How to Transform Your Supply Chain Into a Profit Driver

June 18, 2019 Michele Redmon

Remember when five to seven business days was the standard delivery time for items purchased online? When Amazon announced their free two-day shipping for Prime members in 2005, retailers scrambled to provide the same shipping window for their customers. Today's modern consumerism centers around convenience, and evolving expectations drive the demand for rapid fulfillment. With delivery windows shrinking from weeks to days and now, in many instances, hours, even the most robust supply chains are struggling to keep up.

Consumers don’t just buy goods or services, they buy an experience. If that experience doesn’t meet expectations, even the best product or service will not make up for it. Consumers want their interactions to be seamless, no matter the channel, and in many cases, they want them to be instantaneous. In the past, marketing, merchandising and sales departments were the driving force behind the consumer experience strategy, but today’s savvy organizations also use their supply chains, which are uniquely positioned to identify consumer needs and deliver a better outcome.

But before you tap into your supply chain to help drive profits, you may need to address the following common issues:

Get Rid of Legacy IT Systems

“If it ain’t broke, don’t fix it” might apply to a lot of things, but your outdated IT infrastructure isn’t one of them. Just because your systems still technically work doesn’t mean it’s working effectively. Legacy IT systems can hamper automation, planning processes, and make innovation an impossibility. Such systems require multiple manual decisions to be made across platforms, slowing productivity and impeding your supply chain’s ability to evolve. In fact, in an effort to save money or disruption by avoiding an infrastructure upgrade there will usually come a point where your organization is spending more money to maintain legacy systems than it would have if it had upgraded old systems earlier. Here are some red flags that your IT needs an update:

  • Security Concerns: When a vulnerability is identified, technology companies release security updates for the at-risk software. However, once a legacy system has aged out of that kind of automatic support, the developer will no longer provide security patches.
In 2015, hackers targeted the American Office of Personnel Management, collecting personal data from 20 million federal government workers. The investigation that followed revealed that the software that hosted the database was 30 years old, making it too obsolete to encrypt sensitive personal information. 

  • Increased Downtime: Old IT systems will inevitably lead to more downtime, in part because they are slower at processing large amounts of data and due to the fact that finding an IT professional capable and willing to fix systems no longer supported by their developer can be a challenge.
  • Compliance Violations: Compliance standards (like HIPAA, which protects medical data), require that your technology be updated and supported. In the event that you experience a data breach, you will likely face fees and penalties if you’re operating on a legacy system.
  • Incompatible With Newer Technology: What kind of new, innovative apps and tools are your competitors using? Most legacy IT systems are incompatible with newer solutions, which can impede you from adopting technology to compete. It’s essential that your software integrates seamlessly with the tools and apps your business requires to run efficiently.

Orchestrate Order Management

As customer expectations mount, the need for a flexible, transparent supply chain is undeniable. To address this need, many merchants opt for a Distributed Order Management (DOM) model of fulfillment. Distributed order management technology improves supply chain agility, optimizing order fulfillment across an extensive network of systems, partners, and processes. DOM connects and orchestrates the flow of orders between various points and players in the supply chain, determining the best way to source an order to meets customer expectations at the lowest cost possible. For example, as goods are received, the DOM system uses complex AI to make real-time decisions about where each of those items should be sent (standard distribution centers, fulfillment centers, 3PL distribution centers, wholesalers, direct to the store, etc.), based on current inventory levels, forecasts, and planned promotions.

Third-party logistics (3PL) distribution and fulfillment centers are popping up in big numbers, allowing merchants to quickly ship to customers no matter where they’re located. Partnering with a 3PL company can provide a significant savings to organizations that need fast fulfillment, but can’t or don’t want to invest in their own warehouses or distribution centers. 3PLs can leverage a large network of facilities with real-time technology to manage and track your inventory. For example, fulfillment locations are often positioned near popular shipping destinations, where expedited ground shipping can be utilized at a lower cost than air and in less time than it would take to ship from one centralized warehouse location. A 3PL can be an invaluable part of your DOM strategy, enabling scalability without the investment of an additional warehouse or distribution center location.

