Winning Supply Chain in Omnichannel Trends and Strategic Implications. Kellogg 2016

Transcription

1 Winning Supply Chain in Omnichannel Trends and Strategic Implications Kellogg 2016

2 Introduction Michael Hu Area of focus: ecommerce and omni-channel supply chain; digital transformation Passionate about working with retailers and brands 2007 Kellogg grad 2 year consulting stint turned into 9 years and counting 2

3 Agenda Introduction: What is omnichannel? Why is supply chain critical? What is customer promise? Why is customer promise segmentation key for designing a winning supply chain? Key trends in omnichannel and implications for future supply chains 3

4 What is omnichannel? - allowing consumers to buy how they want, what they want and when they want it Chat-bots and shopping assistant Endless aisle marketplace Real time promotions Digital stores and pop-ups 24/7 customer care FOLLOWUP 1 STIMULUS Smart device replenishment 2 BROWSE Online dressing room Time Definite Delivery 5 Frictionless Consumer Journey 3 TRANSACT 4 EVALUATE Crowd sourced same day delivery Source: A.T. Kearney Click & Collect Locker Pickup Mobile, alternative payment One click buy on social media Amazon dash button Curated, free home trials Automated stores Digital augmented dressing rooms 4

5 Online sales growth and penetration significantly outpacing traditional channels Online vs. Offline Growth by Category (Retail Value, CAGR) Online Growth 26% 24% 22% 20% Men s Grooming Color Cosmetics Deodorants 18% 16% Haircare 6% 4% 2% Skincare Bath & Shower Sets / Kits Fragrances 0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Offline Growth Size of bubble indicates product penetration, ranging from 0% to 20% for categories shown Skincare Color Cosmetics Fragrances Sets / Kits Deodorants Haircare Bath & Shower Men s Grooming 1. Euromonitor, A.T. Kearney Analysis 5

6 Omnichannel supply chain is different than traditional retail Brands Retailers Plant Line haul Mixing Centers Line haul Distribution Centers Stores Full or layer case picking to pallet Pallets of products pushed to stores (and end customers) Mixed or full pallets Line haul trucks Retailer owned or Brand owned Plant Line haul Mixing Centers Line haul Distribution Centers Stores Last Mile (pick-from-store) ecommerce assets ecommerce flows Line haul Brand s.com Distribution Center Unit or eaches picking to basket Pick against consumer order Can be located 750 mile to <50 mile of demand Retailer.com Distribution Centers Last Mile (click and collect) Homes Lockers Last Mile 750 <50 miles (depending on order lead time: 3 days vs. same day) Parcel express trucks if Next -3 days Delivery vans, courier, drones if Same/Next day Source: A.T. Kearney 6

7 Omnichannel supply chain is different than traditional retail Challenge Network Footprint Traditional Brick & Mortar Focus Store location key Less demand volatility Omnichannel Focus Store+ warehouse key More demand volatility Inventory Management Visibility at pallet level Fewer, higher velocity SKUs Visibility at basket level More, thin SKUs Warehouse Operations High volume cases Replenish stores Low volume eaches units Building consumer baskets Front & Back- End Systems Limited need for real-time integration and analytics Real time Big Data analytics and integration critical Source: A.T. Kearney 7

8 Supply chain and fulfillment is critical for omnichannel success More Direct Impact on Consumer Experience More Impact on Profit Higher Consumer Expectations Brick & Mortar Missed cross-dock scheduling or delay in LTL replenishment = increased likelihood of shelf Out of Stock Omnichannel Delayed online order fulfillment from warehouse fulfillment = 100% unhappy customer Source: A.T. Kearney; GfK FutureBuy 8

9 Amazon vs. Walmart: supply chain disruption accelerating Amazon Overtakes Walmart in Market Cap Walmart: 25 years to reach $20B (USD) Amazon: 14 years Alibaba: 9 years Source: Morgan Stanley; Bloomberg 9

10 Agenda Introduction: What is omnichannel? Why is supply chain critical? What is customer promise? Why is customer promise segmentation key for designing a winning supply chain? Key trends in omnichannel and implications for future supply chains 10

11 Omnichannel supply chain must start with a clear segmented view of future consumer promise Less Important More Important Illustrative Customer Promise Grocery Fresh Personal Care/Beauty Apparel Electronics Home & Furniture Delivery Speed: <2 Day Delivery Lead Time Endless Aisle Assortment Free Shipping Cost Subscription/Auto refill Product Recommendations Product Sampling M-checkout and text Click & Collect No Hassle Returns Any Channel Trade-off bets are key!. why place bets at all? What about Amazon? Source: A.T. Kearney 11

