DAI In-Store Fulfilment and Click & Collect - Key Report

DAI Supply Chain Page 1 of 16 12 May 2014

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Home Delivery World 2014 DAI Supply Chain

Interactive Focus Session Output

‘In-Store Fulfilment and Click & Collect’

Supported by Glovista & Doddle


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Contents

1 INTRODUCTION ............................................................................................................... 3

2 IN-STORE INVENTORY AND DELIVERY ......................................................................... 4

2.1 Estate Management ............................................................................................. 4

2.2 Inventory Visibility ................................................................................................ 4

2.3 Speed versus Price .............................................................................................. 4

2.4 IT Challenges ....................................................................................................... 5

2.5 In-Store Inventory & Delivery Options Mind-Map .................................................. 5

3 IN-STORE CAPACITY CHALLENGES ............................................................................. 6

3.1 Shops ................................................................................................................... 6

3.2 Parcels ................................................................................................................. 6

3.3 Stock .................................................................................................................... 7

3.4 Customer ............................................................................................................. 7

3.5 In-Store Capacity Management Mind-Map ........................................................... 8

4 DELIVERY CHALLENGES ............................................................................................... 9

4.1 The Challenges of 2B versus 2C Deliveries (to Business vs to Consumer) .......... 9

4.2 Reasons for Failure with Click and Collect ........................................................... 9

4.3 Own Store versus Third Party Parcel Shop .......................................................... 9

4.4 Returns Dynamics and Reasons ........................................................................ 10

4.5 Delivery Mind-Map ............................................................................................. 11

5 PERFECT WORLD.......................................................................................................... 12

5.1 Shopper Perspective .......................................................................................... 12

5.2 Last Mile............................................................................................................. 12

5.3 Same Day Delivery ............................................................................................ 12

5.4 Perfect world Mind-Map ..................................................................................... 13

6 DAI SUPPLY CHAIN SOLUTIONS ................................................................................. 14


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1 INTRODUCTION

In the e-commerce world, successful home delivery is key to the customer experience. Seamless integration and the resultant inventory visibility and control are essential components of a successful e-commerce solution. In-store fulfilment and Click & Collect are increasingly preferred solutions for both retailer and shopper alike. DAI were delighted to sponsor a workshop at Home Delivery World 2014 to explore this subject in detail with industry experts from retail, distribution and support services including IT. To make optimum use of the available one-hour timeslot, the group was divided into 4 teams and after a short initial briefing the teams set to work on the following four categories:

Delivery Challenges

In-store Inventory and Delivery Options

In-store Capacity Management

Perfect World The Workshop output was captured using an innovative Dynamic Mind Mapping technique facilitated by Glovista. The mind maps are attached and provide a very useful and succinct summary of the output.

The following material represents the thoughts and ideas of the retailers, consultants and solution providers who took part in the workshop. We hope you enjoy reading.


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2 IN-STORE INVENTORY AND DELIVERY

2.1 Estate Management

Having in-store inventory visibility is essential for the omni-channel experience. In-store picking solutions have been pioneered in the grocery sector with the emergence of ‘dark stores’. Click and Collect from own house retail estate has a significant advantage of driving footfall into store as well as gaining incremental sales. Another growing possibility is to order in-store for collection at local third-party parcel shop, e.g. Doddle. This enables the shopper to peruse and seek advice but have the delivery of the parcel at their convenience into a local parcel shop. This is felt to be a fairly recent innovation and the group felt it would become increasingly popular particularly with the growing choice available for partnering with parcel shop or locker box networks. With such a solution the fulfilment of the item could either be from store or from a DC. Again, critical is the stock optimisation and visibility highlighted by an efficient inventory management system.

