agenda - welcome to descartes · pdf file2 october 2013 strategies and tactics for...

Agenda

• Introduction – LCP Consulting

• Background – the challenges facing retail boards

• Omni-channel development

• The Omni-channel toolkit

• Questions

October 2013 Strategies and tactics for omni-channel success 2

Introduction

LCP is a leading independent consultancy specialising in commercial

supply chain management – from strategy through to implementation

We work with leading retailers and manufacturers to identify, specify and

implement changes that will enable growth and support better customer

service and lower operating costs

Our head office is in the UK, but we work across Europe and globally

LCP is independent of software suppliers and logistics providers; we

bring objectivity and a broad market understanding

We take a ‘total business’ viewpoint in supply chains:

• End-to-end commercial supply chain management - strategy

• Multi-channel operations – strategy, design and planning

• Operations and physical logistics – design, development and implementation

• Purchasing & supply – process re-design and planning improvement

• Shareholders and investors – plotting a pathway for investment and

realisation October 2013 Strategies and tactics for omni-channel success 3

LCP works with manufacturers, retailers

and service providers…..internationally


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Agenda





• Questions


What’s keeping retail boards awake?

• Continued pressure on consumer spending leading to price pressure as retailers battle to compete

• Rising commodity costs, coupled with environmental and ethical concerns leading to pressure on margins and the need to critically review global sourcing strategies

• Multi / Omni-channel retailing is increasing as technology continues to change the way consumers shop – retails must adapt to compete or die

October 2013 Strategies and tactics for omni-channel success

• The increasing costs of operating stores, changes in consumer behaviours and the growing online opportunity suggest that retailers will need fewer stores in future or will need to re-purpose existing stores

• The search for growth: new channels, new categories, international

7

… as characterised by the dash for cash …


Growth

+

Margin

+ $:£:€

Velocity

+

Return

=

Cash

Show me the

growth because

the performance

will follow!

Find

margin

Increase

responsiveness

Maximise

returns

Release

assets

Release cash

8

Multi-channel retail is about growth

• On-line / multi-channel sales growth ~+15%

• Store sales LFL ~ -5% to +2%

• Have to be there or not in the game in the long term


Growth

+

Margin

+ $:£:€

Velocity

+

Return

=

Cash

Show me the

growth because

the performance

will follow!

Find

margin

Increase

responsiveness

Maximise

returns

Release

assets

Release cash

9

… but beneath this Multi-channel growth curve

lies some major potential hurdles …

1.Low total retail growth

• Must deliver compelling value or erode margin

2. The ‘dash’ for multi-channel growth

• Pure play pricing benchmarks – margin erosive

• Higher cost to fulfil – margin erosive

• More demanding customers – margin erosive

3. Inappropriate assets and capabilities

• Many have high redundancy and poor service economics


… and the implications are scary …


• The gearing effect on total margin is negative

• Flat sales

• Combined with the inexorable growth of alternative channels

• Will leads to significant erosion of net margins

• Is this the elephant in the Retail Boardroom or a burning platform for Omni-channel transformation?

Sales Channel

Net

Margin

Channel

Mix

Sales

(£ m)

Margin

(£ m)

Channel

Mix

Sales

(£ m)

Margin

(£ m)

In Store 10% 80% 400 40 50% 250 25

Click & Collect 7% 10% 50 3.5 25% 125 8.75

Home Delivery 5% 10% 50 2.5 25% 125 6.25

500 9.2% 500 8.0%

Today 5 Years' Time

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Agenda





• Questions


Survey: the Omni-channel revolution


LCP have recently published the results of a survey into Omni-channel retailing

Why did we undertake the survey?

• Few have a clear understanding of Omni and what it means

• To understand the scale of the change and what it entails

• To test how retail boards are embracing the change

Report credentials

• Independent research

• Board level retail executives in the USA and UK

Supplemented by a panel of 4 UK based retail experts

• Graham Barnes (Supply Director Argos)

• David Wild (Former CEO Halfords & Group Supply Chain Director Tesco)

• Dino Rocos (Operations Director, John Lewis Partnership)

• Neil Ashworth (CEO, Collect+)

13

So how do we define Omni-channel?


