Comment: Agile supply chains are essential to retailer profitability

Changing patterns in shopping behaviour have thrown down the gauntlet to traditional retailers, challenging them to rethink their supply chains or face the prospect of steadily diminishing profits.

The big priority for most retailers has been to get the order – sometimes at any cost. But as newer delivery channels develop and volumes increase, this approach is looking unsustainable.

The issue is that more shoppers order goods online for home delivery or select click-and-collect options. When online orders only accounted for only 10% of total sales there was less urgency to address their profitability. But their growth is now exposing weaknesses in the supply chain.

For many retailers the situation has reached a tipping point.

Supply chain limitations

Customer expectations around the shopping experience have taken a giant leap forward. They also want fast and reliable delivery. Indeed, the delivery option has become the customer proposition for many retailers.

Retailers have coped with this trend by working around the rigidities of their supply chains. But it can be expensive. After all, they were built to shift batches of goods from warehouses to stores – not single items into the hands of individual shoppers.

“This is a sticking plaster approach, which will not scale up as click-and-collect grows in importance”

Lucy Larkin, Accenture

These supply chain limitations sometimes see retailers ferrying individual goods from warehouses to stores by courier to fulfill click-and-collect orders at no cost to the customer, which can lead to a loss on the sale.

This is a sticking plaster approach, which will not scale up as click-and-collect grows in importance.

It’s therefore not surprising to see the recent news that the John Lewis Partnership is to charge £2 for click-and-collect orders costing less than £30. Other retailers may find themselves forced to follow.

Even the economics of fulfilling online orders for home delivery are coming under pressure as volumes increase. A recent Accenture survey found that nearly 60% of retailers said they offer free shipping, meaning that they’re absorbing those extra costs.

But that’s not all. Retailers also have to deal with returns and for some goods categories, such as clothing, these can be as high as 50%.

The way refunds and collections are handled is important, because it’s key to the customer experience. Nonetheless, retailers are aware of the limitations of their supply chains, with 80% of them recognising that they’re not up to scratch.

A work in progress

Unfortunately, there’s no quick-fix solution. This isn’t helped by the fact that the retail landscape is much more unpredictable than it used to be, making long-term planning harder.

It’s difficult to accurately predict sales volumes four to five years from now, never mind which delivery channels they’ll go through. Still, there are a number of actions retailers can take so at least they’re moving in the right direction.

They can use scenario planning to look at the consequences of the growth of different delivery channels as a percentage of sales and plan investments accordingly.

“There has to be a focus on organisational agility across the retailer’s entire eco-system”

Lucy Larkin, Accenture

In essence there has to be a focus on organisational agility, particularly at supply chain level, but also across the retailer’s entire eco-system. That requires faster access to data and better analytics.

Better quality data supports faster decision making by experienced managers who need to be accountable for their results.

Traditional retailers are winning when it comes to the customer experience, but they’re at risk of losing out when it comes to profitability. Bricks-and-mortar retailers have the advantage of offering more delivery choices and possess more ways to create customer satisfaction than online only equivalents.

The big challenge now lies in fixing the supply chain so it can respond profitably to these newer channels. Traditional retailers able to deploy multichannel-enabled supply chains to gain a major competitive advantage over slower to adapt rivals and online-only operators.

• Lucy Larkin is a managing director within Accenture’s UK retail practice