12 Customer promise drives optimal supply chain design and vice versa Category Customer Promise Assortment Delivery Time Returns Replenishment Orders Order notification Supply Chain Requirements Network Throughput Delivery Speed Asset Product Cube Profile Peak Profile SKU Count Ensure Optimal Design Footprint / flow Capacity Eaches picking solution Technology/ CapEx Personalization Inventory SKU Velocity SKU Productivity Capital outlay Traditional B&M Retailer Omnichannel Define strategy Pilot Roll out Define (Many) Strategic Scenarios Model (Should-cost, benchmarking) Pilot Sequenced Roll-Out Source: A.T. Kearney 12

13 2 days delivery 1-2 days Same-Next Day Example: Delivery speed can impact DC asset and capital needs Delivery Speed (in business days) Big & Bulky Consumables & Baby Current industry range Emerging table stakes in future days Same Day Fulfillment Network Needs Store picking com warehouses Toys Electronics Hardlines Apparel and Beauty Media Store picking 4-8.com warehouses 4-7.com warehouses Leverage existing store (case picking) warehouses Source: A.T. Kearney 13

14 Agenda Introduction: What is omnichannel? Why is supply chain critical? What is customer promise? Why is customer promise segmentation key for designing a winning supply chain? Key trends in omnichannel and implications for future supply chains 14

15 Global trends shaping omnichannel fulfillment and supply chain 1 Blurring of Manufacturer and Retailer Value Chain 2 Rise of Marketplace 3 4 Strategic Bet in Same Day Delivery Flexible Fulfillment Networks Service Assortment Service Convenience Competitive Frontier Tomorrow Best Today 5 Ambidextrous Role of Stores Efficiency 6 Digital Disruption Source: A.T. Kearney 15

16 1 What is the traditional role of retailers vs. manufacturers? increasingly blurring today Design Source Make Distribute Sell Deliver New product specifications from demand Bundle products into end consumer batches Distribute batches to points of purchase or consumption Discovery and trials Offer vehicle for purchases Ensure order fulfillment Retailers Manufacturers Leading Beauty Retailer Strong in Private Label ~360 self-standing stores + ~570 within JCP Sephora leader in beauty Ecommerce (22%+ sales online) Sephora private label assortment includes 700+ SKUs Launched new designer cosmetic collaboration within LVMH group with Marc Jacobs Brands aggressively expand Retail Footprint and DTC sales L Occitane sells 9% online, with the channel experiencing 30%+ growth in 2015 Significant retail footprint: L Occitane, MAC, Benefit, Kiehl s, Urban Decay, NYX owned stores, The Body Shop; Pure online subscription services e.g., Birchbox, looking to expand with retail presence as well Source: A.T. Kearney 16

17 1 Manufacturers across sectors are pursuing forward integration Depth of Offering Level 1 Level 2 Level 3 Level 4 Level 5 Service / Omni No hassle returns One click live customer service Omni-channel integration Buy / Fulfill Buy online for direct delivery 1-click and/or mobile-payment Store pick-up Global shipping Store fulfill with last mile delivery Shop Online customization Retail location recommend Customized order management Subscriptions Segmented assortment by channel Product sampling for VIP customers Research Online/mobile product search Side by side feature comparisons Online memberships High resolution specs/photos (3D) Product narration User feedbacks and reviews Smart recommend User communities Source: A.T. Kearney What drives the intensity of Manufacturer s forward integration? 17

18 1 Supply Chain Implications For Manufacturers For Retailers Manage Channel Conflict Better segmentation of products and SKUs to cost to serve (manuf. direct vs. direct ship vs. retailer) Ensure touch points are aligned to maximize consumer journey with brand (Integrated flows by category/channel that drives win-win value) Strategy Shared asset and capabilities (e.g. manufacturer s E-store on retailer marketplace) Improve Collaboration Joint inbound logistics optimization (e.g. factory to retailer DC direct, etc.) Retailer showroom integrated with manufacturer fulfillment (direct ship) Capabilities Direct to consumer fulfillment and go-to-market strategies Eaches picking DC and fulfillment networks De-centralized, forward deployed inventory flows and management Fulfillment network integration with retailer store/web orders Store and pop-up store operations and systems Adopt manufacturer mindset and capabilities in private label: Product development and component sourcing Lifecycle management Should-costing, benchmarks Manufacturing and contract-manufacturing Develop segmented supply chain for private label More sophisticated inventory deployment Managing more on-hand inventory Eaches / piece-picking based flows 18

