Retail supply july roundtable

Release cash Reduce cost Manage risk Improve ROI

T: +44 (0)20 7605 1600 E: [email protected] W: www.4cassociates.com

Topics discussed include collaboration, logistics models and Amazon.

Issues in Supply ChainRoundtable July 2012

are more affected by supply chain price hikes. Londonauthorities have initiated projects to encouragecollaboration although attendees questioned whetherenough was being done.

Fixed delivery times are currently being used to forceretailers to work together, however, this lack offlexibility can cause problems. As customersincreasingly come to expect rapid access to goods,retailers need to be able to offer as many options aspossible to retain their clientele. There is currently animmense amount of pressure on both vendors andlogistics, and an inflexible system will not help eithernavigate through the current financial situation.

The very function of the high street is also changing.More and more customers are using retailers as "showrooms" for goods. People are increasingly visitingshops to test and try on items which they thenpurchase via an online retailer at a lower price. Thisnew behaviour could prove advantageous forcompanies able to consolidate stock.

Once very much at the centre of consumer activity, thehigh street is rapidly losing ground to online retailers.This is not the first time traditional outlets have comeunder threat, however, the ease and convenience ofonline shopping has drastically altered consumerbehaviour. These changes have radically affectedsupply chain strategy.

The reduction in stock heading to the high street hasincreased supply chain costs and created a difficultenvironment for bricks and mortar retailers. This hascreated a vicious cycle in which retailers are sellingfewer products but having to pay higher prices fordeliveries. The decline of the high street in its presentiteration seems inevitable.

Collaborating out of NecessityThe decline of the high street presents numerousopportunities for innovation. Businesses which wouldnever have considered working together in the pasthave now been brought together through necessity.This is particularly relevant for smaller retailers who

the growth and decline of their online and bricks andmortar businesses. There is a need for companies toreconsider their approach to logistics as the currentmodel is not able to respond to current consumerdemands. A multichannel strategy was highlighted asa potential solution.

Aurora Fashions, the parent company of brands suchas Oasis, Coast and Warehouse, introduced adecentralised stock management system, "AnywhereEverywhere", in 2011. The concept is based on usingstores as "holding shops" and moving stock from oneshop to another depending on demand. Thisinnovative system, which requires excellent stockvisibility and sophisticated IT systems, saw productavailability increase by 28% and sales by £2.5m in sixweeks.

Many retailers have begun experimenting with the"store model" in a bid to avoid home deliveries.Research has demonstrated that customers areextremely aggravated by the discovery of a noteinforming them they were not home at time ofdelivery. The home delivery model was described asfundamentally flawed and unsustainable.

Internet Shopping and the Emergence of NewModelsOne attendee expressed his frustration that Amazon,a company with no direct route to market, has beenallowed to take charge of the sector. 3PLs havecompeted with each other in such an aggressive waythat no one company has emerged as a winner. Theprice war, instigated by businesses such as Amazon,has forced operators to cut their costs tounsustainable levels.

"Some retailers want everything for nothing;providers are fools to do exactly what theyask"

The scenario also opens the doors for collaborationbetween smaller retailers and manufacturers. Thecamera industry, for example, would not be wellserved by the disappearance of the more specialisedshopping outlets. If these smaller shops were allowedto go out of business by companies such as Canon, theindustry would be overly reliant on Tesco and Dixons.

"If I were a manufacturer, I would be veryuncomfortable if the only outlets left to sellto were the huge chains."

An important distinction needs to be made betweenproducts which consumers are happy to buy onlineand those which require hands on interaction.Examples given included clothes, which need to betried on, certain electronic products, and, moreexpensive items such as furniture. Certain culturaldifferences also need to be taken into consideration,French customers, for example, are less likely to orderfood online.

Cut Throat Models and OpportunitiesOne of the most discussed themes was the lack ofsustainability of the current business models employedby many businesses. The late cut off time for next daydeliveries, currently in place at many major retailers,was singled out as unmaintainable. The issue is that asdelivery prices become increasingly low, logisticscompanies are forced to reduce their prices further inorder to remain competitive.

"The industry is not in decline, it is evolving,years ago people used to complain aboutTesco's entry into the market"

There was a general consensus that the industrywould not remain viable in its current state. Some feltthis was an indication that the retail sector was indecline whereas others saw the current environmentas a great opportunity to bring about positive change.The high street model has come under threat before.15 years ago the emergence of out-of-town shops wasseen as the end of the high street, yet the modelremains in place.