2.2 Inventory Visibility

Seen by the group as the number one issue in terms of optimising the supply chain ensuring customer orders could always be satisfied without carrying too much stock. Being able to see inventory in real time in the warehouse, en route to the store, in-store storeroom and on the shop floor. Also important, and seen as a weakness in most current solutions, is the visibility of stock returning unwanted from shoppers. Both the visibility and the speed at which this stock can be re-entered into stock inventory was seen as highly desirable, particularly in fast moving industries such as fashion and electronics. Most felt that retailers still lacked up to date inventory visibility at the key stages of the supply chain; “stock out” = unsatisfied customers! Determining a minimal stock holding to protect against out of stock, creating back orders and providing sales staff with visibility of substitute items is seen as important. Some of the suggested ideas included a perpetual inventory and minimum stock levels as well as a combined store and decommission inventory system, which could result in the setting up of early triggers for stock replenishment at store.

2.3 Speed versus Price

The utopian shopping experience is that the consumer wants it instantly, or at a stated future time and place, but they don’t want to pay for delivery charges! The growth of Click and Collect was discussed and it was concluded that:

Retailers enjoy Click and Collect as a lower cost option to home delivery as well as driving the footfall benefits.

Shoppers enjoy Click and Collect because of the increased control they have over the receipt of the parcel, especially during seasonal peaks.


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“Collect from Store” must always be offered free of charge. Another significant point raised during the discussion was the “allocation of sale” issue. It is important that when the sale originates online but fulfilment is carried out in-store that visibility of this mutual relationship and its importance for the omni-channel business model versus pure play etailer must be recognised. Click & Collect avoids the pricing issue as it is always free. So the value of the item is largely irrelevant giving the customer more choice.

2.4 IT Challenges

Integrating the retailers own legacy systems with warehouse management, carrier and ecommerce systems can prove challenging. The implications of poor connectivity can be catastrophic for a business in terms of managing both the customer experience and the economic performance of the supply chain. In terms of the customer experience, poor visibility of stock and purchased items can provide for poor or inaccurate customer communication and therefore a damaged customer experience. Having the right IT partner and solutions can be the difference between success and failure.

2.5 In-Store Inventory & Delivery Options Mind-Map


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3 IN-STORE CAPACITY CHALLENGES

3.1 Shops

One of the first fundamental issues is for the omni-channel retailer. There is a firm belief that their own retail network must be harnessed first before contemplating using third party parcel shop operations such as Collect+, Hermes or Doddle. In almost all cases, with perhaps the exception of Argos, these retail outlets are not designed for parcel storage. There is not enough space in the store as preference in their design has always been for retail space and not back office storage. Some retailers, however, have changed their stocking policy and only carry a limited number of stock in-store, reducing range and options, allowing more space for parcel storage. This hybrid operation is seen by many as very interesting and worth pursuing. However, key to this success is visibility of stock in the overall supply chain and being able to rapidly deliver the desired item into the store within hours. One of the obvious limitations facing many omni-channel operations is the convenience of their locations. This is where it is seen as a “no brainer” to partner with a Collect+ or Hermes Parcel shop operation in order to supplement their retail estate. However, concern was raised about the convenience store image versus premium brand retail site such as M&S or John Lewis. The group was split on this subject with many feeling that it is irrelevant and purely a channel to collect or return a parcel. Others felt that there was an imbalance in the retailer’s brand offer versus the customer experience at the parcel shop. Does collection from store actually attract further sales? This was a hotly debated issue. John Lewis swear by it, particularly in Waitrose, with extra sales of bread, milk, etc. being triggered by John Lewis collections through Waitrose stores. Others believed that extra sales are definitely made as sales staff maximise the opportunity to cross sell additional items particularly in electronics and fashion. A mixed view amongst the group as to whether Collect+ and Hermes outlets do see a cross sell opportunity. Some research points against this but most in the room felt that there must be a cross sell purchase pattern amongst shoppers when collecting or returning parcels. One example of cross selling is believed to come from InPost and ByBox lockers adjacent to petrol stations. It is felt that a high proportion of shoppers will take the opportunity to fill up with petrol or purchase convenience items when collecting parcels from a locker box. The use of third party parcel shops was highlighted in Sir Stuart Rose’s presentation. He cited the example of M&S in more remote locations where sales of fashion and electrical goods are relatively low. They could focus on M&S food and offer a collection facility for the entire M&S inventory when the store size and layout would not allow them to carry more than a few basic lines.

