Transformation of traditional retailer in the era of New ... · Transformation of traditional...

1Deloitte China, October 2017

Transformation of traditional retailer in the era of New Retail

2Transformation of traditional retailer in the era of New Retail

Table of Content

Executive Summary 3

New Retail, New Mindset 4

New Retail, New Challenge 7

New trend and action plan 11

Conclusion 25

Contact Info 26


Executive Summary

As the retail sector continue to evolve,consumer‘s choice of shopping channel hasbecome just as important as their choice ofproducts. Nowadays, consumers tend to selectshopping channel that provides optimizedcustomer experience. Because of the changinghabit, traditional retailers must figure out newsolutions to transform their sales channel intothe new era of retail, and promote Omnichannel. These actions play a vital role onoccupying consumer shopping channels andincreasing sales conversion rate.

But traditional retailers are still facing lots ofchallenges. Efficiency improvement of supplychain management has been identified bymost of the traditional retailers as their toppriority for new retail transformation.

In the new era of retail, supply chain shouldset “customer connectivity" and "operation &services improvement“ as the new centers,and deepen integration between Inventory andConsumer/Context. Thus, the future of supplychain management shall be driven by data;retailers should break the current distributionbarriers and provide cross channel services toboth internal and external customers that can

ultimately optimize consumer experience andhelp the company win the competition.

The Chinese retail market is known for itschannel diversity, market volatility, quickevolution, and increasing demand on fastdelivery and personalized products. Moreover,imbalanced inventory level, high logistics cost,fierce market competition and data complexityhave largely increased the level of difficultiesfor new retail transformation.

In this white paper, we provide in-depthinsights on how traditional brand retailers andmanufacturers should transform to take lead inthe era of New Retail, identify the mainchallenges of supply chain management andelaborate the optimized operation model.

To help COO better understand the newjourney of supply chain transformation, weconducted comprehensive analysis on currentChinese retail market trend, and share ouropinions from the views of strategy, planning,inventory, logistics and data analysis. We hopeto help the manufacturers and retailerswinning the new retail battle.

Omni Channel is becoming the new trend in retail. Supply chain need betransformed to cover end to end service from forecast to distribution

4

Section I – New Retail, New Mindset


Customer Oriented In the era of New Retail, consumer has more choices of what to buy andwhere to buy. So the choice of shopping channel has become as important asconsumer’s choice on products; Brand retailers should set their strategy tofocus on consumer interactions and optimization of customer experience

Company

Centered

Traditional Strategy

Company centered: Company defines product & channel

What to produce

Where to sell

New Retail Strategy

Customer centered: Company provides product and experiences

Goal

How to cover broader market

Customer

Centered

Compare/select products

Compare/select channel

Decide on products

What is needed

Decide on channel for purchase

What is the company’s advantage

Goal

Drive sales from consumer interaction

Product strategy

Channel strategy

Traditional retail strategy is mainly “sell” products to customers regardtheir preference. Companies tend to focus on product quality and costas well as channel dominance (market share) in effort to cover abroader client base and achieve more sales

In the era of new retail, consumer has less experience of asymmetricinformation and shopping obstacle. So new retail strategy should focuson consumer engagement, such as user base, customer stickiness,traffic, interaction and experience to improve sales conversion rate

Source: Deloitte Analysis


Break Channel Barrier

Traditional channel management

Stage of Consumption

Online sale

Offline sale

Omni channel management in new era

In the era of New Retail, shopping channel boundaries are no longer necessaryand getting vaguer; traditional brand retailers need to change their mindsetand transform traditional sales channel management into a seamless Omni-channel service model

Traditionally, sales channels are managed separately by different businessunits with independent sales resource, supply chain model, KPI metrics andoperation team.

Most of the companies still hold traditional channel management mindsetwhen promoting Omni channel retail, which only focus on the final purchasepoint and recognize sales revenues to either online or offline. Traditional KPIconstraint and incentive setting has become the main challenges whencompanies are seeking Omni Channel transformation.

