The Distribution Revolution
Why the retail supply chain
must evolve to succeed
▸▸ An Aptos White Paper
▸▸ An Aptos White Paper
The Distribution Revolution
Contents
The digital consumer and the evolving supply chain3
The Final Mile – Introducing a central management strategy4
Deliver or be damned4
What can we learn from supply chains present and past? 5
Perfecting the final mile6
Returns: Reduce and drive in-store
7
Stock management and the rise of omni-channel
8
Advisory 9
About Aptos10
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The Distribution Revolution
The digital consumer and the evolving supply chain
In today’s connected world, consumers are more demanding than ever. The digital age is seeing
customers expecting to browse, purchase and return however and whenever they want. We are
seeing the demise of 9am-5pm siloes and the introduction of a 24/7 landscape. A customer can
make a purchase and expect to receive their order within hours, either to their home or work address
or to be collected in-store depending on what’s convenient for them. There is a need for immediacy
that wasn’t there before. With the customer experience now at the heart of retailing strategy, it is up
to retailers to look ahead in order to keep up with demand and predict where customer expectations
are heading.
All of these trends introduce complexities to the retailer’s supply chain, as the need for speed affects
deliveries, returns and stock management. According to the Connected Commerce Survey carried
out by DigitasLBi, shopper use, on average, five connected devices each, from online to smartphones
to wearables. These multiple channels mean retailers must create and implement supply chains that
provide the necessary visibility across all channels and across all stages of the shopping experience.
The challenge is how to introduce new strategies when the market is already moving at lightning
speed. To achieve this, retailers must move from hindsight to insight and, ultimately, foresight. If not,
they risk falling behind and being overlooked by customers. However, with the supply chain’s complex
internal and external links, how can retailers hope to maintain control over all aspects?
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The Distribution Revolution
The Final Mile – Introducing a central management strategy
In its supply chain predictions for 2016, International Data Corporation (IDC) predicted that by the
end of 2018, 25% of manufacturers will have implemented “a logistics strategy” that could involve
splitting larger warehouses into smaller, regional centres to support “a more distributed inventory
management strategy”. The purpose of this strategy is to formulate a more forward-thinking, evenly
distributed network to drive quick, efficient deliveries and responsiveness into the supply chain.
Essentially, retailers could transform into a series of mini networks across the UK to fulfil consumer
demand more quickly and with greater margins.
This idea demonstrates the necessity for businesses to hone in on the supply chain and the various
stages involved in stock, deliveries and returns in order to create the most efficient and accurate
chain possible in order to keep up with the pressures of consumer demand.
We all recognise that customer expectations have accelerated. Today and in the future, with delivery
prices under scrutiny, retailers must have visibility and control over their supply chain. The final mile
(the product actually being delivered into the customer’s hands) is out of the business’ control, yet
retailers must still create an end-to-end delivery system, with stock, distribution and delivery being
managed centrally. With companies like Amazon paving the way into innovative, almost futuristic
delivery schemes, how can competitors keep up?
Deliver or be damned
The disruptive impact of ecommerce has affected the supply chain hugely and today, consumers
want and expect fast, efficient delivery at a low price. Yet as delivery prices inevitably rise with the
price of petrol, retailers need tools that allow them to offer the cheapest price for consumers without
overly compromising staff.
Currently, businesses are struggling to keep the cost of delivery at a low enough price to satisfy
the customer, meaning they lose out on online sales to competitors who can offer cheaper,
quicker delivery.
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The Distribution Revolution
What can we learn from supply chains present and past?
Companies such as Deliveroo and Uber Eats are already seeing staff strikes
over pay. Currently, outsourcing is decreasing profits and therefore increasing
pressure on workers, meaning couriers are struggling. The history of CityLink
and its journey into administration provides a thought-provoking insight into
why the traditional supply chain is in desperate need of updating in line with
rapidly-changing consumer expectations. The dramatic rise in demand for
delivery requires easily-scalable infrastructures and the constant changes in
delivery times and preferences can only be accommodated with quick, efficient
communication between all parties within the supply chain. It is therefore crucial
for retailers to understand the importance of nurturing strong relations between
each link in the chain. Creating an excellent delivery framework is the place to
start in order to be able to offer a competitive, yet sustainable service.