3.2 Parcels

John Lewis and Majestic Wines do not charge for home delivery and yet are still seeing a dramatic increase in Click and Collect currently at over 40%. Therefore Click and Collect is fulfilling a customer demand and is not just driven by price. There was a discussion about whether retailers were deliberately pushing Click and Collect as the ultimate solution and over stating the actual current impact in order to drive behaviour in this direction facilitating a reduction in their costs and footfall into their retail estate. Another issue highlighted during this discussion was capacity issues on delivery vehicles going to store.


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3.3 Stock

Reserve and Collect is seen as a growing option selected by a high proportion of shoppers. However, there needs to be a high visibility of in-store inventory in order to eradicate the embarrassing reality of a customer reserving an item which is subsequently sold to another customer before the original customer has been able to arrive in-store to collect their item. Having complete inventory in every store ties up too much working capital and too much space given the growing need for freeing up space for Reserve and Collect parcels. Another further issue with Reserve and Collect is the varying standards of how long do they hold the item as ‘reserved’ before it re-enters the stock if a customer doesn’t turn up to collect? This can exacerbate the space issue and during peak periods retailers may choose to reduce the number of days an item may be “reserved” before returning it to stock. Clear communication to the shopper on these points plus the use of proactive SMS prompts are seen as essential in order to maintain a good customer experience. The group acknowledged that there are currently different models of Click and Collect in operation, for example, food and non-food differ and, of course, Reserve and Collect differs still. All felt that the pre-Christmas seasonality was a massive issue for Click and Collect. It is believed customers favour Click and Collect even more during this pre-Christmas run-up because it guarantees greater control for the customer and avoids the much fabled parcel company ‘crashes’ at Christmas. A few in the group observed that some e-retailers do not have formalised processes within store to manage Reserve or Click and Collect. It seems that local management and staff determine local processes and develop/fix solutions therefore masking over fundamental process and IT weaknesses in their propositions.

3.4 Customer

It was seen by the group that the rapid growth in Click and Collect is driven from the customers’ extreme annoyance at missing a delivery. If the parcel companies continue to make significant improvements in transmission of information in real time with ‘inflight options’ to the consumer we could see a slowdown in the growth of Click and Collect. A significant point of frustration for the customer is the positioning of the “collection point” within the store. One rhetorical example was collecting wine from a Garden Centre taking the customer 20 minutes to find the collection point at the far end of the Garden Centre. The group agreed that there was an imbalance here in terms of the retailer wanting the opportunity for the customer to walk through the store (perhaps making other purchases before collecting their item) versus the consumer who wants to be “in and out” as quickly as possible. The actual fulfilment of the purchase in Click and Collect varies from retailer to retailer. For example B&Q currently centrally fulfil but in future will fulfil from store. An anecdotal example of the growth of Reserve and Collect is that during the pre- Christmas run-up for high moving, high demand toys some customer’s bulk reserve these items and re-sell them on eBay at a higher price. Once they have secured a re-sale on eBay, they go to the store to pay for and collect the item.


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3.5 In-Store Capacity Management Mind-Map


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4 DELIVERY CHALLENGES

4.1 The Challenges of 2B versus 2C Deliveries (to Business vs to Consumer)

Many parcel companies come from a B2B delivery background. This has meant that they have had to evolve as they have learnt the fundamental differences in 2C operations versus 2B. Three fundamental differences between 2B and 2C are:

Single parcel consignments in 2C whereas multiple parcel consignments in 2B.

Much denser delivery coincidence in 2B compared with 2C; resulting in less stem mileage between deliveries.

Failed deliveries (where the receivers are not at home) are perhaps the most noticeable difference between the two business models.

Other challenges include distinctive packaging for 2C to enable greater visibility in the vehicle. With 2C the goods have usually already been paid for, whereas with 2B, goods are paid for in arrears. A subtle point made by one of the delegates.