As the boundaries of online and offline channels become vaguer in New Retail;Manufacturers should focus on studying consumers and their shoppingpatterns to increase consumer interaction through providing end to endservices during the shopping journey.

So the operating model that separates online and offline channel can nolonger improve consumers’ shopping experience. Instead, integration ofinternal processes, resources and systems across channels to support Omnichannel operation has become critical for brand manufacturers.

Demand Research Compare PurchaseReceiveproduct

Return&refund

Stage of Consumption

Online sale

Offline sale

Demand Research Compare PurchaseReceiveproduct

Return&refund


7

Section II – New Retail, New Challenge


Challenges Traditional brand manufacturers and retailers are facing lots of challengesduring the New Retail transformation. Supply chain management has beenidentified by most companies as their top priority for strategic development

5%

10%

25%

20%

15%

0

30%

Lack of consumer loyalty

Increased logistics cost

Increased selling cost

Innovation in business model

Increased competition

Lack of talent

Taxation Lack of capital

Supply chain mgmt

Major challenges for traditional retailer in New Retail Next step for traditional retailer

114

117

151

187

234

254

256

276

280

Increase cross boarderpurchase

Incentives and changein org structure

Store expansion

APP development

M&A and capital mgmt

Strengthen product mgmt and purchase

Business innovation

Optimization of supply chain

Digitalized sales and services

Source: CFFA retail development trend research, Deloitte analysis

The Omni channel transformation revolves around “Customer, Product andContext”. “Customer” includes studying user base, digital marketing, andrelationship management. “Context” covers shopping context, brick andmortar retail and digital customer experience design. “Product” examineswhen, where and what product to provide; supply chain transformation aimsto provide solutions on “product”, with integration and interaction to“customer” and “context”.

According to the CFFA retail development survey, retailers are unsatisfiedwith current supply chain management setup, and consider this issue as thetop challenge. Thus Omni channel transformation will create a great impacton future supply chain development.

To ensure a successfully transform into an Omni channel, retailers need toset supply chain as top priority to achieve lower cost and better service, andcommit funding on capital investment, talent resources, and enhance S&OP.


Supply Chain Transformation

To promote new retail supply chain transformation, retailers should get rid ofthe traditional mindset of competing on product, but to win consumers byproviding premium shopping experience

Customer Interaction

• Sell products through channel and distributors, limited interaction with customers

Supply Chain Model

• Upstream/Downstream partners, and end customers in supply chain are connected by good flow

• Communication barriers and asymmetric information between upstream and downstream sectors in supply chain

Customer Interaction

• Direct interaction and connection with customers under different context

Supply chain model

• Vague boundaries across upstream/downstream supply chain

• Supply chain provide direct consumer service

• E2E supply chain operation is driven by digitalization, from consumer, products, to orders

Product

& ServiceconsumerlogisticsData system context

Purchase PaymentManufacturing DistributionR&D Service

Product Flow

Information Flow

Traditional supply chain value New retail supply chain value



To-Be Supply Chain Operation Model

The To-be new retail supply chain operation model should be customersoriented, data driven, and provide cross channel services and experiences forboth internal and external users

Digitalization

Cross Channel

Customer Experience

ServiceUpgrade

A B

CD

Digitized retail

journey

New Retail

Personalized & responsive

service

Cross channel

integration

A

D

C

B

To-Be Supply Chain Model

- Encourage cross channel collaboration and resource sharing through process and performance incentive

- Data sharing, cross channel visualization between upstream and downstream business partners

- Standardized business process; provide variety of shopping options to customer

Traditional Model

- Separated sales channels with own KPI indicators, function, and resources such as HR and inventories also kept independently

- Lack of incentive for cross channel collaboration

- Position supply chain as a business service function- Emphasis on service level and flexibility - Perform end to end supply chain operation to suit customer’s

service need with high transactions, small batch, customized and personalized order

