Thanks to the rise in interest in omni-channel distribution -- a retailing strategy that represents a convergence of brick-and-mortar stores, online, catalog and mobile sales -- manufacturers are being pushed by their retail customers to adapt their supply chains accordingly. The basic premise is that smartphone-toting consumers can place orders for products at any time, so retailers want to be able to fulfill those orders right away, not just next-day but increasingly same-day.
For retailers, being out-of-stock is no longer an option -- if a store doesn't have the item on the shelf, it needs to be able to guarantee it can have that item in the consumer's hands by the next day if necessary. That will require a cultural shift throughout the supply chain, including enhanced planning and analytics capabilities, location selection strategies, distribution center design, material handling infrastructure and replenishment processes. And for manufacturers, the line between suppliers and retailers will blur even more, as consumer packaged goods (CPG) companies leverage emerging technologies and omni-channel platforms to sell direct to end-users -- in some cases, becoming retailers themselves.
Consulting firm Accenture recently asked 6,000 adult consumers what they would do if a retailer had a product they wanted but it was outside business hours: 39% said they'd wait until the next day for the store to open to purchase, 36% said they'd buy it online from the retailer and 22% said they'd search for the best price and buy the product online from whoever had the best price.
"Retailers require a presence at every stage of the customer journey to deliver a consistently personalized, on-brand experience -- from discovery through research, purchase, fulfillment and beyond to product maintenance or returns," says Chris Donnelly, global managing director of Accenture's retail practice.
In fact, the retail supply chain is evolving so quickly that it will be unrecognizable in five years, according to Greg Maloney, Americas CEO and president of professional services firm Jones Lang LaSalle. "Never has change come so fast, and so furious, in the history of retail," Maloney says. Both retailers and their supply chain partners need to be able to respond and react to the challenges and opportunities posed not only by the omni-channel paradigm, but by 3-D manufacturing techniques and digital proliferation as well. It's part of what's been called "the me-tail revolution," where consumers feel empowered to demand of CPG manufacturers and retailers exactly what they want, precisely when they want it, and at the lowest price possible.
Of course, consumer goods margins are already razor-thin to begin with, which is why companies are closely studying what high-tech giant Apple (IW 500/4) has achieved with product digitalization, via its iTunes and App stores. "What if you didn't have to move a product at all -- and your supply chain was digital, not physical?" asks Kris Bjorson, international director and leader of Jones Lang LaSalle's retail/e-commerce distribution group. Apple, once a traditional computer manufacturer, today makes well over $1 billion per year selling intellectual property via downloads, selling other companies' products via digital formats and devices.
"With every innovation that makes it possible to deliver entertainment and other once-physical goods digitally, prices can decrease as the infrastructure needed to ship, store and move goods is inherently eliminated, replaced by only marginally increased data storage and management costs," Bjorson says.
Digitalization is one of the two megatrends identified by the Future Value Chain 2022, an initiative spearheaded by The Consumer Goods Forum, a network of leading CPG manufacturers and retailers, and consulting firm Capgemini. The initiative aims in part to develop a code of conduct for digital engagement with consumers, as well as setting new standards for retail processes.
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The other megatrend is what the forum refers to as "the fight for resources." While digitalization is affecting consumers' buying habits, "global demand for resources like food, water and energy is rising rapidly with the potential for demand to outstrip supply in the next decade," cautions Thomas Storck, a member of the sustainability board with German retail giant Metro as well as co-chair of the forum's emerging trends committee. In particular, the forum is looking at ways CPG companies and retailers can collaborate to reduce and reuse packaging materials.