19 2 Birth of the Market Place The concept of Market Places have been around since the Classified Ads in the Sunday paper Digital Market Places have existed for over 20 years On-line retailers quickly discovered the power of the Market Place led by Amazon and ebay What exactly is an online marketplace? 19

20 2 Marketplace is now a key growth platform for omnichannel The Top 3 Marketplace growth as outpaced traditional e-commerce growth Lower cost, lower risk way to sell to new market Endless aisle, long tail marketing Alibaba $11B USD in Single Day s sales (Chinese equiv. of Cyber Monday) in 2015 On pace to surpass Walmart in gross merchant value by 2017 Amazon Marketplace sales growing at twice the pace of overall e-commerce Why would a Retailer build a Marketplace? Why would a Brand use one? Source: A.T. Kearney 20

21 2 Supply Chain Implications Strategy Marketplaces are key consideration in almost every e-commerce company Can be a significant compliment to standard e-commerce sales; used by many U.S. and European retailers to expand in emerging markets With lower lead-time expectations vis-à-vis new product assortment and pricing in Asia, marketplaces are a low risk alternative Rapidly becoming primary e-commerce channel in China Great opportunity to introduce niche products and go after niche consumers Emerging market locations find marketplaces to be a low risk opportunity Capabilities Channel risk management (quality, imitations, lead times are risk-points for consumers) Integrated cost and flow modeling logic (decide between: holding inventory, cross-docking orders, and direct flow) Technology integration with vendor OMS Technology and supply chain organizational DNA, not just traditional retailing 21

22 3 What is the Last Mile? Same Day Delivery? Movement of goods from the last inventory point to the point of consumer chosen access in 24 hours Retailer DC Home or Office Retailer Store Order to Delivery <24 hours Lockers Manufacturer DC Store for Pickup Converted / Dark Store Source: A.T. Kearney 22

23 3 Same Day is still emerging but rapidly growing Drivers for Same Day Penetration Same Day Delivery Market US ($B) 58%-64% of Millennials want Same Day 61% consumers willing to pay for Same Day convenience Supply side innovation transforms cost economics (e.g. crowdsourcing) Source: B.I. Intelligence What are the challenges preventing mass adoption in the US? Source: Trustve; Coldwell Banker; PWC 23

24 3 Several Same Day supply chain models emerging Retailer Managed 3PL Managed (Owned) 3PL Managed (Crowdsource) Marketplace (Outsourced) Marketplace (Crowdsource) Retail owned and operated last mile assets and drivers Outsourced to a 3PL who executes with owned assets and drivers Outsourced to a 3PL who fulfills using crowdsourced drivers Retail sells through a marketplace, who in turn manages last mile delivery using owned and/or 3PL assets Retail sells through a marketplace, who in turn manages last mile delivery via crowdsourced drivers Control and Shopper Visibility Scale efficiency and access to enabling capabilities Higher Lower Which brand category likely to adopt which model? Lower Higher Source: A.T. Kearney 24

25 3 Many are making strategic bets in Same Day Retailer Managed 3PL - Crowdsourced US Offered across 11 metro areas (~25% of population area) $5.99 (Prime); $10+ $.99/add l item(non-prime) 500K-1M SKUs UK Same day click & collect Order before 11AM/ready by 4pm; order by 7:45pm/ready next 8-10AM Free (Prime); $BP 4.99 (non Prime) Leveraging ConnectGroup news distributor partner (500+ stores / pick-up locations today) China Same day delivery across 40+ cities Piloting 3 hour delivery in 6 major cities Owned network of 7 DCs, 97 warehouse and 715+ pick-up stations In-house real-time tracking and routing technology platform US Offered across major US cities $5-6 (basket >$99); $15 (basket<$99) Order by noon-1pm (mon-sat) Marketplace - Crowdsourced US 6 US metro areas $95 annual subscription or $5/order (consumer) + commission from retailer Strategic value sharing / conflict beyond fulfillment (consumer intel) Source: Financial Times; Guardian; Mintel; Amazon; RILA; AT Kearney 25

26 3 Supply Chain Implications Ensure Same Day requirements linked to omnichannel consumer promise and broader supply chain strategy at the category level Strategy Determine which categories are candidates for same day delivery: (grocery, mobile devices, specialty products, high margin products) Pilot and experiment with different Same Day models, do not dismiss models pre-maturely Determine the reason for Same Day: drive sales, competitor requirements, marketing play/ excitement Define clear, fact based approach to activating Last Mile Establish understanding into should-cost / should-impact drivers (e.g. cost drivers for crowdsource model, trigger point managing Uber like courier risks, etc.) Capabilities Define clear inflection points between investing internal Same Day vs. 3PL managed vs. crowdsourced models (e.g. value of absolute performance vs. differentiation? First mover or Fast follow?) In-market product availability ensure upstream supply chain footprint and systems can support inventory replenishment processes and one-pool inventory visibility 26

