“Increasing customer

expectations - greater

choice, transparency in

price and product

substitution, to top it all off

there are a range of highly

competitive delivery

offerings”

“Less tolerance for getting

it wrong as reverse

logistics is expensive, unit

pick costs are high. Stock

transparency via real-time

data and managing stock

obsolescence becomes

more critical”

E-Commerce - Transforming Australian Supply Chains

© GRA 2014

About GRA and the Authors

James Allt-Graham

Partner

GRA Sydney

GRA is Australia’s premier, expert consulting firm specialising in

supply chain & logistics strategy, planning and execution. We offer

consulting, professional services, supply chain systems, training &

education and benchmarking across a broad range of industries.

Shanaka Jayasinghe

Senior Consultant

GRA Sydney

Phillip Diao

Consultant

GRA Melbourne

© GRA 2014

This year has been challenging for retailers. As the economy struggles to pull itself

out of the most recent financial crisis, consumer confidence is low which is negatively

influencing discretionary spending. The warm start to winter also saw apparel retailers with

greater import lead times slow to respond to changes in demand. Contrasting promotional

strategies from leading retailers such as Myer and David Jones highlighting how some supply

chains are more exposed than others.

Supply chains are becoming more complex. Australian retail supply chains today

must be capable of managing increasing customer expectations (lead-times, pricing, options),

channel diversification (online, store, multi-channel, omni-channel) as well as increasingly

complex product sourcing strategies.

A step-change in supply chain design and capability is required if retailers

are to remain competitive in the long-run. The unseasonable weather could arguably

be a one-off, but e-commerce is not. The emergence of multi and omni-channel retailing

requires structural changes for Australian retailers.

Our Perspective…

Supply chain design is currently based on supporting the traditional bricks & mortar business

strategy

Online means business strategies and customer value

propositions are evolving

This is prompting a step-change in

supply chain design to deliver this new business strategy

© GRA 2014

Transparency

Low Cost

Communications

Information Processing

Greater Expectations

Increased pricing pressure

Product Proliferation

Shorter lead-times

E-commerce

Supply chain step-change

Why is online challenging?

Consumer expectations are shifting as they take more of their spending online. The latest Productivity Commission report projects growth of up to 15% per annum in online sales. Driven by the

proliferation of the internet and smart phones, Australians are increasingly making their clothing and electronic

goods purchases from the office or the comfort of their homes.

Because of this, many brick and mortar (B&M) retailers are taking their offerings online. In this rush, companies

with supply networks designed to support their B&M stores cannot adequately serve their online customers

without impacting their bottom lines. The challenge is making ecommerce work for the consumers and the

business. In this paper we will explore these challenges to understand the opportunities and constraints.

© GRA 2014

Online complexity…

Greater choice and transparency in price and product; with information readily accessible, consumers are more informed than ever

about the products they want. From online reviews and comparisons customers have already made up their mind on what they want

to buy before going to a store website.

Highly competitive delivery offerings with free shipping and prompt shipping offered by most online retailers. Studies have indicated

almost half of all carts are abandoned due to shipping charges and respondents said shipping charges weighed heavily on their

choice of on line retailer. Getting the delivery offering right can be a competitive advantage.

Planning becomes even more pivotal to success…

Ranging and availability to offer same or next day delivery means optimal stock must be on hand. Warehouse space is limited, when

ranging for online, SKUs have to be carefully selected to offer the customer value but must also have sufficient margins. Servicing

customers profitably and range planning for each channel is vitally important if a retailer is to survive e-commerce profitably.

Stock transparency is crucial, giving customers the assurance that any orders placed will be fulfilled in a timely manner. This

requires an IT infrastructure that will allow for up to the minute inventory tracking. Proper inventory tracking will also allow the

business to be more agile and smarter about stock management.

Execution and physical network requires re-design…

Less tolerance exists for getting it wrong as reverse logistics can be expensive, unit pick costs are inflated and stock transparency via

real-time data as well as managing excess stock becomes more critical.

Picking costs are higher since items have to be picked at the unit level. Traditionally done by the customer in-store, unit picking for

online sales have to be done by staff as an added cost.

Reverse logistics can be handled by B&M stores or via return shipping; with the aim of returning sellable products to inventory

quickly. How do we ensure a seamless and pleasant experience for the customer at a moment where we can either earn their loyalty

or lose future sales?

Why is online challenging?

Online ComplexityPlanning (ranging and availability of product)

Execution (responsiveness

& price)

© GRA 2014

What can we learn from overseas?

The Australian market has some unique characteristics that limits the effectiveness of replicating

models from overseas. Therefore, a solution that can be customised for the Australian environment is required.

Three key challenges to overcome:

Volume requirement: Centralised fulfilment due to the economies of scale is more efficient, however, critical mass in volume

is required. Arriving at such volumes for most businesses is challenging in the Australian market.

Ranging Discipline: Multiple sources of supply and increasing global import trends mean bricks and mortar retailers require

well defined and disciplined ranging policies to drive volume in a range that does not become overly exposed to obsolescence.

Warehouse design: Most existing warehouses are designed for bulk storage to cover production & overseas lead times, and

efficient store replenishment, not discrete item level picking which is typically required for online fulfilment.

