Brave New Retail World
Key to survival in the embattled retail sector is a network of new supply lines, data management and e-commerce.
With retail revenues flat, the cost of competing in the area with the most promise — e-commerce — continues to go up, says Brian Gibson, director of the Center for Supply Chain Innovation at Auburn University.
Brian Gibson is an expert on how your online Christmas gift order makes it through an increasingly complex network to reach its destination. And if it doesn’t fit, how it is returned through the system without bankrupting the system’s owner.
The network is the supply chain. It is not a new concept, but it is new every day when it comes to the system that includes online retail — the most complex form of which is now called “omnichannel marketing.”
Gibson is the Wilson Family Professor of Supply Chain Management at Auburn University’s Harbert College of Business. He is also executive director of Auburn’s Center for Supply Chain Innovation, for which he recently co-authored the 6th annual State of the Retail Supply Chain report.
We talked with him about some of the trends and findings from that study, but first we asked him about the state of the retail economy in general. Then we asked him to define omnichannel marketing and how it differs from an earlier concept of multichannel marketing.
It’s been a tough (retail) environment for the most part the last four to five years. In-store sales have been fairly flat, and they’ve really had to bite the bullet and make investments in e-commerce, where the growth opportunities are. That’s where the Wal-Marts and Home Depots and Best Buys are putting a lot of their effort and money — into these capabilities, which really drive revenues today. Target and Wal-Mart have been investing billions of dollars in the last few years and the next few years. They have examined the capabilities and are competing directly with Amazon.
A multichannel retailer moves through different means. The primary forms are mail order, internet, over the phone and a traditional retail store. An omnichannel retailer takes that to the next level. Instead of three to four different ways customers work with you and all operated separately, omnichannel builds them all together. They leverage their inventory across all those channels. One inventory and one technology system, and, if I am a customer and placing my order online, it may come out of a distribution center or it may come from a store, or, if it’s a big item, from one of their suppliers. As a customer getting all the offerings, you don’t know or care where the order is fulfilled.
As the retailer, now you’re trying to do demand planning across different channels — internet, customer support and commercial. Not only what and how much but also where they are going to buy it, having the inventory in the right location. Not having all the products at a store or fulfillment center. You’re trying to get as much information as you can, trying to be more granular in your planning. It’s not just a matter of having so many dollars worth of Legos but how much Legos at what store. It’s very granular and very integrated in the demand planning that allows you to manage inventory across channels.
Amazon is definitely the pacesetter. They set the standards for omnichannel capability: speed of fulfillment and delivery, visibility, communication with the customers and leveraging of the supply chain using service suppliers, such as Fed Ex or UPS or the Postal Service. To keep up with Amazon, everyone out there is rapidly working toward two- or three-day fulfillment for their customers. It’s not good enough any more for a customer to place an order and just wait patiently. They have an “I want it now” attitude.
You have to have the technology on the front end for the customer to place orders, plus fulfillment capabilities and a delivery presence. If you don’t plan out those additional steps involved, you may get the business, but it won’t be profitable. The cost to deliver the goods to the customer has to be built into the product price, or you charge the customer for those value-added services. The retailers will have to figure out how to monetize these services that they are providing. Otherwise, it will be difficult for them to remain profitable. The challenge is: They’ve given customers these services for so long, it has become an expectation as opposed to a benefit.
Order returns are a hurdle that retailers have always had, but it’s growing because of e-commerce. Most retailers have in-store sales returns of 10 out of 100, but that jumps to 30 out of 100 for e-commerce sales. There is much more product coming back, and it comes back to different locations — the store, the distribution center, or the returns processing center. Most retailers are focusing on building the fulfillment capabilities and haven’t had a lot of time and money to spend on the returns process. But it’s getting so big they can’t ignore it anymore.
You have to have the skills of people who can analyze what you’ve got in returns of past sales expected, sales from social media data. A lot of those demand planning activities move away from the traditional buyer to a group that decides what to purchase. It used to be a very powerful position, the buyer — that power over what to buy and where to put it. Now those decisions are being handed off to a planning or supply chain group, because they have more expertise across a wider range.
We’re giving students the skills to do data mining and analytics and not only to collect and look at the data but to do some diagnosis with the data and manage forward instead of looking in the rearview mirror. The demand is very strong. A lot of companies are looking for supply chain analysts, and the salaries go from $50,000 to $65,000 a year.
Companies have to take the time to invest in their people, to train people, even if you’re talking about fulfillment in a distribution center. You have to train them according to your needs and your customers and your process. Some organizations are trying to automate the process as much as they can, but it’s very expensive to do. The technology is out there for warehouse automation and fulfillment, but it takes time to implement, and you’ve got to go through the testing.
Employees have to be comfortable with technology and be fast and capable of solving problems, because they are the folks who are your eyes and ears on the floor, and if they do well, they can prevent errors. So there is definitely a need for talent and training to take care of those people, and a fulfillment center is not an easy job.
What are some of the major trends to look for in the future? I think a few things are obvious. More automation will be involved. And that focuses on care of customer demands for faster speed. Processing more quickly, serving customers where and when they want the product.
Chris McFadyen is the editorial director of Business Alabama.