Leveraging Free Trade Agreements: Revealing the Hidden Cost Savings
Learn how Benjamin Moore saved millions by automating the NAFTA qualification process.
Sponsored by Amber Road
Most Read Articles
Forget customer service; controlling omnichannel costs is retailers' new top priority
First the good news: U.S. holiday retail sales in 2016 were up more than 4 percent over sales during the same period in 2015. Now the bad news: That didn't seem to help retailers much. In December and January, several major chains announced or carried out layoffs and store closings, including Macy's, JC Penney, CVS, and The Limited (the last of which recently closed all of its mall stores). This comes on top of the 2016 demise of Sports Authority and store closing announcements by Sears, Kmart, Office Depot, and others. Even Wal-Mart is closing hundreds of stores.
The economic, technological, and societal forces that have converged to create this industrywide upheaval are many: online shopping, changing consumer preferences, the explosive growth in the number of e-commerce competitors, and the cost and operational challenges of omnichannel operations. Some of the responsibility for minimizing or counteracting the resulting damage falls on the shoulders of supply chain managers. That is likely why respondents to the Retail Industry Leaders Association's (RILA) seventh annual "State of the Retail Supply Chain" survey said controlling supply chain costs would be their top strategic priority in 2017.
For the latest survey, Brian Gibson, Rafay Ishfaq, and Cliff Defee of Auburn University's Harbert College of Business polled RILA's members, the readers of Supply Chain Quarterly's sister publication, DC Velocity, and retailers that collaborate with the university's Center for Supply Chain Innovation. To round out the picture, the research team conducted telephone interviews with retail supply chain executives. The survey's 60 or so respondents represent U.S. retailers of all sizes, with projected 2017 revenues ranging from below $1 billion to more than $10 billion.
According to preliminary results from the survey, 42 percent of respondents said controlling supply chain costs would be their main strategic priority for 2017, up from 28 percent last year. Supporting revenue growth was second, with 31 percent (up from 22 percent in 2016), while balancing cost and service was third, at 19 percent, the same as last year. In 2016, "enhance customer service" was the top strategic priority, cited by 30 percent of respondents as their primary concern. This year, by contrast, just 8 percent said that would be their primary focus in 2017.
In particular, the survey results highlighted the challenges companies face when it comes to controlling the costs associated with omnichannel fulfillment and delivery services. Currently, 50 percent of respondents partially recover those costs, and another 40 percent recover none of them. Ten percent do not even measure omnichannel cost recovery. Only 40 percent of respondents believe it's even possible to fully recover those costs—something no respondent has yet achieved.
Respondents were also asked to name the three most effective ways they could "monetize" or control retail supply chain costs. At the top of their weighted list was leveraging a single inventory pool across all channels, followed by encouraging customers to buy online and pick up orders in stores, having vendors directly fulfill orders, and charging delivery fees for all orders.
But there are significant barriers to getting omnichannel costs under control. The top vote getters were an inability to measure and allocate costs, the variety of fulfillment options offered to customers, or competitors' willingness to absorb supply chain costs as either moderate or major barriers to controlling costs.
Nevertheless, Gibson sees some reasons for optimism. Retailers are gaining confidence in using analytics, which will help them improve forecast accuracy and retain current customers and sales. Additionally, most understand the value of cross-channel integration, he says. According to the survey, just over one-third of respondents said they are pursuing integration of online and store fulfillment activities, while 16 percent said they had already achieved that goal. "The level of omnichannel integration compared to where we were when we first started the survey has vastly improved," he says.
But most supply chain organizations will struggle with omnichannel's biggest question: "How do we offset rising costs and make sure that as we take on additional supply chain costs, we're also driving revenue and profits? If you can answer that, you'll be in good shape," Gibson says. "If you can't answer that question, then you're going to be the next Limited or Sports Authority."
Join the Discussion
After you comment, click Post. If you're not already logged in, you will be asked to log in or register.
We Want to Hear From You! We invite you to share your thoughts and opinions about this article by sending an e-mail to ?Subject=Letter to the Editor: Quarter 2017: Forget customer service; controlling omnichannel costs is retailers' new top priority"> . We will publish selected readers' comments in future issues of CSCMP's Supply Chain Quarterly. Correspondence may be edited for clarity or for length.