One of the major issues facing retailers is balancing

The retail sector has responded to the challengebrought about by online retail by reviewing theirsupply chain strategy. A number of models haveemerged which focus on providing flexibility andchoice to the consumer. One of the most interesting is



currently employed by Next. The UK based retaileroffers exclusive items and discounts online, with freenext day delivery to any of its 500 selected stores.After picking up the product, customers have 30 daysto decide whether or not to keep the item and pay.

"Consumers want choice and therefore alldelivery models may well end up beingemployed. The challenge is for supply chainsto adapt."

most convenient way possible. In order to do thissustainably, it is inevitable that a variety of supplychain models will need to co-exist.

A Lack of Innovation in Supply Chain?Many retailers have adopted a strategy which is in linewith customer demand but not what supply chainscan provide. Several attendees suggested thattechnology is the answer to creating sustainablesupply chains. The home delivery model would see itsefficiency greatly improved if combined with smartphone technology to plan drop offs.

A Lack of Innovation in Supply Chain?Many retailers have adopted a strategy which is in linewith customer demand but not what supply chainscan provide. Several attendees suggested thattechnology is the answer to creating sustainablesupply chains. The home delivery model would see itsefficiency greatly improved if combined with smartphone technology to plan drop offs.

"Customers are ready for a technology drivensupply chain but we are not yet optimised forit."

Despite 3PLs often being criticized for a lack ofinnovation, several attendees felt retail supply chainshad coped very well under the circumstances. Theretail sector has seen supermarkets go from hugewarehouses outside of town to providing homedeliveries. UK supply chains in particular have had toadapt to market changes in a short space of time.

Tesco in particular was singled out as leading the packin terms of integrating technology with supply chain.Using advanced databases, the retailer is able to

The click and collect model allows businesses to takeadvantage of their retail presence and enticecustomers picking up items to buy other products. Thismodel offers numerous advantages and has beentaken even further in Germany with HermesParcelShops. The German supply chain managementcompany has more than 14,000 ParcelShops across thecountry. These "receiving offices" are often localshops which have signed an agreement with thecompany.

Discussing whether or not this system could operate inthe UK, one participant explained that in his view, theprocess would be expensive to set up and fraughtwith danger. Firearms and drugs are amongst theitems which could be shipped this way. This was not auniversally held opinion and one person argued thatthe Royal Mail is currently managing exactly the samerisks. Another attendee felt the issue was one of trust;"People order from Boots and want to collect fromBoots because they trust the brand."

Each of the discussed models could be used to fill adifferent niche. Some products are perfectly adaptedfor courier delivery whereas others are more suitedto click and collect models. The main consideration isgetting the items into the homes of consumers in the



4C Associates has the insight, technology andexperience to drive rapid profit improvement.We offer specialist consulting, technology andmanaged services to transform your costs. Weapply industry and functional expertise to deliverexceptional benefits.

Our team works with leading organisations across arange of cost categories including Direct Materials,Services, Marketing, IT, HR, Logistics, SupplyChain, Property and FM. We apply deep practicalknowledge, combined with process and changeskills, to deliver reduced costs and increased profits.

To discuss how we can transform your costs pleasecontact us at:

Tel: 0207 605 1600Web: www.4cassociates.comEmail: [email protected]

Maria Mana, Logistics Manager at Marks and Spencer,Rob Riddleston, Head of Transport and Logistics atBarclays, Matthew Sweet, Director of Global TransportSourcing at CEVA Logistics, Liam Tucker, OperationsDirector at Hermes, Nick Weetman, OperationsDirector at IAWS Foods (Delice de France) and NickWilkinson, Purchasing Director, TransformationalProductivity at PepsiCo.

predict the quality of returned items based on thecustomer. If someone consistently returns items inshop condition, Tesco is able to count pending returnsas live-stock and plan their supply chain accordingly.This type of innovative practice may provide the keyto creating sustainable and flexible supply chains.

Achieving SustainabilityOffering a variety of delivery options to customers in asustainable way, emerged as the key issue for retailsupply chains. Consumers are increasingly demandingand expect retailers to provide not only a wideselection of goods but also flexible delivery options. Ina climate of financial austerity, living up to theseexpectations has proven extremely challenging andnumerous providers have gone out of business tryingto undercut the competition.

Event DetailsOn the evening of the 4th July 2012, 4C assembled agroup of supply chain leaders from differentindustries at The Savoy, Westminster. The event waschaired by Ed Ainsworth, 4C's Managing Director.

Attendees included Dan Curran, Head of Supply Chainat World Duty Free, Phil Duckworth, OperationsDevelopment Director at DX Network Services,Michael Durig, Head of Supply Chain and Procurementat Grunenthal, Paul Flanagan, Logistics Operations atKraft Foods, Ewan French, COO at Barloworld, CalumLewis, Operations Director at LEGO Company Limited,