As the lines between bricks-and-mortar and online retail continue to blur, Retail Week examines how integrated supply chains underpin the multichannel future.

Real-world, physical stores are just one  part of the puzzle

An efficient supply chain has always underpinned successful retail, but in a multichannel environment it is more critical to success than ever before.

There are a number of reasons why retailers should make the integration of store and online supply chain systems a priority - keeping up with the pace of change in consumer behaviour being just one of them.

Paul Allen, multichannel programme director at Morrisons.com and Kiddicare, says: “True omnichannel is where everything the customer touches feels exactly the same, regardless of which channel they’re shopping from. That’s what the customer expects, and if you don’t provide it customers will go somewhere else. It will be a detriment to the business if you don’t do it.”

Sarah Taylor, senior director at Oracle Retail, says: “Consumers now require the ability to shop anywhere, at any time, and retailers are having to catch up with that requirement.”

Professor Alan Braithwaite, chairman at LCP consulting and visiting professor at Cranfield University School of Management, points out that customers who interact with retailers on the maximum number of platforms are between five and eight times more valuable than the average customer. “Technology has got to join the experience up between stores and online,” he says.

When childcare etailer Kiddicare was preparing to develop its bricks-and-mortar estate following its acquisition by Morrisons in 2011, that seamlessness was key and the supply chain “was one of the biggest areas we had to focus on initially”, says Allen.

Going from one to multiple warehouses was one of the main challenges, but the project also included adapting all systems at the time to the new business model - linking in-store tills back to head office, for example. “It was massively important to have the infrastructure in place to have scalability, to enable continued growth,” says Allen.

Moving towards integration

Providing a seamless customer experience also means increasingly moving away from the traditional approach of ring-fencing internet stock in separate facilities, which can lead to availability issues and excess stock. “It is now accepted that you need to keep all your stock together,” says Braithwaite. “You need to see right across your business, into your stores so that you can then send the order to the most appropriate place, depending on what customers want, and how fast they need to get it.”

That single view of the product is vital. “The advent of managing cross-channel means that supply chains not only need to be optimised, but also integrated and this is what traditional retailers have to evolve to,” says Taylor.

Allen says allowing customers to look at the retailer’s extended inventory, beyond what might be in any given store or warehouse, is imperative: “It’s really important to be able to show that,” he says. “What was one of the heartbeats [of our new system] was how we used our stock and the visibility across channels, and we made sure we had the infrastructure to support that.”

Many retailers are investing in just this approach. John Lewis IT director Paul Coby says the retailer will be heavily investing in its back-office systems, such as new order management programmes. “If you are to deliver a newly joined-up omnichannel experience, you need to invest in those,” he says.

In 2011, menswear retailer Gieves & Hawkes replaced a system consisting of a range of software accumulated over time with a new integrated system through Microsoft partner K3 Retail. According to Sam Thompson, IT manager at Gieves & Hawkes, the old system was expensive to maintain and difficult to update and integrate, so when staff eventually got the information they were looking for they couldn’t be certain that it was correct.

“Trying to get new functionality to work with our existing system was a frustrating, expensive experience,” says Thompson.

“We needed fast, accurate information throughout the business, and we needed more control - from the shopfloor to the warehouse - to help us save money and improve our customer service.”

The new Microsoft Dynamics NAV system now gives the retailer information that helps control pricing, promotions and stock, allowing decisions to be made in real time. “Rich data is now available to store staff at the point of sale, giving them the tools to provide better customer service,” says Thompson.

Fulfilling customer demand

Debenhams, meanwhile, has been rolling out its Endless Aisle programme to tackle customer disappointment when ordering online. The retailer realised that its customers were often unable to buy items online because of products being sold out from the Debenhams.com distribution centres.

Debenhams’ Endless Aisle programme enables web orders to be fulfilled from the shopfloor

Debenhams’ Endless Aisle programme enables web orders to be fulfilled from the shopfloor

To resolve this, Debenhams launched Endless Aisle in September 2011, a system for fulfilling demand for items from the web that were out of stock in distribution centres, by taking them from store stock rooms. The project was originally launched involving 36 stores, and that was increased to 67 locations in October 2012. The initiative has increased availability on the UK website, where the retailer can now offer 98% of stock to its online customer, according to Simon Dales, director of store operations at Debenhams. He says: “This ensures we are maximising sales through our direct channel and we are growing our multichannel business.”

The order management system had to be tweaked in order to build in a tolerance level accounting for slight inaccuracies on sales floors, “meaning that stores will not be sent an order for that last piece of stock, which could be in a customer’s hand or fitting room”, Dales says. The retailer also had to roll out high-quality fulfilment operations and the right equipment in the stores to ensure the same level of service as at its main fulfilment centres.

Changes in company culture

But technology has to go hand-in-hand with a focus on company culture and operational structures. At Debenhams, management had to make sure staff were on board and understood the significance of the operation. Dales says
an engagement programme was introduced to help staff to “understand how the websites work and how we are moving forward as a multichannel retailer”.

At Kiddicare, effectively starting from a clean slate meant that Allen could put the necessary technology in place, and the retailer also built on Microsoft’s Dynamics NAV.

In addition to the fundamentals of stock management and fulfilment, the retailer is piloting new technologies such as electronic shelf-edge labels. These work with in-store wi-fi to update any promotions or price changes centrally from the company’s Peterborough headquarters across the store estate in seconds. The labelling system also sends
information back to head office with details of any sales and stock level changes.

An integrated system also means that additional platforms and devices, such as in-store kiosks and mobile websites, can be successfully rolled out as required, and Kiddicare is due to roll out in-store devices such as tablets as well as its click-and-collect service later this year. The system is also providing the backbone for Morrisons’ transactional websites.

Working towards an integrated supply chain and the single view of product it provides brings challenges. But Allen says that it is not negotiable: “For you to be an efficient business today and for how customers want to shop, it is essential.”

Morrisons - Optimising operations

Morrisons

Morrisons

Morrisons is in the process of a core system transformation project designed to deliver four key capabilities: alignment (breaking down of separate business silos), collaboration, synchronicity (making sure all the systems are in tune and synchronised with each other), and value.

Implemented with Oracle Retail, the programme includes simplifying processes by integrating advanced supply chain solutions with new store level and core merchandising systems.

The retailer wants its updated operating systems to provide the foundation for growth plans, including additional stores, new formats, non-food lines and online channels.

Working with new forecasting systems, the grocer has so far achieved a 50% improvement in forecast accuracy and a 30% reduction in manual order adjustments. And the new inventory planning is projected to bring a 16% reduction in distribution centre stock levels. It plans to go live with distribution centre shipment forecasts and inventory management in early 2013.