Shipping from DC and returns identified as top fulfilment costs

Some 68% of CEOs operating in the retail and fast-moving-consumer-goods industries say the cost of modern fulfilment practices is increasing.

The third annual survey from supply chain solutions provider JDA Software and professional services firm PwC, which gained the opinions of more than 300 senior executives from around the globe, found that 69% execs view shipping directly to consumers from a distribution centre as their highest cost in modern fulfilment.

Processing returns (63%) and shipping to store for pick-up (59%) were next on the list of most costly cross-channel fulfilment practices, according to the survey respondents.

Lee Gill, group vice president of global retail strategy at JDA, said: "Fulfilling omnichannel demand profitably remains a huge challenge for retailers. 

"As online continues its double digit rate of growth, and takes a greater share of a retailer's overall sales, the resulting margin erosion from the additional costs associated with fulfilling customer orders, could have an adverse effect on profitability."

Some 75% of respondents to the JDA-PwC survey admit to still running their store and online operations separately, and according to an accompanying report this is taking a toll on retailers' profitability and hinders their ability to create a seamless shopping experience for customers. The 'CEO Viewpoint 2016: The Journey to Profitable Omnichannel Commerce' report argues that companies without operational silos expressed greater confidence in revenue and profit growth than their siloed peers.

A number of UK retailers have started to address profitability concerns surrounding new fulfilment pressures by introducing charges for certain orders. John Lewis now places a £2 charge on click & collect orders below £30, while Tesco now charges its customers £4 for grocery click & collect orders up to £40.

JDA and PwC's study says that to deal with the high costs of new fulfilment practices, 39% of CEOs are planning on raising the minimum order value for free home delivery. In addition, 31% of respondents are planning on raising the minimum order value for free click & collect services and 29% are looking at increasing the cost for home delivery.

"As retailers have embraced offering consumers less costly alternatives to home deliveries, free click & collect has grown in popularity," stated Gill.

"To now ask consumers to pay for click & collect certainly has its risks. What is clear is that profitability has to be addressed as a matter of priority. This will require both an investment in the supply chain and technology, as retailers seek a low cost fulfilment model that also delivers exemplary customer service."

PwC conducted the research in late 2015, generating a total of 305 responses from executives from China, Germany, Mexico, the UK and US.

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