The e-grocery market is a great illustration of the new challenges for retailers and logistics service providers, which are caused by changing consumer expectations. Seamless and consistent shopping with the same, convenient service levels, not only online or offline but across all channels and devices – the so-called omni-channel retailing – is what consumers nowadays request. Alongside complete visibility, the holistic view of the consumers’ path to purchase is required from the supply chain side.
Even though bricks-and-mortar sales are still dominant and generate 93% of revenues this figure is expected to decrease to 81% within the next five years as online growth outpaces bricks-and-mortar sales growth. One reason for this is consumers that can use all available channels for shopping online and offline are on average spending double of what pure offline consumers spend in stores.
Despite the increasing importance of omni-channel sales, a recent survey amongst 42 leading supply chain executives from the consumer goods and retail industry by EY came to the result that more than 80% of the survey’s participants do not think their supply chains are fit for that purpose; even though 97% of the survey’s supply chain executives think omni-channel is important.
In addition to the aforementioned higher average spending, the survey’s respondents also see strengthened consumer loyalty (95%), improved consumer insight (84%) and increased sales (79%) as some of the main benefits of omni-channel retailing.
For companies that want to capitalize on these possible benefits, it is imperative to avoid margin dilution and transform their logistics towards an efficient, agile and responsive supply chain that enables consistent service levels across all retail channels in order to make omni-channel retailing beneficial for consumers and companies alike.
While there are some challenges for the transformation, such as the high level of investment that is required for dedicated resources and capabilities or the challenge of dealing with increasing complexity as well as the often lacking support of senior leadership, re-engineering the supply chain to make omni-channel profitable is inevitable as standard solutions based on the assumption of a very stable, high-volume demand instead of acknowledging the increasing pace and fluctuations of the industry might leave a company behind and exposed for competitors.
End-to-end thinking will become crucial as the supply chains become more complex. But the added complexity must also add value and align with the consumers’ needs.
Finding the right balance of efficiency and agility will be one of the main challenges when designing omni-channel supply chains. It will be a lot about understanding consumer demands and adapting the supply chains accordingly to stay cost efficient while being able to predict and adjust to volatile demand as well as changing consumer behaviour. Knowing the consumer will be an even more valuable asset than it is currently.
With more consumers using the web to shop and leaving a trail of information behind, the data available for companies on the consumers’ purchasing behaviour is substantially increasing. Combining this with data from other channels to have a holistic picture is what the consumers expect. Proper utilization of such data will lead to significant advantages and give companies an edge over others. Additional usage of real-time data will enable even more accurate demand predictions.
Synchronization and sharing of available data, such as timely notifications on discontinued product lines or retailers sharing end-consumer sales and demand forecasts by channel, will increase in importance and enable smoother and more predictive production processes.
Seamless data visibility along the supply chain as well as the close collaboration of manufacturers and retailers are becoming a necessity to make use of enhanced IT capabilities, big data, improved forecasting and demand sensing.
These developments will, in the end, lead to consumer-centric demand chains instead of production-led supply chains and cause lower inventory levels as inventory is substituted by information, predicts a Jones Lang LaSalle study. Consequentially logistics facilities would be used less for holding stock and more for handling the rapid throughput.
In order to successfully adapt and configure the supply chain for current and future challenges, it is more important than ever to focus on current trends and take industry leaders as a benchmark. For the re-design of supply chains, possibilities such as predictive deliveries are already being discussed, as the industry leaders are constantly monitoring future economic conditions, which are shaped by technological and social developments just as much as by competitors. The overall goal is to increase the resilience of supply chains with dynamic, flexible designs, which are able to thrive even under uncertain economic conditions in a complex, globalized world with changing markets in which developing countries become more attractive as parts of global supply chains.
Further necessities for a successful supply chain strategy are the embedding into the overall company strategy as well as the combination of the omni-channel and the traditional supply chain strategy as their synergy is crucial for responsive and agile supply chains.
Lastly, companies will have to implement powerful IT system capabilities for the handling of big data as well as close cooperation with key partners to ensure seamless visibility along all parts of the supply chain, from sourcing to final delivery.
Sources:
Ernst & Young, (2015). Re-engineering the supply chain for the omni-channel of tomorrow. [online] Ernst & Young. Available at: http://www.ey.com/Publication/vwLUAssets/EY-re-engineering-the-supply-chain-for-the-omni-channel-of-tomorrow/$FILE/EY-re-engineering-the-supply-chain-for-the-omni-channel-of-tomorrow.pdf [Accessed 22 Oct. 2017].
Jones Lang LaSalle, (2016). The New Industrial (R)evolution: From Supply Chain To Consumer-Centric Demand Chains. Jones Lang LaSalle.
Malik, Y., Niemeyer, A. and Ruwadi, B. (2011). Building the supply chain of the future. [online] McKinsey & Company. Available at: http://www.mckinsey.com/business-functions/operations/our-insights/building-the-supply-chain-of-the-future [Accessed 22 Oct. 2017].
Hello Keno,
In your post you mention that shoppers spend more online than offline, is this true for shoppers in general or for grocery shoppers? I would expect spending to be higher offline, since grocery stores meet the cravings of customers: if you walk in the store and you’re hungry, you buy way too much! This is a great source of revenues for offline retailers and I think this would be a lot less online, mainly because you don’t receive your products directly. What is your opinion?