By Irv Grossman, EVP of the Americas, Chainalytics
When you need to know the best way to do something, you learn from the people who are already excelling at it.
That’s what audience members did during the panel discussion on the future of e-commerce supply chains that we were called on to assemble at the 2015 Georgia Logistics Summit.
- Moderator, Mike Kilgore, CEO, Chainalytics
- Bill Connell, Senior Vice President of Logistics and Operations, Macy’s
- Colby Chiles, Senior Director of Customer Delivery, Home Depot
- Brad Taylor, Senior Director of Distribution, Chico’s FAS
- Steven Hong, President, Sylvans
Speaking to a full house of over 200 attendees, it was clear that the panelists shared perspectives on omni-channel retail supply chains that were dead-on and applicable far beyond the Georgia’s borders. I felt compelled to share.
Six main points emerged as top trends that each of these visionary thinkers see happening in the e-commerce supply chain and fulfillment space.
Six Trends of E-Commerce Supply Chains
The old notion that you have to go digital to become truly omni-channel is yesterday’s news; companies that are not online are so far behind that they aren’t considered competition anymore. Instead, the omni-channel universe is leading to expansion in the physical world, as more stores are built that can serve as fulfillment centers for outbound shipments, as well as customer pick-ups, inventory management and returns.
Buy online, pick-up in store has proven to be a breakout success and the interplay between physical and virtual shopping channels strengthens both. The trend of online pure plays expanding to brick and mortar can be expected to continue.
Competing with established online giants at their own game is a losing battle. Instead, success comes from focusing on what you do well and perfecting it. For example, Macy’s is finding success by leveraging its vast network of stores and quality private label brands while Home Depot is one of the few shippers that truly understands how to facilitate heavy and difficult-to-ship merchandise fulfillment.
This competition among retailers results in the acceleration of customer expectations, serving them more efficiently, all while differentiating the experience along the way to deliver what they really want.
Brad Taylor struck a chord when he mentioned that even though Chico’s is rarely a first mover in new services, it still views investments in supply chain as key to remaining nimble enough to evolve with customers’ complex and changing shopping demands.
Colby Chiles reiterated the importance of agility by pointing out that logistics must be in place before new services can be launched, but they must also be easily scalable to adjust for unplanned-for demand signals. The process should proceed like this: launch, evaluate demand signal, then optimize. The supply chain has to be in place on day one, but also flexible enough to be optimized for what the demand signals indicate.
Bill Connell explained Macy’s began implementing RFID technology three years ago to maintain accuracy in its inventory. The 95-98 percent confidence level the company has achieved on its inventory levels allows it to fulfill from over 800 stores. At the same place in its lifecycle that bar codes were in the 80s, RFID is expected to become ubiquitous within five years and most retailers will wonder how they ever lived without it; especially when the inventory counts that used to take all day only take 15 minutes.
Steven Hong said that 40 percent of his company’s supply chain headaches are caused by the 20 percent of his orders that are drop shipped; but that doesn’t mean he’s going to cut it from his distribution mix any time soon. It simply allows him to carry way more SKUs than he would ever be able to hold in inventory.
Even large retailers with virtually limitless inventory capacity often include drop shipping on items where volume does not warrant internal fulfillment, but demand is strong enough to keep the item available to customers.
Smart fulfillment management requires analyzing which SKUs make the most sense to keep in inventory vs. which are wiser to drop ship, and constantly re-evaluating orders to optimize the ratio.
In a bit of paradox, customers want fast shipping — but they don’t want to pay for it.
In the battle between those scenarios, free shipping beats fast shipping. None of the companies on this panel reported more than 1 percent of their orders being sent with shipping that carries extra costs.
Home Depot has offered same-day onsite deliveries for professional contractors for years, but very few contractors are willing to pay for 2- or 4-hour delivery windows, instead opting for flexible all-day windows or for doing the pick-up themselves.
Locating supply closer to customers makes even more sense in a world where consumers want it tomorrow…but only if shipping is free.
The single most-important takeaway from this informative 90-minute discussion is this:
Only retailers that are in constant touch with evolving consumer expectations stand a chance of successfully fulfilling orders and keeping customers engaged, and the agility to serve whatever comes next quickly and efficiently is of paramount importance.
Watch the full e-commerce supply chain discussion for yourself.
Is your supply chain ready to handle all of that? Chainalytics is always here to help. Simply complete the form below to get in touch with one of our supply chain transformation experts.
Irv Grossman is the Executive Vice President of the Americas at Chainalytics where he is responsible for the delivery of strategy, design, and transformational consulting efforts for many of the top-tier global supply chains.