10 Supply Chain Roadblocks That Could Derail Modern Retail

February 18, 2019 Michele Redmon

Until the 1920’s most people shopped at the local corner store or small-town square. Then came chain and department stores with larger quantities and selection of goods, encouraging shoppers to view a trip to the store as an experience. The first shopping mall was built in 1956, and big name retailers quickly began to overtake the smaller mom and pop establishments.

Still, no evolution has changed the retail landscape like e-commerce. Modern retail is a new frontier that has enabled virtually anyone with a computer and a product to sell their wares to the masses. But with all that change has come a host of complexities that many retailers and suppliers alike struggle to overcome.

"It used to be that companies were built to last. Now they are built to change.” – Lori Mitchell-Keller, SAP

1. Omnichannel Complexities

As consumers demand options like online ordering, in-store pickup, endless aisle and product assortment, and free returns, channel boundaries are blurring. The steps involved in fulfilling orders and delivering the right product at the right time to the right location have become increasingly complex. A consumer can buy a shirt online, return it to the store, and exchange it for something completely different. How does the store track all those dynamic paths of fulfillment?

2. Inventory Visibility

For an order fulfillment process to be successful, you must have a clear and accurate understanding of your inventory, both virtual and actual. What do you have on hand (quantity by SKU)? Where is it physically located across your supply chain? Do your systems reflect this information accurately and in real-time? If you can’t answer these questions, then there are inefficiencies built into your supply chain that are will hamper your productivity, efficiency and profitability.

For example, retailers who require their suppliers to dropship directly to consumers rely on real-time inventory data feeds from their suppliers to avoid order failures. In the dropship scenario, retailers advertise products that are stored in and shipped directly from their supplier’s warehouse. As products sell, inventory quantities decrease, but without real-time inventory data feeds, the retailer has little visibility into whether the particular item has been sold, or how many products are currently in stock.

3. High Labor Costs

According to the U.S. Department of Labor, labor costs are one of the largest expenses any company must absorb. In the retail industry, the average labor costs consist of roughly 10%-20% of total revenue. Because of increased customer demand, compliance expectations and growth, labor costs will skyrocket without a plan for automation. For example, a menswear company begins to provide suits to a big-name retailer after agreeing upon a routing guide that outlines the EDI business rules. The suits are a huge hit, and the retailer orders more frequently and increases the number of suits in each order. To accommodate the influx of orders, the supplier hires additional staff to manage them, but the manual entry results in errors. These include an order that ships after the due date, resulting in the retailer offsetting the invoice. In another instance the warehouse staff accidentally sends an ASN after the invoice, thereby violating the retailer’s sequence-specific business rules. In another oversight, the SKU number doesn’t match that of the PO. Each of these errors may result in chargebacks, and threaten the supplier’s relationship with the retailer. At this point, the supplier might be tempted to hire even more employees, hoping a lightened workload will help decrease the order errors, but that will only erode the company’s profit margins even further.

4. Disparate Systems

Disconnected systems and processes don’t lend themselves to seamless, end-to-end consumer engagement. With each new supply chain challenge comes a new technology system to address it. Before you know it, you may have up to ten apps and systems operating independently, leading to redundancies and inefficiency, ultimately adding to the precise problem you were trying to solve.  If you’re running an e-commerce site then you’re utilizing that platform and associated apps, a back-office system or ERP, some kind of CRM, perhaps a web-based EDI solution, an order management tool, and several other business systems. If you’re running a brick-and-mortar in addition to an e-commerce site, you’re likely using even more. Without integration, those systems aren’t sharing information, and updating one doesn’t update the others, which means a lot of manual entry, confusion and likely a fair amount of anxiety!

5. Managing a Sudden Surge in Orders

One of the most common reasons our EDI project managers are contacted is due to a sudden surge in orders. Perhaps you had omnichannel complexities and disparate systems creating a subtle bottleneck of manual order entry, but they probably didn’t cause much trouble until your orders began to increase in number and frequency. Think of these issues as cracks in a dam, only apparent when the dam is full of water and begins to fail.