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The Distribution Revolution
Over the last year alone, we have seen a huge number of delivery innovations coming to the
foreground, marking retailers’ attempts to keep up with consumers and to offer the quickest delivery
on the market. Amazon Flex is a demonstration of how the organisation is investing in its supply
chain and its implementation highlights the fact that maintaining current, traditional supply chains
is not good enough.
Amazon’s decision to introduce crowdsourcing into its supply chain, where customers can effectively
become delivery partners, puts increased strain on the courier business. The same can be said for
Uber’s strategy – if anyone can become a driver then other taxi firms will struggle, as will drivers who
earn a living working for them. The fact is, with more and more consumer demand, retailers must
offer more and more options, thereby creating more and more competition in the market.
When it comes to fulfilment, it is vital for retailers to deliver a consistent brand experience across the
entire process. While a retailer is unable to micro-manage the last mile of the delivery journey, what
it is within their power to control, is to centrally manage as many aspects as possible, decreasing the
potential for errors. For example, ensuring website information is accurate and up-to-date, offering
more order options (such as shipping from the store) and making sure stock availability is consistent
across multiple channels. These are all ways of making sure the right product goes to the right person
at the time they are expecting.
Perfecting the final mile
The last mile is a tricky final stage in the delivery process. One example of how retailers can maintain
brand control even in the final mile is via delivery aggregators, such as MetaPack, where businesses
can select the most relevant courier for each individual job according to the nature of product, location
and service required.
The introduction of Click and Collect has been a game changer in the supply chain, allowing retailers to
capitalise on their strong physical presence. A second emerging trend coming out of Click and Collect
is the employment of parcel lockers which are becoming more and more popular with customers and
businesses across various markets. Recently we saw Barclays begin offering this option, capitalising
on the opportunity to drive footfall into their branches. In September of last year, Morrisons and
Amazon struck a deal allowing customers to pick up online purchases in their local Morrisons – a clear
demonstration of how retailers can fulfil delivery demands through mutually beneficial partnerships.
This strategy will really start to take hold in the next 18 months. We predict further partnerships
coming to the foreground, with parcel lockers appearing in more banks as well as pubs and other
convenient stop-off locations across the UK.
Another potential strategy is for retailers to partner with delivery services, for example Asda and
Collect Plus. Recently, Halfords became the launch partner for DPD’s PickUp parcel shop network.
This business strategy means stores without a strong physical presence can team up with larger
stores to offer a pick-up service. This provides a solution for retailers struggling to fulfil an influx of
home delivery orders and drives footfall into large stores to increase their sales.
We have also started to see the introduction of more drive-through collection points, for the ultimate
customer convenience. Again, retailers with a physical presence can benefit from this, creating a
means of delivery that offers yet another option to fit into the consumer’s busy lifestyle. The additional
benefit is of course that it provides the retailer with greater control over the supply chain, from start
to finish.
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The Distribution Revolution
Returns: Reduce and drive in-store
Returns are the bane of retail, largely due to the heavy costs involved with delivering products back
and forth, as well as consumers’ habit of over ordering on the premise that they can easily return
products at no extra charge.
To mitigate the inevitable losses this brings, retailers must work to minimise the impact of returns.
There is a greater need for more innovative technology when it comes to ecommerce. The first
area to look at is the functionality of websites – ensuring information is accurate and that images
are high quality.
More recent technology, such as digital size guides and virtual changing rooms are also hugely
advantageous in that they can help reduce the problem of customers ordering multiple sizes and
returning those that don’t fit. The use of VR and augmented reality tools allow the consumer to see
products superimposed on themselves. These can then be shared with contacts and via social
media, creating greater engagement between ecommerce shoppers. Decisions are more informed
and therefore more final. This engagement makes returns less likely and also increases sales.
PwC’s 2016 consumer survey revealed that 61% of shoppers need to try on an item or see it in person
before buying it, demonstrating that the customer perceptions and habits are often still driven by
physical sales.
Another strategy is to drive returns in-store which has the additional advantage of increasing footfall.
It’s important to remember that returns are inconvenient for the customer as well as the retailer. In
fact, (according to Econsultancy), 62% of shoppers are more likely to purchase online if they can return
the item in-store.