Multi-channel

Retailing

The development of retail

operations in such a manner

that enables the customer to

transact with the business

(browse, buy, return) through

independently managed

channels, including retail

stores, online stores, mobile

app stores and telephone

sales

Omni-channel

Retailing

A truly integrated approach

across the whole retail

operation that delivers a

seamless response to the

consumer experience

through all available

shopping channels, whether

on mobile internet devices,

computers, in-store, on

television and in catalogues

14

Key findings


• Omni-channel is the new world for retail

• The majority view Omni as the only approach that deliveries a sustainable future for their businesses

• It requires new, flexible, operating models that are aligned to deliver a seamless customer experience, regardless of channel, whilst maximising sales and net margin

• The costs are high

• With total non-food investment in the UK estimated at > £5bn

• Return on that investment is unclear for some

• Current model immaturity means ROI is difficult to measure

• Some are investing in Omni ‘just to compete’

• Others have a clear view of inefficiencies within current multi-channel operations and the need for change

15

Key findings /2


• Fulfilment is still seen as a source of competitive advantage

• Speed of fulfilment remains a perceived differentiator

• However, many are questioning whether customers place greater value on convenience and consistency

• Bricks and Clicks retailers see the strength of maintaining the store at the centre of the customer offer

• Stores will be re-purposed for an omni-channel world

• Optimised assortment

• Highly trained store staff, acting as advisors / sales facilitators – informing customer choices

• Alternative displays consuming less inventory and providing enhanced theatre

• Inter-connectivity with other sales and fulfilment channels

• Click & Collect will deliver the consistency and convenience that home delivery sometimes struggles to achieve

16

Key findings /3


• Delivery will require alignment at board level

• Supply chain functions (Merchandising, Supply Chain, Distribution / Logistics) are critical to delivering omni-channel success

• With IT and Store Operations key enablers

• This is likely to see a re-balancing of board relationships between trading and supply chains functions

• The need to tightly integrate assortment with the channel and customer experience will mean that traditional functional boundaries will become increasingly blurred

• Supply chain professionals will need to become increasingly commercial in their outlook as a result

Regardless of cost, Omni-channel is becoming the ‘need to have’

model for the retail industry

It has almost reached the tipping-point of change or fail

17

Omni-channel creates multiple potential channels


Research the

options and

specifications

Touch

and

feel

Order Buy at

Store / @

Receive /

collect Return

Research Evaluate Buy Receive Return

Press Store visits Price comparisons Via store At store

Social media Friends Web search Home Courier

Web sites Shows @ on line Drop point Collect

Email enquiry Call centre Office

Brochures In store

More than 900 permutations of the choices Client Research – customer combinations during the Buying Process

18

Which means the fulfilment challenges are huge:


Fulfilment routings, speed and timing

• Home delivery

• Drop points

• Store collection

• Return by alternative route

Commercial options

• Reserve and collect

• Pay and collect

• Pay and deliver

• Service charges

Range and choice

• Core range

• Extended range not in store

• Service differences by

category / rate of sale

Physical network

• Stock by location

• Point of fulfilment

• Speed of fulfilment

• Role of suppliers

19

Agenda





• Questions


Omni channel toolkit


Channel

Economics

Optimised Fulfilment

Seamless Returns

Range and Assortment

Planning

Optimised Sourcing

Managing the Basics

So what supply chain capabilities do we need to build in order to deliver in an Omni-channel world?

