How retail can design end-to-end logistic solutions to seize opportunity

What a difference a year makes. Retail has always been a competitive industry, necessitated by the ever-evolving macro landscape. Even before the covid-19 pandemic reshaped our world, leaders were poised for change.

Executives debated how the US-China trade war, changing consumer habits and the requirements of sustainability would transform the industry. “This time last year, the biggest challenge retailers faced was the channel shift as consumers moved from buying in store to purchasing online,” says Pierre Mercier, global leader of Boston Consulting Group’s retail supply chain practice.

The pandemic has upended supply chains. Demand for some goods, such as clothing, has plummeted in the face of global lockdowns. At the same time, demand for others - from personal protective equipment (PPE) to flour and toilet rolls—has gone through the roof.

“The pace of change is fast, meaning the time to evaluate costs and risks is limited,” says Joern Taubert, CEO of Greek retailer PMM. He believes that effective supply chains are crucial to ongoing success, and as a result the company works continuously to optimise and improve its own.

Connecting data streams

A central challenge for retailers, according to Mr Mercier, is harnessing the value of data. “Advanced retailers that leverage ‘fresh’ customer data and advanced analytics to understand what consumers want will be in a much better position to make the right choices than traditional retailers that rely on human judgment and outdated data,” he says.

“It can help them to understand what shoppers want, connect with customers, determine the right price points and manage supply chains—how much of a particular product to buy and where to deploy it, in-store or online—to generate the maximum margin and not be left with excess inventory.” Retailers are increasingly using data to carry out “demand sensing” that enables them to react to short-term changes in demand and ensure they have the right amount of stock available. But to get the most out of this process, they need to know what is going on in their supply chains, says David Newton, vice-president and head of North America retail at Maersk.

“Having supply chain visibility is crucial so retailers can see where their cargo is and take steps to speed up or slow down delivery as necessary.”

The shift to online means that supply chains need to be much more nimble and agile than in the past, says Mr Newton. “We used to consolidate goods in a container, load it on a ship, deliver it and unload. Now demand has become much more granular so we need to be able to control that at any point along the supply chain.”

The retailer needs a supply chain that not only delivers very quickly but also has the ability to respond to the customer that doesn’t want the product or who buys three items and returns two.

“When the pandemic appeared, we were able to switch very quickly from shipping PPE in ocean containers to putting it on planes to speed up deliveries. Because we handle everything from inland logistics to the port to shipping and putting it on a truck at the other end, we have more visibility and control over goods in the supply chain,” he adds.

By demand

This tied in with what was already happening thanks to the rise of e-commerce. “E-tailers don’t really own the products they sell,” Mr Newton points out. “The maker owns it and the demand signal becomes the driver in the relationship. That means that online retailers are deploying capital not into inventory but into the ability to sense demand. This enables manufacturers to produce on a just-in-time basis. Because of the data flows that are now happening, they have much more confidence in their demand.”

If retailers do not have robust end-to-end supply chain infrastructure and planning, it could come at serious cost to the business, Mr Taubert points out. “At PMM we are investing in supply-chain warehouse, planning and control software solutions to ensure we can respond to change quickly without unforeseen costs or issues later on.”

The pandemic has exposed the need for flexibility and resilience. “There was an obvious shift from physical stores to online as stores had to close during the early stages of lockdown,” says Mr Taubert. “Fortunately, we were well set up to handle this shift. We managed to pivot from omnichannel to pure e-commerce in just 14 days.”

In the UK, the online business of supermarket chain Tesco almost doubled when lockdown was imposed. In response, the company ramped up its online capacity from around 600,000 delivery slots to 1.3m in around five weeks. Earlier this year, the retailer’s outgoing CEO Dave Lewis told investors: “Over the past three months, our industry has changed beyond imagination. The changes we have seen in recent years will only accelerate.”

Recent technological advances include not just an increased focus on online shopping but also the processing of orders in new “urban fulfilment centres” rather than stores and possibly even drone deliveries (currently being tested in Ireland).

Value chains

Harnessing technological advances will be essential to the smooth running of the retail operation of the future, Mr Newton stresses. He highlights the case of a major sports apparel company that was unable to sell everything it had ordered when the lockdown hit.

“We created a flexible hub for them just outside Singapore and held their containers in one location. As demand picked up, we moved a container that was originally destined for the US to Germany, helping the customer to redirect goods as demand came back online. Being able to manage the supply chain all the way back to the factory door gives our retail customers resilience they didn’t even know they had.”

Unlocking efficiencies and enabling agility and resilience will require greater adoption of emerging technologies and better use of data, agrees Mr Taubert. “In the supply chains of the future we expect to see a widespread use of real-time data across the entire value chain, which will result in better resource allocation and transparency. This data will also allow us to make accurate predictions and forecasts for customer propositions. Further adoption of technologies such as automation and “smart” warehouses that align with the Internet of Things will further improve value chains, creating cost efficiencies and allowing us to fulfil orders even faster.”

Retail resilience

As the retail industry hurtles into the digital future, spurred on by shifts in technology, consumer behaviour and trade environments alongside the ongoing pandemic, the need for end-to-end solutions is clear. Having the right data—not just about customers but also the supply chain—is the starting point for having greater control over your operations.

It enables a truly integrated, end-to-end logistics chain that starts at the factory gate and ends at the shop floor. End-to-end logistics that includes trucking, ports, shipping, rail and air freight—as well as flexible storage hubs to store goods until they are needed—allows companies to respond flexibly to disruptions by speeding up or slowing down as required to respond to changes in demand and capitalise on emerging opportunities.

The pace of change is fast, meaning the time to evaluate costs and risks is limited.

Joern Taubert
CEO of Greek retailer PMM

Disclaimer:

Produced by (E) BrandConnect, a commercial division of The Economist Group, which operates separately from the editorial staffs of The Economist and The Economist Intelligence Unit. Neither (E) BrandConnect nor its affiliates accept any responsibility or liability for reliance by any party on this content.

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