Comment: The retail network of the future

As we look towards the festive season, we are predicting online Christmas sales to rise by 19% year-on-year to £5 billion in the UK. Flexible delivery is expected to be this year’s battlefield for retailers. This Christmas, the industry’s golden mantra is undoubtedly to deliver the right product to the right place at the right time.

In the past three months, our columns have looked at three key opportunities for retailers to improve their supply chains: convenient fulfilment; analytics and enterprise inventories. As retailers reach their most important time of the year, how do these complex IT tools work alongside the physical supply network?

The supply network of the future is moving from being a linear flow of "factory – to distribution centres – to store", to products moving across a complex network of inter connected facilities, including stores, distribution centres and click & collect points. As retailers look to develop their omnichannel offerings to meet the expectations of the modern consumer, they need to ensure their physical distribution network is up to the task. They will need to deliver products to customers at numerous locations and within specific timeframes.  

Enterprise inventory capabilities

Retailers need to have a network that can effectively fulfil orders and rapidly deploy stock to where there is greatest demand. Enterprise wide stock management tools will enable retailers and customers to know, on a real time basis, what stock is where. We expect that retailers will use these tools to make decisions around how best to fulfil orders, for example using overstocked products in one region to fulfil orders in a different region. The network of the future will have to cope with this dynamic routing and be able to move or ship products across various facilities including stores and distribution centres. Moving stock through the network will create increased levels of operational complexity.  To reduce the pressure on the network, it is likely that retailers will make increased use of courier services.

Service lead time

In retail, the shortening of service lead times, the time from placement of order to delivery, will change the roles of and interactions between the suppliers, central warehouses, regional distribution centres and the stores. Currently, networks are setup to send products from suppliers into central and regional distribution centres and from there into stores.  In the future, where service lead times allow and the costs of delivery still offers the retailer a profit, we would expect to see increased levels of direct shipment from suppliers and the central warehouse to customers. With the increasing popularity of click & collect services (which often have short lead times), we are seeing traditional retailers being able to provide direct fulfilment from their high street stores. For the pure-play online retailers, such as Amazon, we envisage smaller distribution centres, stocked with the fastest moving goods, being set up on the outskirts of major cities. 

Click & collect

Recent Deloitte research found that 47% of UK consumers think empty high street stores would make convenient collection points to pick up goods ordered on the internet. Meanwhile, 36% would like to pick up small goods from a dedicated collection point facility such as a locker or independent store near to home or work. On a daily basis, we are seeing innovative click & collect collaborations being established. For example, Transport for London has recently announced that it is working with Asda to provide a collection service at six London Underground station car parks.

Whilst these collaborations are great for enabling retailers to develop their independent network of collection points, what is the impact on the customer and does the customer want to collect their goods from a series of different locations? Perhaps there will be an alternative model for the network of the future where third party logistics contractors run high street or office based click-and-collect centres on behalf of a number of retailers, providing the customer with a one-stop-shop. Network Rail’s proposed shared-user “Doddle” service at mainline stations, would indicate appetite for such a model.

Click & deliver

Personalised timed delivery slots, whilst being possible as part of the retail offering, are causing a major issue for the physical distribution network. Without control of the timed delivery slots, we can see delivery vehicles crossing the same paths multiple times a day, driving operational inefficiency in the transport fleet.  In the network of the future, we believe that there may well be a reduction in the availability of timed delivery slots and, for retailers offering such slots, algorithms will be used to map routes. Retailers are also likely to vary the price to help recover the cost of the delivery.

Affordability

One of the biggest challenges for retailers is how to make their delivery services affordable, both for themselves and the customer. Depending on economies of scale, retailers will need to determine whether they have a dedicated delivery network, share infrastructure with other retailers or fully outsource their delivery to a third party. We expect that there will be a growing requirement for retailers to improve the efficiency of their networks through offering a reduced price for customers who choose a particular delivery method and timing.

What could the network look like in five years' time?

In five years' time, it is likely that customer fulfilment will be via networks containing smaller central and regional distribution centres, further supported by a number of semi-stocked click & collect/click & deliver facilities. A proportion of these may be run by third parties. The investment in technology will enable retailers to improve stock management and visibility, reducing inventory and associated space requirements, across the network. 

Toby Paxton, multichannel supply chain lead partner at Deloitte UK, writes a monthly column for Essential Retail, detailing what retailers must consider in order to build the right supply chain architecture.

http://www.deloitte.com/view/en_GB/uk/industries/consumer-business/index.htm