A lean supply chain can do wonders for a retailer’s balance sheet, but there are three main obstacles to slimming down your operations, writes DHL’s Trevor Goodman.
You can’t build a long-term retail success story without a lean supply chain. Retailers need to align their inventory levels as closely as possible with current and future sales, or put the health of their balance sheets at risk. Yet smoothing out logistics can seem impossible when you’re dealing with complex global networks of suppliers, customers and sales channels.
The solution is simple, or rather, simplicity. From our work with retail supply chains the world over we’ve concluded the complications associated with slimming down the supply chain can be distilled into three main issues. Tackle these and you’ll find your supply chain—and balance sheet—achieving better levels of fitness almost immediately.
Issue 1: Invisible inventory
The faster and larger retailers grow, the harder it becomes to keep track of inventory, and when you lose track, customer satisfaction inevitably suffers. Stock tends to go missing more often, fulfilment starts to fall behind demand, and retailers encounter more complaints from consumers and front-line sales staff alike.
The phenomenon of ‘shrink’—where what retailers believe they have on hand differs from what’s actually in their inventory—can generate not only sizeable ongoing costs but also slow down the supply chain as retailers struggle to work out the difference.
For retailers to right-size their supply chains, they need to first make sure they can see every bit of their inventory, no matter where it is within their business. This may sound obvious, but it’s a more common challenge than the industry may expect, particularly when it relates to ‘real time’ inventory positions.
Issue 2: Untrustworthy data
Gaining visibility of inventory is one thing; being able to trust the view is another. Even in the United States, where supply chains tend to be much more sophisticated than in Australia, the average inventory view only achieves around 63 per cent accuracy at any given time.
Issues of data integrity typically arise due to either human error, for example miscounting stock levels or failing to update inventory with new purchases, or holes in the coverage of ERP or other resource management systems.
Without a strong level of data integrity, retailers struggle to optimise both inventory and fulfilment in their supply chains, which puts customers at risk of disappointment when orders don’t show up.
Issue 3: Overwhelming omnichannel
Even when retailers have complete and reliable insight into their inventory levels, delivering on their promise to customers can still prove difficult. The challenge usually comes when retailers face too many sales channels—e-commerce, online marketplaces, in-store, via distributor—to fulfil orders quickly and accurately. While most retailers will happily acknowledge their future lies in omnichannel, many still struggle to integrate newer channels (whether online or physical) into their supply chains.
Without a way to quickly and seamlessly add channels, retailers will find themselves facing more inefficiencies and fulfilment failures as time goes on or, perhaps worse, being locked into just one or two channels while the rest of the market blazes ahead. The even greater challenge is how to leverage the same inventory across multiple channels to get the right bottom line balance.
Beating the ‘triple threat’
How can retailers overcome these three obstacles to a leaner supply chain? Working with others can help. Typically, the ‘triple threat’ only arises when retailers experience rapid growth, forcing them to scale up inventory and channels at a pace they tend to be unfamiliar with. Partnering with a global third-party logistics (3PL) provider gives retailers immediate access to larger-scale inventory management and fulfilment that is optimised to serve multiple channels.
At the same time, retailers should seek to stabilise their supply chains before expansion, not during or after. A ‘growth at all costs’ strategy may seem appealing (and possible) to revenue-hungry retailers, but adding new channels or markets without a lean supply chain can end up driving margins down, not up. A lack of infrastructure also creates greater risks of delivery delays—which remains the most common gripe among Australian consumers when buying online—and potentially lethal fulfilment issues for physical retail stores.
Having a single source of inventory reduces these risks before they start to impact sales or operations, as well as paving the way for further improvements through automation, analytics, and other means of trimming down inefficiencies.
The lean supply chain strikes the right balance between inventory and sales across any number of channels and puts retailers in a good position to run the race to greater market share anywhere in the world.
Trevor Goodman is vice president ANZ, consumer and retail at DHL Supply Chain.
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