These challenges are not insurmountable. Many businesses are already restructuring their supply chain networks, incorporating

omni-channel retail in its design, turning these challenges into competitive advantages.

Pure online Bricks and mortar

Start up challenge is to grow to critical mass and get efficiency - businesses

initially lose money and buy market share

Are looking to protect market share and face dilution of sales from current

stores and struggle with the consequence of unprofitable stores

Once they achieve critical mass they are very price and service competitive.

E.g. Kogan. Who in 8 years are now the biggest online electronics retailer and

can now even source their own branded product due to volume sales and

buying power

Many are trying a variety of store fulfilment, separate online fulfilment center

models as a protective measure rather than a strong growth strategy

Lower corporate overheads with focus on IT, product and 3rd party contract

management High corporate overheads to manage property, people, finance.

© GRA 2014

Recently GRA purchased product from over 25 major retailers on line.

We found that many had challenges in delivering the required products on time.

Poor performers all incurred significant costs of being unable to deliver:

• Transaction costs/Reverse logistics where errors were made in pick / pack

• Increased warehousing /labour costs where product was sourced from alternative sources

• Unsatisfied Customers where orders were not delivered or delivery windows were not achieved

• Follow on damage to brand and customer loyalty due to a poor service experience

Those that delivered well demonstrated the following characteristics:

A well laid out and intuitive website

Clarity of what stock was available for ordering

Ease of ordering and payment

Delivery on (or earlier) than promised

Good presentation of product upon arrival

A positive service experience that builds brand loyalty and repeat sales

Currently many Australian online retailers are not well positioned to increase

profit through their online business…

© GRA 2014

When it goes wrong…

When it goes well…

Some key attributes of what works and what can go wrong online…

OrderStock Out

Partial Pick

Shipment

Incorrect

Shipment

Contact

Customer

Partial Pick

Delayed

Shipment

Return

Logistics

Re-stock

Unsatisfie

d

Customer

Re-pick

Re-ship

OrderStock

Available

Single Pick

and Pack

Speedy

Shipment

Happy

Customer

The difference in number of transactions involved, cost and ultimately customer satisfaction can be significant…

© GRA 2014

Substantial opportunities exist for retailers that implement a well-designed and executed multichannel strategy.

There is a significant opportunity if you get it right...

When it goes well…

OrderStock

Available

Single Pick

and Pack

Speedy

Shipment

Happy

Customer

Enter new markets and interact with new customers. The reach of online retail is only limited by the reach of your supply chain networks. There is greater opportunity to grow your customer base as your supply chain matures.

Availability of real time transactional data is one opportunity that has been leveraged by many retailers. Even greater opportunities are offered by real time browsing data. Leveraged effectively, this insight can offer greater supply chain agility and ensure the right products are available in the right volume at the right time.

New KPI’s such as lost sales can now be tracked. Insight into previously hidden avenues can be utilised to evolve customer value propositions.

© GRA 2014

Retail and delivery offerings are likely to continue evolving…

Online retail is on the path to becoming increasingly personalised and agile.

Business that can provide personalised service and are

responsive to customers while growing their margins in this competitive channel

will become the future leaders in retail.

© GRA 2014

Same day delivery is becoming increasingly common, novel delivery methods are being explored...

The pace of change is accelerating, businesses slow to react will face diminishing market share. Retailers replicating solutions ill-suited to

their business are seeing shrinking margins. The key to creating a competitive advantage is a tailored supply chain that suits both the

business and the customers.

Amazon has gained much publicity for its Amazon Prime Air concept, in which automated aerial drones deliver products directly into your

backyard. Automated logistics – from unmanned aerial drones to self-driving cars, automation is a developing area in the logistics space.

As regulations have worked out, automated vehicles will become more prolific. Another initiative is on ‘anticipatory shipping’. Leveraging

large amounts of customer data, purchases can be predicted and sent to hubs near the customer prior to the order being placed. This

allows the customer delivery times to be reduced while using traditionally cheaper but slower forms of transport.

Uber is likely to be another disruptor in the logistics fulfilment space, particularly last mile fulfilment. Currently their main business is as an

on-demand car service however Uber are looking to leverage this driver network and have conducted many promotional activities

delivering products such as Christmas trees and ice creams to customers within minutes. An example of this is Uber’s recently launched

‘Corner Store’.

Is your business ready?

Order analytics to gauge supply

chain weaknesses and

strengths

Well presented and protective

packaging

Up to date and visible stock

tracking at fulfilment locations

Low cost or free delivery, and

expedited delivery options

Tracked packages and

deliveries made within the

promised window

Distribution network

configuration suited to product

and delivery promise

Streamlined returns process

and rapid re-stocking

capabilities

Efficient unit level picking

capabilities suited to

operational scale

How many of these boxes does your business tick?

© GRA 2014

www.gra.net.au (03) 9421 4611

Find out more…

At GRA we understand the complex challenges retail organisations are facing.

We can help you with not only designing an optimal retail supply chain, but also

ensuring that your inventory is optimised to ensure that the highest possible service

levels can be achieved at the lowest possible cost.

To find out more, call (03) 9421 4611 or visit www.gra.net.au

© GRA 2014