The State Of Cross-Channel Retail Logistics

January 2012 Integrated Solutions For Retailers

By Sahir Anand, VP and research director and Kevin Permenter, esearch associate — supply chain, retail, and banking, Aberdeen Group

Today’s supply chain professional must balance the need to reduce inventory with the need to react to demand in a timely manner.

Retailers must be able to quickly restructure or transform supply chain execution (source-deliver processes) in response to an evolving global, multichannel supply chain scenario.

In the last few months, the retail economy has finally seen glimpses of a revival in consumer spending. Inbound freight traffic has increased at the same time. However, many companies still don’t have the ability to respond to dynamic multichannel demand cycles, which is a challenge for at least 40% of retailers in an increasingly global supply chain scenario. This is further complicated by the increased globalization within the retail supply chain. In fact, nearly half (47%) of retailers are engaged in both domestic and international shipping. Demand has been so uncertain in the last 18 months that the volume of inventory in the retail supply chain and channels has either been too high or too low.

The Business Pressures Around A Flexible Supply Chain
Retailers are demanding lower prices and more integrated cross-channel logistics options than ever before. Retailers and their suppliers must also contend with demand volatility, both predictable (seasonality, product life cycles) and unpredictable (proliferation of channels, new products, sudden changes in the consumer tastes and preferences). Aberdeen data indicates that the top business pressure (46%) experienced by respondents was the need to react to demand changes in a more timely manner. Again in this year’s survey, we see the need to respond to changes in demand in a timely manner rising to the top of the business pressures, with 49% of survey respondents citing this as one of their top two pressures. This shows the importance of creating a flexible supply chain when dealing with changes in demand.

Companies with a flexible supply chain can respond better to changes in demand, and increase logistics per unit cost and on-time performance against revenue plan. More flexible companies can have longer lead times and reduced out-of-stock incidences. Currently, 30% of retailers have an average stock-out rate, defined as the ratio between total value of out-of-stock occurrences and total revenue, of more than 7%. High stock-out rates are a sizeable problem not only in terms of lost sales opportunity but also in terms of their impact on service levels and customer satisfaction.

Inflexible companies with poor cross-channel demand forecast accuracy are suffering in the new global economic reality. Only 56% of retailers have the ability to make supplier-distribution network realignments (sourcing, mode, or routing shifts) when needed, which demonstrates the lack of supply chain flexibility in the population as a whole.

The Importance Of Visibility
Increasing visibility into current inventory levels is another way companies are striking the proper balance between reducing inventory and meeting demand in a timely manner. Still, many retailers struggle with real-time visibility. In fact, 50% of companies surveyed said they have no access to real-time inventory and order data. In the fast-moving world of retail supply chain management, those without real-time access to data are not able to adjust to the market quickly and are therefore more vulnerable to shifts in demand. To be sure, the market sees this as a problem and, according to our surveyed retailers, they are moving to improve visibility. Survey respondents cite a number of justifications for this desire.

• Optimize fulfillment/replenishment — “We are working to improve visibility to in-transit and shelf inventory in order to optimize replenishment decisions,” said a director of supply chain at a small South American retailer.
• Identify supply chain bottlenecks earlier — “Currently, one of our major goals is to increase transparency from sourcing to shelf where products are, when they will arrive, and identify problems early,” said a VP of IT at a large North American fashion company.
• Shorten reaction time to demand shifts — “We are driving to create visibility of stock on the different manufacturing and distribution stages. This will reduce reaction time by shortening feedback cycles from market to production and purchasing,” added Klaus D. Maier, director of supply chain at a small specialty goods retailer.

To download a full copy of this report:, go to www.aberdeen.com/Aberdeen- Library/7189/RA-retail-supply-chain.aspx.