PURPOSE-DRIVEN ADAPTABLE RESILIENT

FLUID SUPPLY CHAIN ECOSYSTEMS

FOR DELIVERING DEPENDABLE RETAIL

Retail

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Supply chains are increasingly facing major disruptions such as Brexit, global recessions, and now COVID-19 topping the list. Even the finest supply chains, with the most cost-efficient and customer-centric strategies are facing humongous challenges to respond to the pandemic. Retailers are struggling to strike a balance between demand and supply while ensuring positive margins.

As retailers grapple with the realities of the post-COVID world, they are looking at reinventing themselves. To be aligned to the needs of a changed consumer and business environment, supply chains need to evolve into dynamic supply chain ecosystems necessitating enhanced fluidity. This allows for synchronized demand and supply planning, and connected and transparent logistics.

Introduction

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In addition to fluctuations, volatilities, and macroeconomic shifts, a combination of other forces such as global integrations and increased focus on phygital experience has sparked a new revolution in supply chain networks.

• Fluid partnerships: Today, networks can no longer be restricted to static long-standing partners, but also need a new generation of dynamic and short-term partners to co-exist. These dynamic partnerships can exist anywhere in the value chain to augment capabilities even for a brief duration; for example, to meet the surge in delivery volumes during the COVID-19 pandemic, grocery retailers partnered with food delivery startups for parcel delivery.

• Catalyst for greater sustainability: Sustainability is now a basic expectation and not a trend. According to an analyst report, 35% of retailers have incorporated new sustainable product lines.1 For example, many direct-to-consumer brands (such as IKEA) have built business models around rental and subscription services. Few others have built sustainability into their businesses by offering damaged and refurbished items.

• Engagement beyond products: Consumers are no more distant buyers and they do not relax after buying. They expect companies to understand their needs and expectations, and offer personalized services. As per CBRE, in 2019, customers returned about 15-30% of their online purchases.2 Therefore, the existing supply chain

Stronger Together: Embracing Supply Chain Ecosystems

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KPMG, "Leading global fashion players making progress towards embracing sustainable fashion, according to report by KPMG, Fashion Summit and HSBC” (September 6, 2019), accessed June 2020, https://home.kpmg/cn/en/home/news-media/press-releases/2019/09/leading-global-fashion-players-making-progress.html

CNBC, “More online sales mean retailers need to solve a $50 billion returns problem this holiday season” (December 2019), accessed June 2020, https://www.cnbc.com/2019/12/19/online-returns-this-holiday-season-to-hit-record-41point6-billion.html

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network is required to ensure more competitive returns through profitable reverse streams. A renowned cosmetics brand is selling products directly to consumers via its own ecommerce website and also through other retailers. This is enabling the brand to have a direct engagement with consumers, and also minimize returns by personalizing the end-to-end experience.

• New invisible retail marketers: In addition to consumers, indirect and invisible influencers also modify and shape network demands through focused engagements. According to Adweek, the influencer-led market is set to reach $10 billion by 2020.3 As seen from this trend, retailers are benefitting (more leads and conversions, increased brand recognition, and more credibility) from such collaborations.

These developments indicate that supply chain networks cannot operate within pre-defined boundaries; they need to embrace a new set of roles and capabilities for building a cohesive ecosystem. This requires a 360o view of all entities in the chain—partners, players, and consumers—with easy access to

multiple channels and data exchange across platforms. Such a breakthrough revolution would entail either single or multi-fold transitions as shown in Table 1.

Table 1: The Network Reimagination Canvas: Key Transformation Areas Shaping the Supply Chain Ecosystem

Transformation Levers Examples

Business Models Business-to-Business, Business-to-Customers, Business-to-Business-to-Customers, Service Bundled Retailing

Purchasing Models Systematic Sourcing, In-Spot Sourcing, Aggregation and Matching

Distribution Nodes Automated Fulfillment Centers, Micro-Fulfillment Centers, In-store Fulfillment, Dark Stores, Truck Terminals, Hubs/Consolidation Stations

Partners and Players Manufacturers, Suppliers, 3PL, Last-Mile Delivery Partners, Aggregators, Smart Forwarders

Ownerships Single or Mutual, Leased, Outsourced and Open Collaboration

Network Streams Upstream, Downstream, Reverse

Retailing Formats Owned/Partnered Stores, Direct-to-Customer Sales, Off-Price or Full-Line Discount Outlets

Customer Associations One-Time Buyers and Loyalists, Micro and Macro Level Influencers

Planning Horizon Strategic Plans, Tactical Plans, Advertent Operational Tunings

Communication Transactions, Pre-Emptive Plans, Pro-Active Alerts and Recommendations