27 4 Building a flexible network with dynamic flows will be key for competitive performance Nimble Connected Network Suppliers Store DCs Store A Store Fulfillment (Deliver or Collect) Right Mix of Flows Needed for Differentiated Performance Inbound Consolidate X-dock combo DCs Store-to-DC recirculate D B C Slow mover replenish Inter-store hot run replenish Store 2-Next Day Customer A B C SC Cost INV Cost Service Variety Inbound E DSV (direct ship vendor) High velocity DC Same / Next day D E Non-traditional supply chain flows Enable best possible Source: A.T. Kearney 27

28 4 Fulfillment center design and solutions are also rapidly evolving Store or Mini- Hub Picking Store Converted Warehouse High Velocity Eaches Warehouse Low Velocity Eaches Warehouse Nature of In-Scope Demand Lead Time Assortment (Capacity) Pick/Pack Cost.com Volume CapEx Same/Next Day Same/Next Day Next 2 Day 2 3 Days Low (2-5K SKUs) Med-High ($1-2/unit) Low (5-10K SKUs) Low-Med ($1-2/unit) Medium-High (15-50K SKUs) Low ($0.4-1/unit US) High (50-200K SKUs) Med ($ /unit US) <1MM units/year <5MM units/year >5 MM units / year >5 MM units/year Low Low Med-High Med-High Source: A.T. Kearney 28

29 4 Leveraging partners is also critical for flexibility and learning Category Profile 3PLs and supplier direct ship as part of overall fulfillment Illustrative VOLUME >25K orders/day 1-25K orders/day <0.5K orders/day Optimize cost vs. service PEAK Low Seasonal peak Moderate Seasonality Highly Seasonable Minimize overinvestment SKU TYPE EXPERIENCE AFFINITY Fast Moving SKUs Extensive In- House Fulfillment Experience High x-category Affinity Fast + Medium Moving SKUs Developing In- House Experience Medium x-category Affinity In-House Operations 3PL Partnership Supplier Direct Ship Long Tail SKUs New Category Low x-category Affinity Invest with demand, not ahead of it Grow and experiment long tail assortments Disciplined learning? Owned Outsourced Shared On-Demand Source: A.T. Kearney 29

30 4 Supply Chain Implications Strategy Iterative Design Rapid Analytics Iterative refresh of supply chain design and strategy as part of annual planning cycle Compress planning cycle (next generation supply chain is next 1-2 years) Feedback and update from field experiments and pilots Faster modeling and more predictive analytics Collaboration with Merchandising, Finance, Sales on key modeling assumption and inputs Embed what-if simulation capabilities Embed predictive analytics (forecasting, replenishment) Technology Logistics DC Fulfillment Organization Capabilities Priority Real time inventory visibility one pool POS (demand signal) integration with OM, Replenishment Visible and accurate cost to serve Dynamic channel decisions (direct vs. 3PL vs. DSV) Future Common item file Local delivery TMS Priority Geographic inventory planning Store to store transportation Distributed order management Future Inbound freight optimization Dynamic order sourcing 3 rd party logistics integration Priority Right level of automated material handling (voice, pick to light, Goods to Man) WMS with flexible batch and wave picks Conveyance for multiple flows (reverse, x-dock, expedited) Future Capabilities Product customization and personalization Priority Centralized (PMO) for supply chain decision making Integrated, customer-centric performance metrics Future Omnichannel culture New employee capabilities 30

31 5 Future stores will be ambidextrous, combining the right mix of Consumer Experience and Local Fulfillment Consumer Experience Local Fulfillment Treasure Hunt Incubate exclusive or little known brands exclusively Pick, Pack and Ship (Same Day) Merchantainment Provide an exciting environment to engage consumers in-store Click and Collect (In-Store / Drive-Thru) Product Trial Allow shoppers to touch and feel products Inter-Network Transfers Relationship Management Enhanced level of personalized service Returns Getting the right balance will be key for retailers Source: A.T. Kearney 31

32 A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most missioncritical issues. For more information, visit Americas Atlanta Bogotá Boston Calgary Chicago Dallas Detroit Houston Mexico City New York Palo Alto San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Taipei Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Doha Dubai Johannesburg Manama Riyadh 32