21

Channel economics


• Many retailers do not explicitly recognise the tension between fulfilment channels

• Omni channel success requires a deep understanding of economics by channel

• Fulfilment cost

• Achieved pricing

• Net vs Gross margin

• This provides a framework for decision making

• Roadmap for short term operational improvements

• Sets the direction for strategic decisions on infrastructure and store footprint

• Assists in decisions regarding inventory planning & positioning for value maximisation

22

Optimised fulfilment


• E-fulfilment operations are not always optimised

• Infrastructure has been adapted from traditional store replenishment models

• Many have chosen to outsource capability

• The focus has been on reducing lead time, not on improving efficiency

• Pure play operators, whilst enjoying rapid growth, have not optimised processes in parallel

• Carrier management remains a challenge

• The Omni channel winners will re-engineer their fulfilment operations to optimise activity across all channels - the industrialisation of the shed delivering best in class operating costs

• Optimisation of receipt, put away, storage, pick, pack and dispatch within fulfilment centres

• 3PL management and performance benchmarking

• Appropriate use of automation

• Productivity improvement at the packing bench

• Packaging optimisation (spec and process)

23

Range and assortment planning


Omni channel models require the optimum positioning of range and inventory within the business in order to maximise net margin and product profitability

Determination of which product characteristics drive inventory positioning

Optimum assortment by channel

Optimum inventory holding / replenishment strategy by Product / Channel

Fulfilment channel hierarchies by product

Home delivery vs Click and Collect vs Store Sales

• Multi-channel retailing has created fragmented sales channels and even more fragmented supply chains

• Bricks and mortar retailers have tended to respond to this by using a multi-channel approach: employing separate and distinct fulfilment operations for each channel

• There are some variants being employed, such as Endless Aisle and Hub and Spoke to attempt to improve stock availability across the chain, but these are not optimised models

24

Seamless returns


• The greater the percentage of sales satisfied via e-fulfilment (Click & Collect and Home Delivery) the greater will be the level of returns

• Returns rates for on-line shopping are typically in the range 20%-50% with some categories peaking much higher, e.g. swimwear

• Many retailers do not understand the pressure that this will place on their businesses

• Catalogue retailers have streamlined processes for returns but others have not

• Those Omni-channel retailers that optimise flows to provide a seamless returns offer to the customer whilst streamlining costs will gain significant competitive advantage

• Flow optimisation

• Rework processes / decision making tools

• Product re-marketing / disposal routes

25

Optimised sourcing


• The dash for gross margin led many retailers to offshore supply to China

• However, labour inflation, the global economic downturn, and retailer demands for reduced replenishment lead times changing this model

• Sourcing from other Asian / developing countries

• Use of Overseas Consolidation Centres (OCCs) to reduce fulfilment lead times and enhance flexibility

• Near sourcing (e.g. Turkey) to capitalise on lead time reductions

• In an Omni channel world, retailers need to develop methodologies to assist in understanding the optimum global sourcing and flow model for their product range

• Net margin / TCO segmentation

• Global inbound flow management

• Including optimised international replenishment flows

• Risk management

• Hedging of demand through dual sourcing

• De-linking of material commitment from manufacturing – delayed configuration

26

Managing the basics


• ‘Retail is Detail’ yet there are a number of fundamental disciplines that some retailers fail to land consistently and effectively

• Omni channel retailers need to deliver optimised performance across the whole business in order to compete

Store stock file management

Managing for Cash

Lifecycle management

Promotional planning

In season management

27

In summary – a new business operating model


Business

Strategy

Define the

operating model

and the changes Design the

building blocks

for the journey Execute the

different

operational

changes

\Board direction and sign-off

The Business Operating Model is the whole of processes and ways of working

that links the business strategy and the execution to drive the commercial results

It defines and links an Operating Vision to Operational & Financial implications

Part of journey from Strategy to practical

and realised change

Frequent mixed

containers

Demand driven

Customers

Overseas

Consolidation

Centres

UK DC network

(operate per product type not channel)

Suppliers

Direct

International franchisees

Products flows

Demand order flows

End-to end supply chain planning, optimisation and inventory management

Integrated Omni-channel assortment management, bottom line focused sourcing & supplier collaboration

Store friendly replenishment

Offer extra services for franchisees

Omni- Channe

l

Consistent service /

experience

Slow

movers

centralised

Stores

Assortment

Direct

International

Logistics

Supply Chain

End-to- … … End

Vendors

Inventory

28

In conclusion …


Omni-channel is key for retail survival in a digital world

Omni needs different set of business capabilities,

strategies and tactics to deliver …

… it requires and drives a fundamental change to the

business operating model

29