Retailers face a multitude of supply chain challenges as they expand beyond their home market. Rebecca Thomson looks at how retailers are tackling some of these issues

The fulfilment centre in Milton Keynes where Amazon sellers can store goods to be distributed in Europe

Pixmania may have a business model that appeals to millions – its proposition might work everywhere from Germany to Poland. But the gap between knowing it could work to making it a reality is a big one, and for retailers expanding internationally the biggest hurdles are often logistical. Creating supply chains to serve customers in several different locations is tough.

“You need to adapt your offer for every country,” says Ulric Jerome, executive director at etailer Pixmania, which operates in 26 countries throughout Europe. “Every country has its cultural differences which are extremely important.”

The problem is that there are so many things to get right. Product must be tailored to each country, new legal and financial structures must be adhered to, and a trusted supplier base must be developed.

This supplier network is perhaps the most crucial element – they can provide valuable local knowledge and insight into the market.

Gaining insight

But the search for suppliers with the right level of insight can be harder in emerging markets where retailers are often keen on expanding. “Sometimes suppliers aren’t used to major international retailers,” says Aidan Bocci, chief executive of consultancy Commercial Advantage, which works with suppliers and retailers to improve operational performance.

“They’re not sophisticated and can’t provide the right insight. The markets where there is an awful lot of growth and development are the ones where retailers can struggle.”

One answer could be to enter a market by purchasing a smaller business  and inheriting its supplier base. Another option is to bring suppliers that operate internationally into the new market with you, perhaps introducing new products to help differentiate your business.

Bocci says the most fundamental aspect is to be clear on what you want your suppliers to do, and to performance manage them properly once you are working with them. The process of analysing the country or area, and then figuring out which suppliers are right, can take years. There are no hard and fast rules, and no quick answers – big international suppliers might be a surprising flop in a new market, and local suppliers you knew nothing about can prove to be a resounding success.

“It’s a process of constant improvement,” says Bocci. “It can take three to five years to get a good supplier base.”

Of course, there are cultural issues to consider – staff not just at suppliers, but in your own workforce may respond to different management methods to those normally used, and getting them to perform well can require new tactics.

Pixmania simply made it a rule to only speak to suppliers that could provide the knowledge needed. “Suppliers give us a lot of information,” says Jerome. “It took us a lot of time to get suppliers to allow us to speak to the right people, and now we don’t accept any suppliers who can’t provide us with a wide, European focus.”

In another attempt to keep things straightforward, Pixmania chose to fulfil all orders from its warehouse 40km outside Paris. Jerome says it keeps the business’s volume and its supplier knowledge in one place. But this creates a new challenge – how to get the products out to customers.

“One of our biggest challenges was choosing which carrier company to use and which transport. If you don’t get this right you lose your customers,”

Jerome says. Having developed its network organically, Pixmania now has 27 different couriers and five different delivery methods in each country.

Having a central point of contact helps Pixmania manage European trading, enabling it to see the area as more of a single marketplace and get the resulting economies of scale. Amazon director of enterprise and merchant services Chris Poad agrees that avoiding the need to divide up inventory is helpful, and says the company is helping retailers who sell on the site by allowing them a unified account across four  European markets. “It is easier to think of Europe as a single marketplace than having to divide up inventory,” he says.

Achieving visibility

Amazon’s single account may go some way towards helping its sellers with one of the biggest challenges of international supply chains – getting visibility and knowing how much stock is in each country. Alex MacPherson, solutions consulting manager at logistics consultancy Manhattan Associates, says legacy IT systems can make it difficult for retailers to see where stock is. “Retailers are poor at having visibility of deliveries from suppliers and tracking them.”

Kenneth Porter, director at supply chain consultancy Total Logistics, agrees visibility is one of the biggest challenges still to be tackled. “The hardest part of developing international supply chains is linking them together so you get visibility across the whole chain. You want to know how much stock is in each country so you can respond quickly to changing markets.”

Agility and flexibility are and will continue to be the buzzwords in supply chain circles over the coming years – with retailers’ websites crashing every time the Duchess of Cambridge puts on a dress, it’s becoming more important to fulfil this demand quickly and take advantage of the peaks.

Cross-channel shopping is another development making efficient supply chains a necessity. But with investment funds controlled in a difficult trading environment, it could be years before supply chain systems are doing everything they should be for retailers.

How TK Maxx expanded into Europe

For US retailers like TJX, owner of UK chain TK Maxx, the UK was the natural place to start in Europe because of cultural and linguistic similarities. It launched in the UK and Ireland in 1996. After more than a decade, it eventually launched in Germany in 2007 and then Poland in 2009. At the end of 2010 it had 307 stores throughout Europe.

Local warehouses were built to ease TK Maxx’s expansion into Europe

Local warehouses were built to ease TK Maxx’s expansion into Europe

Supply chain consultancy Total Logistics worked with the retailer on expansion into Germany and Poland, and director Kenneth Porter says it had some interesting answers to common problems. “When you’ve got one or two stores you can handle all the stock from the UK, shipping it to Germany from there. But that’s costly – the big question is at what point is it worth having a facility of your own?” The retailer ended up with a two-stage process. While they were growing, they started using a third party, DHL, to fulfil orders for stock in Germany and Poland, and when they hit a certain size they built their own warehouse in Germany, which opened last year. Their Polish warehouse will become operational this year.

A second problem was deciding whether to place one big order with Far East suppliers, splitting the product between UK, German and Polish markets once it arrives, or if separate orders for each country is a better approach.

The problem with the first was that staff wouldn’t know which part of the delivery was for the UK and which was for Germany until they opened it.

The problem with having separate orders for each country was that buyers in each country would have to do more detailed planning and economies of scale are lost.

Porter says TK Maxx’s response was to balance the two. For products that sell in smaller numbers they place single orders for each country, but for higher volume products they place one large order for all the countries – proving that the best approach for expanding retailers is one that’s balanced, flexible and often unique to that company.