Retail and B2C Supply Chains are in a State of Rapid Change


Is your organization prepared?

November 5, 2013

By Bob Ferrari (Guest Blogger)

As the busy holiday shopping season approaches, many pundits and journalists will be closely monitoring the battle among online and physical retailers. But, make no mistake, there is significant change occurring in online shopping environments and retail and B2C supply chain teams must be prepared for the implications.

The New York Times published a recent article (paid subscription or free metered view sign-up) indicating how aggressive Wal-Mart’s Global E-Commerce division has become in recruiting talent to support its online strategies. “The country’s largest retailer, which for years didn’t blink at would-be competitors, is now under such a threat from Amazon that it is frantically playing catch-up by learning the technology business, including starting @WalmartLabs at Walmart Global E-Commerce, its dot-com division.” The article goes to emphatically state: “They (Amazon and Wal-Mart) want to control not just Internet shopping but all shopping.” Both retailers have been aggressively deploying technology while both are emphasizing different inherent operational strengths.

Amazon has been designing and deploying distribution facilities across the globe which are specifically designed for fulfilling online orders. The online retailer continues to deploy fulfillment programs focused on faster delivery to online consumers while broadening its overall areas of product and service offerings. The Wall Street Journal recently disclosed that Amazon, in its Vendor Flex initiative, has partnered with Procter & Gamble to co-locate its distribution of consumer staples such as baby diapers, directly within P&G’s distribution centers. Amazon literally draws from P&G inventory, its needs to satisfy online orders. Within Amazon’s Vendor Flex, consumers can sign-up for automatic replenishment of their household consumable needs that feature the P&G brand.

For its part, Wal-Mart recognizes the vast physical presence the retailer has with its stores, and the Times article notes Wal-Mart’s intent to transform its 4,100 stores in the U.S. and 6,200 stores globally into e-commerce assets. “Two-thirds of the United States population is within five miles of a Walmart, according to the company, and more than 10 percent of items ordered online are shipped from stores.

B2B E-commerce provider GXS featured a recent blog posting penned by Steve Keifer, titled The Retail Supply Chain is Reorganizing to Support Online Order Fulfillment. In his blog commentary, Keifer notes the recent announcement that Walmart will be building two dedicated warehouses specifically to fulfill online orders. One, to be sited in Bethlehem PA, is within a one-day shipping window for one-third of the online shoppers in the U.S. and Canada. The commentary goes on to describe examples of how retail and consumer goods supply chains are beginning to reorganize around online fulfillment. Warehouses that were formally designed for cross-dock fulfillment to support retail replenishment are now re-designed to support both item-picking and replenishment. Consumer goods manufacturers are becoming more and involved in drop-ship programs pegged from online orders. Third-party 3PL firms are increasingly taking on pick, pack and ship programs on behalf of online retailers and goods producers. “The battle for consumer loyalty online is critically dependent upon logistics and supply chain efficiencies.

Thus, the important takeaway from these accelerating trends in online and omnichannel order fulfillment is that every retail and consumer goods organization needs to have a comprehensive plan that collectively leverages either physical store and online capabilities, or both.

The leveraging of network-wide transportation, logistics and supply chain capabilities are becoming an all-important enabler when coupled with online information technology. Organizations will need to re-visit or re-align their transportation and logistics strategies in the light of a single omnichannel fulfillment business strategy. Consider the possibilities of a fulfillment network that optimizes either the closest store, inventory markdown exposure, or other price optimization factors.

In this new era, supply chain network design technology will increasingly play a critical role in assessing online fulfillment options and assessing network deployment costs. Demand sensing and more predictive analytics related to consumer buying interests will also play an important key role.

Now more than ever, retail and consumer goods supply chain organizations need to have comprehensive plans directed at specific capabilities for omnichannel fulfillment. Insure that your 2014 budgets support such plans and initiatives.

Bob Ferrari is the Managing Director for The Ferrari Group, a consulting, facilitation, and custom research firm. Bob is a highly visible supply chain technology executive and noted industry analyst, with demonstrated experience in business planning, process, and information technology transformation.

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