6. Meeting Evolving Customer Expectations

The multichannel consumer has increasing demands when it comes to convenience, personalization, and speed. With no shortage of options, it is a perpetual buyer’s market, and buyers expect an experience that integrates brick-and-mortar shopping with web-based, app-based, and social channels. For example, if a shopper finds the item they want is out of stock at one retail store, they can place an order right then to have it shipped from another store to either their home or the retail store closest to them. In the instance that a website order needs to be shipped directly to the consumer’s home, a distributed order management process is required to determine the closest distribution center or store from which to ship it.

7. Inexperience with Certain Fulfillment Models

Running an e-commerce business (either in tandem with brick and mortar locations or not) means that order fulfillment is an integral part of your operations. As your business grows, you may find that in-house fulfillment is no longer feasible. This is when you may consider outsourcing your logistics processes (warehousing, picking and packing, and shipping) to a third-party logistics (3PL) partner.

8. Compliance

Buying organizations mandate EDI to unify the way data is shared electronically. They develop business rules in order to ensure that trading partners comply with their specific EDI processes, which ultimately helps both parties avoid supply chain errors and maintain consistency in order fulfillment and delivery timelines. Compliance benefits both the supplier and the retailer, helping to build better trading partner relationships and automate what would otherwise be very time-consuming and error-prone processes. For a retailer, noncompliance complicates their supply chain, which is why they penalize suppliers with chargebacks when they fail to follow the business rules outlined. Here are a couple scenarios that call for EDI compliance:

  • Scenario 1: You opened an online store to steady success and exciting prospects. When you finally get your product in front of a big retailer, they love it...there’s just one problem. They’ll only do business with you if you adopt EDI. What now?
  • Scenario 2: You’re a retailer with a growing number of trading partners, but some of them don’t use EDI correctly. As a result, you’re experiencing late shipments, empty shelves, and dissatisfied customers. You must enforce compliance but aren’t sure where to start, especially for smaller retailers with larger suppliers.

9. Operational Inefficiency

Using infrastructure that is not suited for a growing omnichannel supply chain chain leads to a dependency on manual, error-prone processes. For example, a simple web-based EDI solution may work well when trading with one or two trading partners, but as you add trading partners and your orders increase, you’ll need to opt for a full integration of your EDI into your ERP or back-office system with a business rules management software to prevent order errors.

Additionally, an organization supporting omnichannel transactions and advanced EDI requirements (such as a manufacturer providing products direct to consumer, retailers and drop shipping) creates an added emphasis on distributed order and inventory management. Such organizations require a system capable of accepting online orders and determining the closest distribution center or brick and mortar store with the item(s) in stock. Alternatively, they could leverage inventory data feeds from suppliers to expedite the shipping timeline.

98% of retailers surveyed agree that to be competitive, they must invest in technology that increases their efficiencies. Source

10. Slim Profit Margins

The retail industry is among the least profitable, particularly for online-only retailers, who often see net margins as low as 0.5 to 3.5%. These margins are further depleted by supply chain errors that result in chargebacks or lost sales.  Chargebacks, the result of an order or supply chain error that violates an agreed upon business rule, range from hundreds of dollars to hundreds of thousands of dollars.

Reining in Your Supply Chain

These challenges may seem unrelated, but they are all very much connected, each one touching another, like falling dominoes. An increase in orders without the systems infrastructure to support them will lead to higher labor costs (more people to handle orders/key EDI information) which will inevitably cause order errors, which will eat into your already thin profit margins. The solution is not another separate system, but rather a deep integration across all channels. Only when your systems and apps communicate with one another will you experience true efficiency and scalability.

To learn more about taming your omnichannel and streamlining your systems and apps, register for our upcoming webinar, Taming Your Omnichannel Strategy. We’ll detail a number of different challenges and scenarios from real customers and show you how they overcame them.

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