Supply chains – Not so many years ago
My early experiences with Supply Chain design and management mostly involved products flowing in one direction alone, from the supplier to the customer. The world was so logical with defined order plans beautifully transposed into supplier orders and deliveries. The products used to arrive on pallets, well stacked. There were some processing centres within the warehouses, but mostly focussing on restacking, labelling and packing. Most of the orders were picked for stores, while a handful to be delivered directly to customers for orders placed via internet. Funny concept, after all why would someone want to order directly to their homes. People were quite sure that store deliveries will still be the future and ecommerce will always play a second fiddle. There were some returns, but not significant enough to warrant much attention. They would mostly lie on one side of the warehouse before a bulk of it was either sent back to the suppliers or disposed of. Product visibility and data was quite flatly managed and was not so complex. Life was so simple back then.
Fast forward about 15 years to today, and the reality is very different. Where the high street is seeing a decline in footfall and many stores have their backs to the wall, we have seen ecommerce grow at an unprecedented rate. Most of it can be attributed to the changing customer needs and the opportunities that the digital world continues to offer. At the same time, entrepreneurs continue to push the boundaries of the possible, to introduce newer technologies and ways of working. Though one has seen business strategies being redefined, most businesses dealing with physical product flow, are still coming to terms with what this will mean for their distribution infrastructure and processes.
Systemic changes in supply chain
The growth in ecommerce has led to four additional logistics areas in the last 15 years
- E-Fulfilment Centres: Where traditionally, the products were stocked and picked in bulk, e-fulfilment centres allow products to be stocked and picked at item level. These can be operated by retailers or by LSPs. These 24/7 sites are the key to keeping promises and should be designed for purpose. For instance, though Amazon already operates over 15 facilities in the UK, it has already invested in special centres only for its Prime Now business, which promises even quicker deliveries to certain geographical clusters. Once picked, the shipments are sent to a sortation centre for further processing.
- Sortation and Delivery Centres: The sortation centres sort order by postcodes to be delivered to a specific delivery centre, which further sorts and manages the last mile delivery
This operation is very much like the post office operation, which allows multiple sortation points. The analogy works for parcels and small deliveries, but not exactly for bulky items like a couch or a bed, where they use larger facilities with different handling processes.
- Returns Management: Across all changes discussed in this blog, returns management is probably the most important and complex areas to manage. Today returns volume might constitute the largest supplier into a warehouse or a fulfilment centre. Moreover, this volume mostly arrives in haphazard boxes and requires a lot of processing before it can be returned to the pick area.
As discussed in one of the previous blogs, the total cost of returns could be close to 10% of the total revenue of the company, underlining the importance of returns as a function.
- Technology: The world is now seeing seamlessly integrated technology where shopping carts connect to a transportation management system so shoppers are getting the exact price quote. This is quite interesting as this allows for sophisticated algorithms to define the cheapest mode of deliveries for a specific service selected by the customer at real time. Real time tracking, product availability, invoicing and payment alerts also help improve the overall customer experience.
The logistics of returns
Though at a high level, the returns might just seem from the point of collection from a customer to the return into the system for resale, there are many activities that go in between.
- Firstly, collection of returns is the last touch point with the customer in the buying process and hence an important point to ensure customer satisfaction and preserving customer lifetime value. There could be multiple ways of returning items, like Amazon lockers, In store and Parcel delivery services. These should be well aligned with your existing logistics network to improve alignment and keep costs down.
- Once collected, the item needs to be brought into a returns processing centre for processing. This could include cleaning, repairing, packing and labelling before it is set aside for resale. Since many supply chains do not have this facility planned into their existing fulfilment centre, they either set a place aside in their existing facility or subcontract to a separate facility.
Often subcontracting to an external returns processing centre works better, but as long as the overall cost is considered for making decisions, including any cost of disrupting the flow within a fulfilment centre, either option might work for businesses
- Having visibility on what is in the returns package helps the situation. This could act as a supplier ASN with details on products and transport; which in turn helps with planning the subsequent activities. It also reduces errors of sending parcels to a wrong facility, if you have multiple fulfilment centres.
- It is also important to classify items as per the issue code, as businesses may want to send them directly to their suppliers rather than processing and transporting unnecessarily.
- It is important to have a clear returns policy to avoid any concerns at either end. It should be accessible, simple to read, clearly defined with a clear timeframe and process involved. This should again be aligned with your existing supply chain processes.
- Last but not the least, the returns process should be well aligned with your customers, suppliers and your existing supply chain. The returns process begins with the customer initiating returns on your website (or other ways) and ends with customer getting the refund, you getting refunds from your suppliers and the item either received by your supplier or made available for sale. These considerations need to be accounted while defining your returns logistics process and governance.
How to reengineer the supply chain
We at 4C have utilised a 5 step model to prepare supply chains for the new age challenges
- Develop a supply chain strategy, in alignment with your business strategy
- Segment your supply chain and gain end to end visibility – Assess SLAs across the various parties involved
- Assess upstream and downstream demand fulfilment models to define lean and agile sections of your supply chain. There could be a combination of these across the various supply chain segments.
- Reengineer and Streamline B2B and/or B2C fulfilment Processes, utilising a variety of options like drop shipping, replenishment, dynamic review, etc.
- Link demand and fulfilment systems to ensure visibility and channel alignment
- Implement continuous improvement programme: Instil a culture of improvement through regular customer feedbacks and efficiency programmes
This model has allowed our clients to constantly challenge their business models and review their supply chain strategies; ensuring fit to customer requirements.
If you are a pure play brick and mortar store or an ecommerce business, or a multichannel retailer, you are no longer able to shy away from the ever-increasing supply chain challenges. Supply Chains are rightfully emerging from the shadows of cost reduction and providing competitive advantage to businesses. More importantly, the UK business graveyard is full of big names that failed to embrace these supply chain changes.
It is important to review your channel offerings, may it be your ecommerce strategy, your multichannel strategy or your returns supply chain itself. While most of the UK businesses are still struggling with supply chain visibility and control, starting the improvement journey could provide you with an invaluable competitive advantage.