- Supply chain is defined as internal supporting function

- Lack of flexibility to respond customer’s demand and request

Generate sales

conversion from user interaction

- Provide personalized services and products based on customer’s expectation

- Segment supply chain based on target customers and service requirement. Improve capability and allocate resources to achieve seamless support under different shopping context

- Single supply chain model is unable to provide differentiated services

- Separated supply chain operation model based on production and product characteristics

Best practice model


- Enable data collection and digitalization through the entire shopping journey

- Capture data throughout supply chain network to support high level transparency

- Predictive supply chain analysis and optimization through big data

- Setup supply chain governance model based on data analysis

- Limited control on customer data - Lack of system integration and

transparency of data- Lack of reliable data source and

scientific approach to business decision making

11

Section III - New Trends and Action Plan


Omni-channel retail development trend

Manufacturers and Retailers are challenged by the retail market macro trendas well as the competition from different Omni channel players; whichaltogether will have a significant impact on supply chain management

Present Future

Service level

Efficiency


Future

Omni-

Channel

supply chain

Diversification of retail channels with the trend of integration across different business models

Intensification of conflict between demand and inventory supply reduces Omni-channel profitability

Logistics sector is moving towards service specialization and shared economic model

Data and analytics drive supply chain transformation and operation enhancement

Consumers expect highly responsive and customized products and services


Trend #1:Rise of companies with multiple channel and business model

Customer’s shopping requirement is becoming more and more diversified.Retailers are moving in a common direction that integrate multiple businessmodel to provide seamless consumer experience across channels

35%

Store clerks lack corresponding skills

Unable to reform business modelto adapt to market trend

Unable to maintain sales growth of offline outlets

15%

Unable to control the execution cost of online orders

Unable to control increasing cost ofReverse logistics for online orders

35%

36%

55%

42%

43%

39%

Unable to integrate isolated online and offline channels

Unable to fulfill consumer demand cross channels

Unable to keep up to technology innovation

Eco

mm

erce

Organization Types

Adv. Retail Strategy

Bric

k&

Morta

r

Ch

an

nel

Sta

rt-

up

Bran

d

Reta

ilers

- Consumer

data

- IT

- Platform

resources

- Build eco-system to

enlarge consumer

base

- Expand to offline

- Enhance fulfilment

capability

- Offline

store

networks

- Supply

system

- Expand to online

channel

- Launch own brand

products

- O2O initiatives

- Brand value

- Product- Outlet digitalization

- Customized products

- B2C supply chain

- Innovation

- Cost

- Reputation

- Digitalization

- Optimization of supply

chain & inventory

- Premium service

Retailers are applying differentiated strategies

- Ecommerce giants expand to offline channel, and establish platform and eco sys.

- Brick and mortar stores expand to online channel

- Brand retailers expand their direct channels to reach broader market

- Start-ups compete through flexible and efficient business model

Common characteristics in different strategy: data driven and customer oriented

Omni-channel is the future of retail

Deloitte Insights

Source: Deloitte Analysis，JDA retail and consumption industry CEO survey

Internal challenges of Omni-channel

transformation from CEO perspectivesPercentage represents the CEO's agreement rate


Initiative #1:Omni-channel supply chain Strategy


Omni-channel supply chain strategy roadmap

Segment by product Segment by customer and services

Supply chain strategy

Service Level

Sales Channel

Value System

Operation Model

Supply Network

Resource Allocation

The top priority of setting supply chain strategy is to re-examine the target consumer and expectation toward different shopping context

Brand manufacturers and retailers need to consider segmenting supply chain by customer and setting differentiated service level targets. Supply chain shall be positioned as a key wining lever to “directly connect and serve customers”

Misconception：Less Demand

Large Demand

Low Volatility

High Volatility

Customer Classification

Service Level Expectation

Cost to Serve

Brand manufacturers and retailers need toconsider reallocating resources based oncustomer demand when implementing Omni-Channel strategy, future supply chain setupshould be “customer oriented” instead of“inventory oriented”.

