A handful of major obstacles stand in the way of retailers being prepared for the demand and supply issues they will face going forward. Here’s how businesses are clearing each hurdle.

As we look back at the past couple of years for clues about what the future holds for supply chains, we see similar issues have become apparent across e-commerce and international logistics. Whilst 2020 was about dealing with the outcomes of the acceleration of e-commerce and omnichannel, in 2021, retailers were trying to cope with a perfect storm of demand and supply issues, including international shipping uncertainty, loss of capacity, increased costs – even a lack of containers and pallets.

Retailers need to optimise reverse networks just as much as delivery.

Robert Poole
Partner, National Sector Leader, Consumer & Retail

This has resulted in a convergence of the challenges for retail and global logistics. The major challenges retailers are now working on resolving are:

  1. Building a target operating model (TOM) that supports the future demand of supply chain
  2. Optimising supply chain processes through automation
  3. Increased complexity requiring flexible supply chain management and planning
  4. Advanced analytics to define appropriate channel, segment and fulfillment strategies
  5. Integrating new suppliers and third-party logistics partners for enhanced capacity

Let’s examine the solutions for each of these issues.

How do I build a target operating model (TOM) that supports the future demand of supply chain?

One outcome of the challenges identified above is a new TOM specialised for agility and resilience and developed based on the six elements shown below. This is being used to embed the agility that was required during the pandemic into longer-term operations. This new TOM is oriented around end-to-end supply chain planning, predictive analytics, and greater investment in planning systems to optimise process, people, and technology.

Increasing numbers of partners are being integrated into the business model, resulting in a particular focus upon governance, performance insights, and the service delivery model.

Find out more about the KPMG Target Operating Model.

How do I optimise my supply chain processes through process and physical automation?

Higher levels of automation require a “manufacturing” mindset to fully optimise the different automated elements across the entire value chain and within DCs, in particular. Each element of the value chain has different levels of productive capability and requires extremely high levels of coordinated, day-to-day, hour-by-hour planning to gain the full benefit of very large capital outlays. Larger retailers are facing challenges in how to manage network-wide capacity across multiple fulfilment nodes, each with different optimisation characteristics, and how to re-tool workforces accordingly. Certainty of delivery promise is now increasing in importance compared to speed. Retailers are increasingly looking for ways to build additional coordination across the Supply Chain with higher levels of process automation in fulfilment planning and execution. This increases middle- and back-office productivity, allowing more strategic decision-making from people.

How do I ensure flexible supply chain management and planning to deal with the increased complexity?

Retailers are investing in new sales and operations planning, along with replenishment methods and tools. This is tied to the need to consider alternative sources of supply – international and domestic – as part of holistic and dedicated supply chain risk management. Retailers now need to prioritise what stock gets delivered and when, due to capacity constraints. Increasingly, companies across many industries are integrating predictive analytics into supply and logistics planning to provide data for tough operational decisions. Retailers are developing the flexibility to organise multiple channels to customers on short notice. Inventory deployment policies within fulfilment channels connected across the business have never been more important for the fulfilment of customers’ baskets, where multiple products and categories potentially land.

Why is advanced analytics needed to define the right channel, segment and fulfillment strategies?

To make the right decisions about which channels and methods of delivery are the most profitable for products, retailers are implementing advanced analytics for the cost to serve and segmentation optimisation. These are then used to decide the optimal portfolio mix of products and services to profitably delight customers.

Increased visibility of SKU profitability via each channel – difficult to achieve in legacy systems – is allowing retailers to tailor product and service offers closely to individual customer demographics, locations, and fulfilment needs.

How do I best integrate my new suppliers and third-party logistics partners to enhance capacity?

To deal with the global supply crises and explosion of omnichannel business models, retailers started with building capacity. Now they need to pick the winning suppliers – the best performers who can maintain the new face of their brand (the delivery driver) – and integrate them into more automated logistics and merchandise planning. Barriers to entry in e-commerce are rising, driven by lack of capacity and increased compliance requirements for third-party logistics partners, in both physical products and customer data.

Reverse logistics is becoming more critical, driven by environmental, social, and governance requirements, and larger return volumes. Retailers need to optimise reverse networks just as much as delivery, often using different capabilities from their third-party logistics partners. For example, the delivery driver now has the added complexity of carrying out multiple tasks beyond just dropping items at your front door – from assembly and recycling to upselling and gathering customer experience data from individuals.

All businesses are on their own journey to manage these challenges, with the aim of developing agility and resilience beyond simple physical logistics and volume capacity. Increasingly, companies are looking to engage external expertise that can bring them global best practice – just as their customers ‘shop the world’ for the best value. Only when your supply chain capabilities are agile and resilient can you achieve sustainable value chain.

This article was originally published in Australian Retail Outlook 2022 co-produced with Inside Retail magazine. 

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