A key concept for retailers to grasp at this stage is bridging the divide between stores’ digital and
physical presence. What retailers sometimes see as a war is in fact an alliance. Whilst ecommerce
has grown rapidly, it will eventually plateau, and with only 10% - 15% of purchases happening online in
today’s market, the physical store must remain a priority. Businesses need to be consistently investing
both in website functionality and in their bricks-and-mortar counterparts. The end goal is a mutually
supportive relationship between physical and digital and it is this relationship that can help drive down
returns and drive up profitability.
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The Distribution Revolution
Stock management and the rise of omni-channel
The digital age has, unsurprisingly, had an enormous impact on consumer shopping trends. With
multiple channels available to the everyday customer (online, mobile, wearables), consumers are
traversing between them for browsing, purchasing, collecting and returning. With multiple channels
comes multiple streams of interaction and a key area affected by this is stock management.
The challenge for retailers is ensuring they provide accurate stock availability that is consistent across
all channels. For example, one shopper may order the last product available on their smartphone. Any
delay in communicating this to a different shopper browsing the same product online could result in
delivery failures and, ultimately, customer disappointment.
The key is to invest in order systems that provide a single, real time view of orders across multiple
channels. Modern enterprise order management solutions that combine real-time inventory with order
brokering rules allow orders to be processed via the same system to create a more accurate view
of store inventory. The main advantage of this is that it mitigates stock errors and allows for greater
efficiency across various channels. Again, central management is of primary importance across all
areas of the supply chain, particularly when it comes to an omni-channel strategy.
The rise in mobile shopping also offers retailers a crucial advantage when it comes to stock
management: the scope for greater consumer data and therefore visibility into what, where and
how stock is being sold across regions. A key strategy for capitalising on this potential is to
pre-empt customer demand and move stock to the correct area accordingly, creating regional
“mini-warehouses” thanks to the benefits of a single, real-time stock management system. This is
especially beneficial for pre-empting deliveries during peak shopping periods, such as Black Friday,
Cyber Monday and the build-up to Christmas, where foresight is the key to success.
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For the retailer, multiple channels mean
multiple options and multiple order streams.
For the customer however, multiple channels
all come back to one result: the product in
their hands. To create a seamless experience
across channels, retailers must aim for a
single-customer view, particularly when it
comes to stock visibility. An omni-channel
outlook eliminates availability inconsistencies
and offers retailers the gift of foresight.
With 90% of purchases still being made
in-store, retailers’ physical and digital
counterparts should work alongside each
other. By pushing collection and returns
in-store, retailers can increase footfall and
regain control over their supply chain.
The Distribution Revolution
The delivery process from order
to fulfilment is a complex chain of
internal and external partners all
of whom must communicate to
work efficiently and minimise error.
Retailers must hone in on each
element individually to gain as much
control as possible. Whilst there
are many third parties involved in
deliveries, the retailer will always be
to blame if anything goes wrong.
With technology’s increasingly
sophisticated capabilities, retailers
can combat the need for customers to
physically see products before making
a purchase. The implementation
of virtual changing rooms and
augmented reality tools can enhance
the ecommerce experience and
minimise returns and losses.
Don’t forget the final mile: the customer journey
does not end once an item has been purchased
and it is after this point that the supply chain gets
especially tricky. The stretch from warehouse to
the customer (wherever they may be) requires
external parties and circumstances and retailers
should do as much as they can to bring the
control back to them. This can be done through
Click and Collect, delivery lockers, mutually
beneficial partnerships and even drive-through
collection points.
To ease the pressure of deliveries
and returns, consider offering Click
and Collect, partnering with other
retailers to create delivery lockers
or even branching out into drivethrough collection points.
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The Distribution Revolution
About Aptos
Aptos: Engaging Customers Differently
In an era of virtually limitless choice, sustained competitive advantage only comes to retailers who
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buy. At Aptos, we too, believe that engaging customers differently is critical to our success. We are
committed to a deep understanding of each of our clients, to fulfilling their needs with the retail
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on tangible value and trust. More than 500 retail brands rely upon our Singular Commerce platform
to deliver every shopper a personalized, empowered and seamless experience… no matter when,
where or how they shop.
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More information on Aptos is available at: [email protected] and www.aptos.com.
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