4.2 Reasons for Failure with Click and Collect

The group identified numerous reasons for a failed delivery including:

No ID

Stock capacity

Mis-directed or received into wrong store

Can’t amend order once in place; no “inflight” deviation possible

Stock capacity or chaos within store so parcel cannot be retrieved

Staff too busy to retrieve parcel, resulting in poor customer experience

4.3 Own Store versus Third Party Parcel Shop

Omni-channel retailers have the facility to be selective in supplementing their own network with third-party parcel shops, i.e. they don’t have to offer the entire third-party estate. As previously stated, the perceived brand image of a third-party estate versus own house, could be an issue. Sometimes poor visibility to the shopper when dealing with separate IT platforms from own house to out-sourced parcel shop solution. One obvious negative about using third-party estate is driving footfall away from own store. All believe that returns were better serviced through the addition of third-party network offering greater proximity, provided IT systems were completely integrated, seamless and simple.


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4.4 Returns Dynamics and Reasons

Most felt that the cost for the return must be borne by the retailer; free of charge and with clear, simple instructions for rapid return of unwanted items. Clear guidance must be given on dimensions and weight constraints only offering the shopper first mile injection points (i.e. parcel shop or locker box) that will accept the item they are choosing to return. The whole “free versus paid” debate needs clarification. In the absence of a “try before you buy” scenario (in particular with regard to fashion) it is felt that the retailer must offer a simple, free and easy returns solution. Otherwise sales will suffer. If the reason for return is a change of heart then perhaps, in this scenario, a modest fee should be paid. One significant challenge, particularly with electronics, is checking that all elements of the item are returned correctly;

Is it possible to open the package and check everything is included in the return?

Should this be done at the parcel shop or at the returns centre?

At what point is the refund triggered?

At the point the customer requests the return online?

When the parcel is handed over?

When the item is returned to stock? Clearly trust and confidence are issues here; the desired outcome from the customer perspective would be a refund at the moment of triggering the return. How many lapsed days before the retailer refuses to accept the return? Is it 7, 14 or 28 days? Obviously from the customer perspective the longer the better, from the retailer the reverse is true. This is seen as a particularly significant point for high return fashion items. All felt that returns are becoming a pressing point for differentiation in this very competitive retail market. Indeed, in many businesses, returns are built into business model. Returns are also seen as a barrier to international trade.


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4.5 Delivery Mind-Map


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5 PERFECT WORLD

One of the groups was invited to visualize the perfect e-commerce experience. If all things were possible, they were asked to paint a picture of the “perfect world” as far as the shopper and the retailer are concerned.

5.1 Shopper Perspective

All delivery options would be offered to the customer in terms of location, time, frequency and all would be free of charge. It seems a paradoxical challenge to offer a complete range of options for the shopper whilst keeping the experience simple. The more choices offered to the customer, the more challenging it is to communicate these choices in an efficient, easy to understand way.

5.2 Last Mile

Locker boxes such as “Parcel Motel” in Ireland were seen as very attractive 24hr options, however, many in the group felt that they still remain low profile and as a channel option under-utilised in the UK but in other markets - such as China and Germany - they have much greater prominence.

5.3 Same Day Delivery

“Instant gratification” is seen as a growing phenomenon for “time poor, cash rich” consumers, the example of Shutl’s recent acquisition by eBay was cited. Again inventory or stock visibility is absolutely essential in terms of having a delighted customer at the end of the transaction. Another example of same day was City Sprint case study at a Brighton shopping centre. Shoppers could hand over purchased items at the concierge desk for same day delivery by City Sprint. Whilst currently not offered to online shoppers in Brighton all felt it could be easily extended to include online click, local pick from store and City Sprint delivery to home. Environmental impact with regard to Click and Collect versus delivery to home was unclear. Some felt that home delivery is more efficient and others believed that if you were passing the store/parcel shop it would be more efficient, and have a less negative impact on the environment, to collect from store. One of the ultimate aspirational targets would be to offer the customer (at the time of purchase) the option to express the exact day, time and location of the delivery. This utopian position requires seamless integration of all IT related systems and could have a trade-off situation with the parcel companies in terms of optimizing their fleet management. In other words, perhaps only maximum 20% of deliveries can be open to this completely flexible high-end service otherwise efficiency will be compromised too much.


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5.4 Perfect world Mind-Map


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6 DAI SUPPLY CHAIN SOLUTIONS


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Documents

DAI In-Store Fulfilment and Click & Collect - Key Report