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Retailers and logistics consultants consider supply chain strategy in the changing retail landscape

UK retailers are facing a range of challenges and opportunities. Logistics consultants must help their clients to adapt says Gavin Parnell, Director at supply chain consultants Go Supply Chain.

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The retail trade is changing faster than ever before. These changes are occurring across the whole retail spectrum, although the specifics vary. The rise of ecommerce is a major factor, but other changes are also important. Logistics consultants and practitioners are being asked to rethink supply chain strategy accordingly.

Results for Christmas 2013 show that those retailers that have performed best are those that have most effectively adopted the omni-channel approach. This means an integrated customer experience regardless of the transactional channel used. Notable impacts on logistics are:

  • New logistics flows as the customer expects to be able to order on-line or in-store for delivery to home, store or collection point; and to be able to return goods via any of these routes
  • Possibly a reduction in the number of UK stores to be served as retailers look to locate in major shopping centres and key high streets only
  • Questions of where to hold stock (in stores vs in DC, one DC vs multiple DCs by geography or function) and complex questions around stock allocation logic
  • The need to accommodate a long tail of SKUs for ‘Internet only’ purchase (including click and collect)
  • Increased need for singles picking and packing operations, problem of dealing with the residual items
  • Increased importance of store stock accuracy (e.g. for ‘click and reserve’)

Another major factor is the increasingly global nature of retail brands. Traditionally UK retailers looking to expand abroad have worked with partners via joint venture or franchise deals. The international estate has often been served from UK distribution centres.

What has changed recently is the diversity of countries in which retailers are opening. For example the new stores may be in India and China – perhaps closer to the origin of the goods. Retailers are responding with international hubs that can serve both as supply consolidation points and as distribution centres for the new region. Ecommerce also brings international expansion – it is relatively easy to ship to a large number of countries – but the resulting returns issues require more thought.

Meanwhile, the supermarkets face their own challenges. For many years the major chains were able to grow through expansion of total market share as the nation shifted its shopping habits to out of town superstores with abundant parking. This period has largely ended, with Tesco on record calling an end to the ‘space race’. The supermarkets must look elsewhere for growth, and they are finding it in convenience stores, online grocery and non-food goods, especially clothing.

The highly efficient distribution networks developed by the supermarkets over the last 30+ years remain relevant as they aim to keep costs low while leveraging availability and range advantages to compete with the discounters. However the supermarkets now need to complement these with capacity to serve their expanding convenience estates, handle new ranges efficiently and provide online grocery picking.

The issues are complex, with convenience an important area where the cost / service trade offs must be refined to ensure that growth is profitable. In the online grocery space, the debate on in-store picking vs ‘dark stores’ vs DC picking is far from over, with each claiming advantages in specific circumstances.

Logistics strategy is a key battleground in achieving profitable growth within the new retail operating models. As always we believe that it is best to take a systematic, evidence based approach to developing logistics strategy and that professional logistics consultants have a valuable role to play in this process.

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Published by: Go Supply Chain Ltd