The key of Omni-channel is to connect withconsumers directly, company's businessdecisions should be based on customer’sdemand. If retailer’s Omni channel strategywas focused on “expand sales channel toliquidize inventory”, then retailers may not beable to maintain a profitable and sustainabledevelopment.

Thus, in the era of new retail, retailers shouldset "connect with and serve customer” astheir first priority. The future state of supplychain competitiveness is evaluated base onoperational capacity and customer servicelevel.

Supply chain must be flexible and responsiveto meet fast moving market trend. Retailersshould be able to make fast adjustment onproduct design, category portfolio, sourcing,inventory management and sales channel to

maintain high service level.

Supply chain strategy should always aim todrive profitability. Value chain and supplynetwork design has to align with businessstrategy to maximize investment return onomnichannel.

The return on supply chain investment shouldbe evaluated from overall corporate level. Toensure benefit is correctly captured, properfund is allocated and quick win is achieved.

Consider Omni channel strategy as thesame as digitalization and e-commercestrategy, underestimate the importanceof offline channel upgrade

The “wholesale gene” of traditionalcompany would be the major barrier topromote Omni channel. Retailers tend tofocus on investing in system & facility,but neglect the importance of changingwholesale business model and KPIsystem


Trend #2: High expectation of service

Growing expectation from customers requires brand retailers to respond to market volatility effectively. In the meantime, customized and personalized products/services will be the vital competitive lever in the future

Constant promotions leads to volatility in demand

Expectation of high service quality and time efficiency for order delivery

Demand for personalization and customization will remain strong

China’s e-commerce promotions and shoppingfestivals are turning to routine business nowadays.The sales volume during consumer moments canincrease up to tens of times of regular day.

Manufacturers and retailers are experiencinggreater inventory and higher order volume thanever before, that leads to significate pressure fromwarehousing and logistics perspective.

Volatility in market demand

New Year6.18

9.9

11.11

12.12

2016 sales fluctuation of anonymous brand on TMALL

1009060 800 70

100

70

50

90

60

80

40

50

0

30

40

Omni-Channelexperience

Designated daydelivery

Gift

Freight

Outlet return

Return convenience

Return efficiency

Importance from expression

Importance from deduction

Cross channel inventory search

Time efficiency

In time

Tracking

Package

Order delivery is crucial determinants in consumer satisfaction

Omni-channelReturnPackageOrder delivery

Order delivery is one of the important factorsthroughout shopping experience. Customers are raisingmore and more expectation on order delivery service interms of convenience, timeliness, and flexibility.

Manufacturers and retailers are developing Omni-channel to integrate resources from online & offline tooffer better delivery service, such as ship from store,ship to store and store pickup.

Personalization and customization has already been anew trend for retail industry. This new trend willgreatly transform supply chain’s organization andoperational model into a much more flexible andreliable order fulfilment system.

More and more retailers are building up their capabilityon personalization and customization. Thesedifferentiated products/services could influence andlead customer’s lifestyle and shopping preference, thusenhance interaction and improve sales conversion.

Consumption

scenario

PROC

produ

ction

delivery

data

design

order

Supply chain

Personalization-led lifestyle



Initiative #2.1:Planning and Coordination

To adapt to the highly volatile market demand, brand retailers should continue focusing on supply chain planning with improvement on cross function coordination, forecasting accuracy and supply chain flexibility

