environment, this discouraging scenario shouldn’t happen — and consumers may choose to shop elsewhere if it becomes a recurring issue. It’s adapt or die for retailers.

It’s a whole new retail world, and it’s time for a new supply chain model.

A Changing Retail Landscape

Once-untouchable traditional retailers are taking a hit as customers choose shopping online over visiting physical stores. From over 60,000 retail job cuts in early 2017 to dramatic stock price drops and waves of store closings at well-known chains, the industry is facing multiple setbacks. In spite of all this, however, research indicates 75 percent of the time, consumers choose to browse real shelves over virtual ones.

Traditional supply chain software is often inadequate to manage this omnichannel world, since it’s built for the “pick, pack and ship” model from distribution center to store. Articles shipped from distribution centers to the store were expected to be sold to consumers at the store. As a result, there was no tracking of inventory in-store at a global level. Only store managers and associates could view inventory in their stores through store and/or point-of-sale systems.

In today’s omnichannel world, when consumers can purchase online or in-store, return online or in-store, and choose from delivery or store pickup, real-time inventory visibility and optimization is essential across the entire supply network. In the old model, the process was one-dimensional: the distributor delivers products to the store, the consumer buys the product there. This old scenario was somewhat predictable compared to the complexities of today’s supply chain.

Now consumers are buying products online, often on mobile devices, and expecting retailers to know what products they like, their historical purchasing patterns, their current location, and offer multiple, fast pick-up options.

In response to competing offerings like Amazon Prime Now, physical stores are now doubling as warehouses, letting consumers order online and pick up their order in-store a few hours later.

A New Supply Chain Model

The differentiators of today are response time, supply and demand flexibility, and convenience for the customer. Overcoming these challenges to become more growth-oriented mandates that retailers must retool their traditional supply chains. Retailers need customer-centric supply chains that can consistently serve demand from virtually anywhere in the network.

Supply chain processes, metrics and priorities must be recalibrated to promote growth and customer service. Omnichannel fulfillment is more demanding and costly than traditional fulfillment, and as retailers innovate their capabilities, the demands of the consumer are likely to rise to match those innovations.

To successfully serve omnichannel demand, traditional sequential activities and flows must be replaced by an integrated and nimble network. As this new network is developed, the entire organization must accept that changing market dynamics demand a new way of thinking. And this new way of thinking often means managing the risks associated with changing existing processes and connecting them to new processes.

Above and Beyond the Current Standard

Retailers must develop dynamic processes which enable management of the supply chain through a real-time view of demand in storefronts, in factories and in transit. This requires leveraging next-generation planning solutions that allow retailers to connect assortment and merchandise plans with a single supply chain solution.

Engagement between the supply chain organization and other retail entities must also become more comprehensive. Supply chain and store leadership need to collaborate to establish store-based fulfillment capabilities. Supply chain professionals need to lend their knowledge of "pick, pack and ship" to store personnel who are new to these critical functions. Interactions between back-end and front-end supply chain management must be more frequent and more information rich. Expertise must be shared and traditional roles must be redistributed to those with relevant core competencies.

Retailers need a single pool of inventory tracking supporting multiple demand streams. This one inventory across many levels (echelons) in the supply chain must be supported by fulfillment agility, multi-echelon dynamic inventory planning, and optimization. It also requires an agile fulfillment process which can dynamically review and allocate inventory across the network to meet omnichannel demand in an efficient and cost-effective way. In the old retail world, organizations used to develop inventory optimization strategies periodically and “offline.” In today’s dynamic world, organizations need to optimize inventory distribution between distribution centers and stores on a real-time basis to effectively respond to demand, returns and consumer expectations.

To achieve this functionality, the next-generation supply chain solution needs the ability to quickly run “what if” scenarios that enable better-informed decisions across the network.

This is the new standard. Are you ready? Your supply chain planning and inventory planning software needs to be more dynamic than ever before. With the pieces of this new model in place, retailers can thrive and profit in the new world of consumer-driven retail.

Vivek Soneja is the head of supply chain strategy for Anaplan, a cloud-based planning platform that connects data, people, and plans in every part of your business.