Trading Policies Arbitrage, Cross-Channel Fair Share, Sold and Return Volume Limits

Employment Models Fixed, Contractual or Seasonal, Man, Bots or Hybrid Workforce

3 Business Insider, “Influencer Marketing: State of the social media influencer market in 2020” (December 18, 2019), accessed June 2020, https://www.businessinsider.com/influencer-marketing-report?IR=T4

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As shown in the network reimagination canvas, there are multiple levels and dimensions of transformations that are shaping the new supply chain ecosystem. A few retailers have already adopted some of these transitions quite early to ensure better customer experiences. For example:

• Coca-Cola uses both B2B and B2C sales models, selling its products with extensive distribution networks, while also selling products directly to consumers.4

• Ocado, the online supermarket, now sees itself as a tech company rather than a retailer.5 It is delivering orders using automated warehouses to selling robotics software to other retailers.

• Target and Disney teamed up to bring the magic of Disney stores to Target shoppers to boost sales and create superior personal experiences.6

• Decathlon, the world’s largest sports retailer, recently launched automated store fulfillment capabilities to leverage its stores for growing ecommerce sales.7

• While regional distribution centers are serving grocery chains with greater footprints, a few food retailers are solving last-mile economies using micro-fulfillment centers. For example, Fabric, the robotics startup, has started building fully automated micro-fulfillment centers for a renowned grocery retailer.8

With a successful network evolution, the resultant ecosystem will be able to deliver quick profitable propositions with innovative business models (such as loosely coupled partnerships between multiple buyers and sellers, which can ensure reduced interdependencies), sustainable operations (such as switching and relaying logistics, and shared warehouses that can lower costs), enhanced synergies (where players not only co-exist, but derive inspirations to co-develop and co-create new values), and shared risks and rewards that is fairly distributed across network partners.

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Multichannel Merchant, “The Empowered Consumer: Navigating the New B2B2C Digital Landscape (July 22, 2019), accessed June 2020, https://multichannelmerchant.com/blog/empowered-consumer-navigating-new-b2b2c-digital-landscape/

ZDNET, “Retailer or future unicorn? Ocado's business model still has many promises to keep” (November 20, 2019), accessed June 2020, https://www.zdnet.com/article/retailer-or-future-unicorn-ocados-business-model-still-has-many-promises-to-keep/

Daily Herald, “Target teams up with Disney to open shops” (November 8, 2019), accessed June 2020, https://www.dailyherald.com/article/20190825/news/308259916/

Chain Store Age, “Decathlon turns stores into fulfillment centers” (February 2, 2020), accessed June 2020, https://chainstoreage.com/decathlon-turns-stores-fulfillment-centers

The Wall Street Journal, “Grocery Delivery Goes Small With Micro-Fulfillment Centers” (January 27, 2020), accessed June 2020, https://www.wsj.com/articles/grocery-delivery-goes-small-with-micro-fulfillment-centers-11580121002

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As supply chain networks transition into ecosystems, they must reinforce fluidity-enabling characteristics such as mutually empowering behaviors and incentivizing collaboration within and beyond supply chain networks, plug and play enablement, and value chain transformation to maximize supply chain efficiency (see Table 2).

Table 2: Drivers of Fluid Supply Chain Ecosystems

Fluid Superpowers that Enable Dynamic Supply Chain Ecosystems

Partnership & Collaboration Plug & Play Value Chain

• Abundant partnerships with lower capital-intensive investments

• Plug-and-play relationships with loose coupling

• Co-innovation and collaboration within and beyond supply chain networks

• Swift shifting and course correction

• Development of new bi-directional streams

• Synchronized flow smoothening

• Open integration

• Lights out contactless operations

• Digital prototyping

• Logistics as a service

• Micro segmentation and hyper personalization

• Collaborative optimization across cross partners such as retailers and suppliers

• Channel-agnostic order management and predictive fulfillment

• Scalable network design

• Integrated demand and supply planning

• Just-in-time procurement

• Cohesive replenishment and smart allocation

• Smart logistics and freight forwarding

• Dynamic and integrated hybrid-workforce management

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For a supply chain ecosystem to meet all the inter-twined exchange among partners, nodes, or streams quickly and without prohibitive costs, retailers must adopt a fluid and smart network as ‘key fluidity enabling intelligence’. The network should be able to handle evolving complexities and growing affinities and distortion, while managing all the underlying irregularities and providing a cushion to accommodate adjustments and restorations.