Service Level

Product planning

Inventory planning

Demand planning

Supply planning IBP

Capability planning

Supply chain

flexibility

Supply chain management based on planning, achieves a

balance between cost and service level

Product & Category Management

Store Cluster Assortment

Optimizer

Assortment

Generator Space Planning Shelf/display

planning

Store layout

planning

Product life cycleProduct/Category

Knowledge BaseProduct Portfolio

Market data Forecast Store data Product data

Assortment Layout Display Min-Max

- Localized product portfolio- Store layout and display- Fulfill Omni-channel retail

demand

Integrated Planning

- Cross functional business and process coordination

- Consistent operational plans and financial plan

- Adequate data, technical and system support

Strategic Plan

Annual Budget

Finance Close

Analysis

Financial

Forecast

Annual

Planning

Periodic

Planning

Quarterly

Planning

Portfolio

Review

Supply Sync

Financial

ReviewOps & Exec

Reviews

Enterprise

Forecast

Beginning of Month

Adjusted / Finalized Ops and Financial Plans

New Product & End-of-Life Product Plans

Financial View of Plans, Gap Comparison; Challenge

of Assumptions

Consensus Enterprise ForecastPreliminary Ops, Capacity, and Inventory Plan

End of

Month

Financial View of Plans, Gap Comparison; Challenge

of Assumptions

Supply Chain flexibility

产量灵活性产品组合

灵活性

计划灵活性

驱动/使能因素

资源设备人力产能

生产周期批量切换

计划预测冗余调整

服务分类产品客户地域

- Shorten supply lead time- Volume flexibility- Product mix flexibility- All levels of the program are

effective and flexible

In the era of new retail, planning isstill the core aspects in supply chainoperation. It requires demand-supply balance not only from timeand geographic perspective, but alsofrom channel perspective, i.e.planning to support cross channelsales.

As technology is becoming more andmore mature, accuracy of planningand forecast is made possible by bigdata, artificial intelligence andmachine learning.

Some leading retailers break thechannel barriers between up-streamand down-stream systems to gainreal time visibility of inventory andorders so that to improve forecastaccuracy and planning efficiency.

More importantly, companies shouldbuild up supply chain flexibility torespond quickly and accurately inthe consumer moments such as“Double Eleven”.

Supply chain flexibility should relyon a comprehensive IntegratedBusiness Plan (IBP) that can help tocoordinate various business func-

tions, allows data sharing and directoperation changes at each businesslevel.

Manufacturing and logistics supportsare equally important on building upsupply chain flexibility and fastresponsiveness. They can help todecrease minimum lot size, shortenlead time, and add more orderfulfillment nodes.

Integration of supply chain andbusiness is another trend in newretail, such as category/assortmentplanning, smart store inventoryreplenishment based on sell throughdata. These require planning teamhave business sense and marketknowledge.

The most difficult part for brandretailers is to break the originalgovernance model by channel.Companies need to establish cross-channel planning functions andprocesses to execute planning workin an effective and efficient way,and also enforce disciplines ofplanning.


Inventory & Cost-to-

Serve


Order Delivery includes inventoryvisibility, order capture, inventoryallocation and order delivery,covering inventory management,order management, and logisticssystem.

Omni channel order delivery requiresbrand retailers to be equipped withseries of capabilities in supply chain,including:

Inventory visibility and order captureacross different platforms. The mainchallenge is to integrate differentorder portals (including third party),standardize products and priceinformation, and achieve real timeinventory visibility.

Based on visibility, inventory needsto be salable across channels,including inventory promising, ordersourcing, order dispatch, and crosschannel order settlement.

Warehouse and store’s shippingcapability is another factor toconsider. It includes analysis overcost, work efficiency, and servicelevel. The logistics system of manybrand retailers are not adapted to

retail model that known as “hightransaction volume but small ordersize”. On the other hand, comparedwith warehouse, stores are closer tocustomers, taking advantages ofshort lead-time and low logistics cost. “Ship/pickup from store” requiresbrand retailers to review their orderdelivery network setup and balanceservice level and cost.

Reverse logistics including returnand exchange asks for capabilities oforder traceability, cross channelinventory adjustment, and flexiblefinance solution to provide quickrefund service.

