Collaboration in retail supply chains, both the sharing of infrastructure, like shared trucks and warehouses, or the sharing of data, would give great benefits to retailers and their customers.

It’s nice to share

Collaboration in retail supply chains, both the sharing of infrastructure, like shared trucks and warehouses, or the sharing of data, would give great benefits to retailers and their customers.

But retailers shy away from it because they think that their supply chains are a source of competitive advantage. In fact, because they all suffer from common inefficiencies, retailers’ supply chains are probably a source of collective disadvantage at the moment. With the rise of online shopping there is a trend to smaller, more frequent deliveries (as opposed to the full truck, once a week of the past). But that means lorries driving around the country half empty and that is costly to retailers, their customers and the environment.

So what are the barriers to collaboration? In a nutshell: irrational fear. Managers want to protect their empires and see collaboration as a threat. Retailers don’t feel they can completely trust their own supply chains let alone someone else’s.

Yet I recently heard of a project where two competitors used the same unbranded vehicles for deliveries. It drove down costs for both without compromising service for either. So the potential for profitability gains through collaboration are definitely there.

Return to sender

Supply chain efficiency is particularly important for omni-channel clothing retailers where customers return 22% of what they buy online (Martec, 2013). The cost of processing a return can be 2-3 times that of an outbound delivery and can eat up 35% of the profit of the transaction. But a well-executed returns strategy can be a driver of loyalty and can add 2% to profitability.The trick is to treat a return as a conversion opportunity, especially in the case of a BORIS (buy-online-return-in-store). The most precious commodity in retail today is footfall. If a customer comes into a store to return something bought online, the store staff should be trained and motivated to sell them something else.

A good up-front returns offer is necessary to put you into the shopper’s consideration set. But many retailers offer them without understanding the true costs of returns processing. Marketing and supply chain functions need to co-ordinate more closely and merchandisers should track returns percentage by product SKU (stock-keeping unit).

Outward logistics tend to be standardised and efficient, but reverse logistics are often less-well understood and can have a big impact on profitability. Returns are also often not accounted for prudently, with stock being returned to the balance sheet at full value, when a 25% mark down in value would be more realistic.

Services like BT Trace which enable collaboration, improve supply chain visibility and drive down cost to serve the customer are going to be of strategic value to omni-channel retailers.