Listed are the key attributes of a fluid and smart network design:

• Adaptable framework – From strategic structures to purpose-driven dynamic bonds. The network design should be capable of short-term re-alignment due to demand shifts and profitability trade-offs. Instead of predetermined node capacities and flow

paths, the design should encompass dynamic linkages and best-fit optimum nodes. For example, dynamic flow paths can leverage a flexible distributed order management system, which will select the best node to fulfill an order.

• Equalizing capabilities – From global synchronization to global equilibrium. In contrast to traditional networks, a dynamic ecosystem should achieve optimum state for every single granular segment. Therefore, the design should gauge all possible localized components and achieve feasible equilibrium states among them. For example, an adaptive replenishment system determines the aggregated demands and plans inventory by looking at the future planning horizons, while constantly adjusting the present constraints and prioritizing allocation among nodes.

Smart Supply Chain: Infusing Fluidity into the Ecosystem

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• Risk neutralizing policies – From risk management to pre-emptive risk aversion. To exhibit a risk-neutral attitude, the ecosystem must respond to the uncertainties and also perform suitable actions to reduce the uncertainties. For example, a smart network modelling, equipped with digital twins, scenario analytics, and what-if simulations provides the potential alternatives and facilitates the required course corrections with predictable payoffs.

Balancing Fluidity and Consistency

A fluid topography infuses sensitivity into the ecosystem to respond to the fluctuating micro and macro environments. However, fluidity can cause a lack of focus when it is not tempered by consistency. Let’s see an example to understand why such a balance is required in future ecosystems. The initial shocks from COVID-19 and the continued trade flattening due to trade

restrictions has exposed vulnerabilities in supply chains. Despite recent efforts to reopen stores and ease restrictions, the demand patterns continue to fluctuate. To sustain, reduce, and overcome the impact of the pandemic, retailers need to carefully realign and reimagine networks by using the fluidity and consistency guidelines:

• Re-align flow paths: The current geostrategic distribution nodes that are fulfilling the ecommerce and brick-and-mortar sales require realignment of flow paths to address both aspects—declining stores footfall and growing ecommerce.

• Balance restoration: During the pandemic, many retailers adopted temporary approaches such as decentralizing operations, switching resources, augmenting capacities, and fostering new partnerships. In the post-pandemic world, balanced re-distribution and optimization is needed to adapt back to the preceding operational landscape.

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Fluid supply chain ecosystems can seamlessly adapt to global shifts and exhibit a high degree of resilience. In addition, they also promise a wide spectrum of benefits ranging from improved profitability to developing new competitive advantages (see Table 3).

Table 3: Fluid Supply Chain Ecosystems: Spectrum of Opportunities

Fluid Supply Chain Ecosystems: Spectrum of Opportunities

Network Effects

• Enhanced interoperability

• Improved velocity

• Compounded benefits and reduced risks

Digital Business Strategy

• Omnichannel and omni-service

• Future demand anticipation

• Improved customer engagement and loyalty

Cost to Serve

• Improved cash-to-cash cycles

• Reduced capital intensive investments

• Prevention of margin erosion

Seamless Value Chains

• Integrated network streams

• Eliminated redundancies

• Lean operations

Governance

• Improved transparency quotient

• Effective regulatory interventions

Cross-Industry Extended Ecosystems

• Cross-network synergies

• Improved sustainability

• Integrated value propositions

• Glocal collaboration

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The New Beginning Disruptions are not new to retail. However, COVID-19 has revealed the fragility of complex global supply chains. Creating fluid dynamic supply chain ecosystems is the key to quickly anticipate and weather future disruptions. These connected, autonomous, self-healing, and self-optimizing ecosystems, which are both resilient and responsive, can create new business models, drive transparency, and dissolve modern business barriers.

Successful organizations will not only build a comprehensive ecosystem to thrive, but also keep exploring interactions among supply chain partners to sustain and further develop new generations of ecosystems.

Neha Singh Supply Chain Functional Consultant, TCS

Neha has over eight years of experience in supply chain and retail consulting, and has been working on phygital transformation engagements for global retailers across multiple supply chain areas. She specializes in supply chain networks and logistics operations, and in designing solutions using next-gen digital technologies.

About the Author

PURPOSE-DRIVEN ADAPTABLE RESILIENT

About TCS RetailTCS Retail partners with over 100 global retailers, driving their growth and digital transformation journey. We are solving their toughest challenges by harnessing our deep consulting and technology expertise, amplified by strategic investments in products and platforms and research partnerships with top universities; a co-innovation ecosystem of over 3,000 startups; and Nucleus, our in-house innovation lab.

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