This has resulted in a convergence of the challenges for retail and global logistics.
The major challenges retailers are now working on resolving are:
1. What should my future target operating model (TOM) for the supply chain be?
2. How do I incorporate process and physical automation throughout the supply chain?
3. How do I manage increased process complexity?
4. Understanding true channel cost and SKU profitability.
5. How do I integrate my new suppliers and third-party logistics partners?
Let’s examine the solutions for each of these issues.
1. Building a new target operating model
One outcome of the challenges identified above is a new TOM specialised for agility and resilience, and developed based on the six elements shown in Figure 2. This is being used to embed the agility that was required during the pandemic into longer-term operations.
This new TOM is oriented around end-to-end supply-chain planning, predictive analytics, and greater investment in planning systems to optimise process, people, and technology.
Increasing numbers of partners are being integrated into the business model, resulting in a particular focus upon governance, performance insights, and the service delivery model.
2.Integrating process and physical automation throughout the supply chain
Higher levels of automation require a ‘manufacturing’ mindset to optimise the different automated elements across the entire value chain, and within distribution centres in particular. Each element of the value chain has different levels of productive capability and requires extremely high levels of co-ordinated, day-by-day, hour-by-hour planning to gain the full benefit of large capital outlays. Bigger retailers are facing challenges in managing network-wide capacity across multiple fulfilment nodes with different optimisation characteristics, and re-tooling workforces accordingly.
Certainty of delivery is now becoming as important as speed. Retailers are increasingly looking for ways to increase co-ordination across the supply chain, along with automation in fulfilment planning and execution. This increases middle- and back-office productivity, allowing more strategic decision-making from people.
3. Managing increased process complexity
Retailers are investing in new sales and operations planning, along with replenishment methods and tools. This is tied to the need to consider alternative sources of supply – international and domestic – as part of holistic and dedicated supply-chain risk management. Retailers now need to prioritise what stock gets delivered and when, due to capacity constraints. Increasingly, companies across many industries are integrating predictive analytics into supply and logistics planning to provide data for tough operational decisions.
Retailers are developing the flexibility to organise multiple channels to customers on short notice. Inventory deployment policies within fulfilment channels connected across the business have never been more important for the fulfilment of customers’ baskets, where multiple products and categories potentially land.
4.Understanding true channel cost and SKU profitability
To make the right decisions about which channels and methods of delivery are the most profitable for products, retailers are implementing advanced analytics for the cost to serve and segmentation optimisation. These are then used to decide the optimal portfolio mix of products and services to profitably delight customers.
Increased visibility of SKU profitability via each channel – difficult to achieve in legacy systems – is allowing retailers to tailor product and service offers closely to individual customer demographics, locations, and fulfilment needs.
5. Integrating new suppliers and third-party logistics partners
To deal with the global supply crisis and explosion of omnichannel business models, retailers started with building capacity. Now they need to pick the winning suppliers – the best performers, who can maintain the new face of their brand (the delivery driver) – and integrate them into more automated logistics and merchandise planning. Barriers to entry in e-commerce are rising, driven by lack of capacity and increased compliance requirements for third-party logistics partners, in both physical products and customer data.
Reverse logistics is becoming more critical, driven by environmental, social, and governance requirements, and larger return volumes. Retailers need to optimise reverse networks just as much as delivery, often using different capabilities from their third-party logistics partners. For example, the delivery driver now has the added complexity of carrying out multiple tasks beyond just dropping items at your front door – from assembly and recycling to upselling and gathering customer experience data from individuals.
All businesses are on their own journey to manage these challenges, with the aim of developing agility and resilience beyond simple physical logistics and volume capacity. Increasingly, companies are looking to engage external expertise that can bring them global best practice – just as their customers ‘shop the world’ for the best value.
This was originally published in the 2022 Australian Retail Outlook, powered by KPMG