In the digital age every one of the retail supply chain’s functions—from
procurement to execution—directly impacts the customer experience.
And that makes supply chains key to securing customer loyalty and driving
profitable long-term growth.
Yet, despite rapidly rising customer expectations Revealing the unknown
and mounting levels of uncertainty around
Accenture research confirms that execution is a
them, the supply chain remains most traditional
critical factor in securing the customer loyalty
retailers’ weakest link: lacking the insight to
that drives growth. 59 percent of shoppers say
anticipate change, and the agility to respond
better subscription program. While 22 percent
Continuing to operate with a traditional
supply chain just isn’t viable. It could kill
customer loyalty, drain away profits and
damage long-term growth. It might even put
some companies out of business altogether. But
most retailers still don’t appreciate the urgency
of the supply chain transformation challenge.
boost their loyalty.1
But, although the same research shows that
28 percent of shoppers want next-day delivery
and 24 percent demand a same-day service,
former, and far fewer (15 percent) are capable
True, retailers have invested in digital innovations of ensuring the latter. Even the click-and-collect
designed to deliver the swifter, more seamless
services that 25 percent of shoppers say they
service today’s customers demand. But these
use more often than they did a year ago are
are costly. Accenture analysis shows that the
increased logistics costs associated with online
That’s hardly surprising, considering the cost
of click-and-collect. For most retailers, these
the operating margin of a retailer with a 10
percent higher cost-to-serve. With market
items in store, rather than selling. Collection
trends indicating that logistics costs are set to
areas, moreover, can consume valuable store
sales space. Indeed, the situation clearly shows
margin hit as they scale their online services.
how simply investing in new capabilities and
None of this has to happen. Instead of the
running a higher-cost supply chain can be a
tactical approach to supply chain transformation money-losing proposition for many players.
that most retailers have adopted, they could
take a more strategic view, enabled by scenario
planning, a more agile supply chain, and hybrid
fulfillment models.
Such an approach would not only boost
customer loyalty. It would also help realize the
supply chain’s potential as a growth driver.
Here’s how.
2
By leveraging scenario planning, however,
retailers could develop capabilities with the right
breadth, depth and timing (at the right cost) as
consumer behavior evolves. Scenario planning is
especially useful in highly uncertain situations
because it gives retailers insight into the
unknown. It enables retailers to engage in “what
if?” simulations, and work out the consequences
across the entire supply chain. Done right, it
can also help justify the huge investments that
retailers are making in improving supply chain
performance by targeting those investments
teams have both full accountability and
the right competencies to handle a diverse
set of circumstances, as well as the ability
to distinguish between everyday and more
strategic decisions. They should be investing
in analytics and data to give supply chain
managers deeper and fuller insights. Retailers
should also arm their suppliers, customers and
partners with the resources, information and
tools they need to take decisive action. And a
culture attuned to making critical decisions at
speed would help harmonize the actions of
all stakeholders.
Consider, for example, the retail dilemma over
“fast and free” ecommerce shipments. Few
would dispute the need for some sort of “free”
shipment, but the debate over “how fast” and
“how free” is a heated one. What’s needed
to enable “free same-day/next-day shipping
By measuring results, retailers will be able to
course-correct quickly. Case in point: a leading
consumer electronics retailer that recognized
the need for more flexibility in its fulfillment
capabilities. The retailer knew that more
level inventory was the key to getting closer to
consumers—and that it needed to move fast.
Thanks to the right governance structure, a
clear change imperative, and a tenacious will,
this retailer enabled “click and collect” and “ship
from store” across most of its national fleet in
just one season.
cost, scale and capabilities to what’s required
for “free two-day shipping on all orders over
$50”. Scenario planning, however, would allow
retailers to understand the implications of
both in full: the commonality and inherent
uncertainty of the various end-states. And
this, in turn, would allow them to construct
lower risk roadmaps and investment plans. In
short, retailers would have considerably more
confidence in their ability to execute on
their plans.
Hybrid fulfillment
Tailored and expanded assortments across
multiple formats and channels from multiple
points of origin and at multiple delivery
speeds: today’s consumers want all this,
and more. Eighty-nine percent want to be
able to order out-of-stock items for home
delivery, for example. While 63 percent think
that consolidating orders into one delivery is
important. And more than one in four reckon
that the ability to check product availability
across channels would best enhance the
seamless shopping experience.2
Agility and speed
Of course, all the scenario-planning insights
retailer can adjust its supply chain operations
fast enough to respond to new situations.
Which is why retailers also need to focus on
improving the agility of their supply chains.
Accenture experience suggests that supply
chain agility hinges on the right mix of good
governance and targeted investments. Retailers
need to ensure that all their management
3
Strengthening the link
But as online businesses scale, fulfillment
services need to be flawlessly executed. If
A strategic approach to retail supply chain
transformation—leveraging the insights of
scenario planning, as well as building agile
supply chains and hybrid fulfillment models—
would help turn a weak link into a remarkably
strong one. But where do you begin?
analysis indicates that a loss of market share of
just 5 percent—a realistic scenario in an era of
slow growth and aggressive competition—could
pull earnings before interest and taxes (EBIT)
down by at least 25-30 percent (see Figure 1).
Start by asking yourself the following,
critical questions:
Figure 1.
A 5% market share shift could
pull EBIT margins down by 25%
Before
Sales
Cost of Goods Sold
Gross Margin
Fixed Costs
EBIT Margin
After Impact
100
95
75 71.25
25 23.75
20.1
20.1
4.9%
• Do I have a clear view of what my customers
want in terms of supply chain capabilities,
now and in the future?
-5%
-5%
• Do I have a clear plan to address those
requirements?
-
• If I had to materially re-configure large
portions of my supply chain could I analyze,
plan and accomplish it in a matter of months?
3.6% -26%
Source: Accenture analysis
• Is an “any product, from any location to
Because they’re linear and static, traditional
supply chains simply can’t handle all of today’s
fulfillment challenges. So retailers need to
develop and optimize segmented, hybrid
fulfillment models that can deliver any
product to any customer from any location,
supply chain?
One leading US-based department store, for
example, has fully optimized its store fleet
and turned its online presence into a true,
omni-channel experience. As a result, the
department store has complete visibility into its
entire inventory across all of its channels, and
can thus determine which fulfillment options are
possible and which will maximize both customer
satisfaction and its own margins. In a recent
mystery shop, this retailer fulfilled a last minute,
late-season, multi-unit order by sweeping the
last units of inventory from multiple stores.
The consumer received all units of the product
at the right price and at the right time, while
the retailer was able to maximize its margin by
clearing out store inventory without resorting
to markdowns.
4
If the answer to any of the above is “no”, you
need to act now to cope with the fundamental
changes sweeping the retail landscape. The
methods of the past will only take you so far.
They must now coexist with new realities—
especially the need for full inventory visibility
and the escalating demand for flexible fulfillment.
By starting with the customer, embracing the
need for speed, and adopting a bold approach
to discovering how new supply chain models
and paradigms can help improve the customer
experience, you can become a winner. The
future is, of course, uncertain. The time to
start preparing for it, however, is now.