An estimated 86% of Fortune 500 companies and 96% of the Fortune 100 use 3PL services. Source

Opt For an On-Demand Supply Chain Model

Supply and demand are easy to manage when demand is steady over time, but when it fluctuates, organizations must adjust supply levels at each point of the supply chain. For example, when retailers offer promotions on specific items, causing a sharp increase in demand. Given the lag time for changes to be communicated and implemented, there’s a greater risk for inventory shortages or excesses. In an attempt to compensate for the disruption, production lines are often rushed or intentionally slowed down, further adding to the dramatic fluctuations in inventory. The implication is clear -- today’s commerce happens in real-time, and your supply chain must operate in the same way.

In a traditional supply chain, a demand spike must be communicated from the retailer to their warehouse, to the manufacturer, and the suppliers who provide the raw materials to the manufacturer. In an on-demand model, information is shared in real-time, shifting from the "push" method of moving goods based on incomplete or inaccurate demand information, to a "pull" method, based on real-time fluctuations. Better demand forecasting translates into seamless, rapid fulfillment, lower inventory levels, and shorter cash-to-cash cycle times.

Make a Plan For Return Logistics

As e-commerce shopping continues to grow at rates beyond that of brick and mortar stores, increasing online returns are an inevitability. It’s critical that returns are easy for consumers to manage, since a recent survey found that more than 50% of participants under age 45 say they will not shop with a retailer again if the return process is not convenient. To offset any negative impact on profitability, it’s critical to have a reverse logistics strategy in place. Allocating returns to the most efficient channel will improve the consumer experience and ultimately save your business money, and since returns generally cost three to five times more than the original shipping costs, the more you can do to streamline the process, the better. Here are some tips for handling returns:

  • For smaller, low-cost products or parts it may be less expensive to simply ship a replacement, rather than paying for shipping to return the item.
  • Make better use of analytics to predict the flow of returns. Data to track would include the number of returns, the condition of the items and the reason for the return. Armed with this information you can identify and address common product flaws, or develop strategies to combat dissatisfaction (virtual dressing rooms, enhanced product descriptions, etc.).
  • Consider partnering with a 3PL to sort, process, and resell or dispose of returns. This could potentially increase profits and reduce costs associated with returns.
  • Increase returns efficiency by expanding existing facilities or opening centralized return centers.
  • Consider automating the process of putting returned items back into stock and making them available for re-picking quickly. Opt for return labels that customers can print themselves, and implement rules to route returns to specific return centers based on their condition (reason for return).

Integrate Your Business Systems and Software

A recent report from McKinsey predicts that workflow automation could boost the productivity of the global economy by between 0.8% and 1.4% of global GDP annually. An example of automation would be a Warehouse Management System (WMS). Without WMS, inventory within the warehouse setting must be checked and updated manually. For example, to confirm that specific items are in the right location within the warehouse, employees must check, count and record each item, which can result in redundancies and errors. WMS automates receiving, inventory tracking, picking and packing, leading to better inventory and order tracking, decreased stock discrepancies and improved demand forecasting. But while automated processes certainly help decrease inefficiencies, the sheer number of systems in use in one supply chain means that while individual workflows might be automated, your supply chain still lacks the level of interconnection necessary for true automation.

Most supply chains operate with help from many different systems, including CRM, ERP, WMS, EDI systems, and e-commerce platforms. While each type of software automates specific workflows, they are often unable to share data in real-time across multiple solutions. When an order is received, manual entry is still necessary to ensure that information is entered from the EDI system to the ERP, CRM and WMS, resulting in redundancies and inaccuracies. This can be eliminated by integrating all of your systems into one cohesive network able to operate autonomously. Integration is the only way that information can be shared in real-time, across every point of your supply chain. More pointedly, without systems integration, nothing discussed in this article (on-demand supply chain, reverse logistics strategy and meeting demands for rapid fulfillment) is possible.

Capitalize on Consumer Expectations

Some of the biggest names in retail have shown impressive financial growth by leveraging their supply chains to capitalize on shifting customer expectations and buying behaviors, strategically improving their profitability and responsiveness. No other aspect of a business can have the same impact on customer reach, retail prices, and service levels. By choosing the right systems, partners, and level of integration, you can provide your consumers with the service, speed, and transparency they've come to expect.

To learn more about transforming your supply chain fast fulfillment, tune into our upcoming webinar,where special guest Thom Cambell, CSO of Capacity Consulting will outline three improvements that can cut delivery time and enhance your customer experience.

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