Major success factors:

• Cross-channel performance tracking and KPI

• Store operations: process reengineering, training and human resource

• Business rules: pricing consistency, exchange policy

• Information system construction to achieve inventory sharing

National warehouse

Regional warehouse

RetailOutlets

Consum-ers

Initiative #2.2:Omni-Channel Order Fulfilment

Cross-channel order fulfilment requires integration between order and inventory management system; supply chain and logistics needs capabilities to support retail model of “high order volume and small order size”

Order capture

Inventory availability

Shipping/tracking

Order allocation

Inventory promising

Cross platform Cross channels Cross ship node

Order delivery management

Different levels of order delivery points have different capacity and priorities to balance cost

Omni-Channel order delivery networks (example)

Retail Wholesale

Client

Order/day

Order line item

Ave. order/client

Delivery time

Order accuracy%

Volatile orders

Return

Delivery model Mainly express Logistics

End consumers Stores, distributors

Large volume without plan Small volume with plan

Usually a few Usually a lot

Relatively fewer Relatively more

Quick response According to timeline

High requirement (100%) High requirement

Extremely volatile (promotion) Relatively stable

Relatively more Relatively fewer(planned)

Characteristics of Demand

Supply chain operation needs to adapt front-end business changes



Initiative #2.3:Customization and Smart Manufacturing

Brand retailers should follow and leverage the trend of customization and personalization to upgrade manufacturing system to more digitalized and intelligent

Design Make Deliver

Conventional

Customization

Determine consumer

pain points by designer

perception

Determine consumer

pain points by analytics

Trial production and production are

based on sales forecast

- Assemble prototype for feedback

- Optimize prototyping

- Actual demand based mass

production

Push and build invent-

tory in channel based

on forecast or target

Directly deliver

products to consumer

Visualization

Modularization

Standardization

Flexible production line

Intelligent scheduling

Consumer driving

精益制造无人控制虚拟现实

流程自动

化

数字扫描 ERP系统

架构

移动网络/

无线网络

云系统边缘计算

运营技术安全 IT安全

机械控制

可视化/

移动化

传感器和

可穿戴技术

数据算法

机器学习

深度学习&人工智能

自然语言处理

视频处理及分析

区块链及

密码学

Physics Data

Deloitte Digital Supply Network Framework

The Development Trend of Intelligent Manufacturing in China

Characteristics of customization

Digitalization & intellectualization promote manufacture

Consumer demand-oriented design and manufacturing

Customization requires supplychain transformation from designto deliver. Customization andpersonalization not only giveproduct a new definition, butalso redefine product delivery ina new way.

Customization requires supplychain to interact with customersin the early stage of productlifecycle and provide “spot-on”products to end user.

Customization also meansshortened time to market withquick prototyping, trial sale, andfast iteration. In order to achievethis, supply chain should betransformed in every aspectsfrom end to end.

Brand retailers must build upadvanced capabilities such asdemand driven product design,E2E information visibility,process standardization,modularized manufacturing, andso on.

Industrial 4.0 provides anexcellent opportunity for brandretailers to develop nextgeneration smart manufacturing,digital factory and leanmanufacturing.


Deloitte digital supply network model reveals the future trend of digital manufacturing:• From physical to digital: use

sensors, wearable devices and internet of things to collect information and digitalize it

• From data to data: transmit data to factory to process and self-learning , use predicative analysis to identify sales demand

• From digital to physical: leverage digital and technology to manufacture customized product by using new material, new process and new technology


Trend #3:Increasing inventory conflicts

Inventory unbalance becomes the major brand barrier for retailers in terms of omni channel profitability and sustainability. Companies must decide how to balance dispersed physical inventory versus consistent service level

Inventory

Wholesale warehouse

Retail warehouse

E commerce warehouse

Agency

A

Dealers

B

Self-operated

stores

D

Supermarket

E

Self-operated

platform

FThird party

platform

G

Franchisee

C

58%

58%

InefficientOrder delivery

service

56%

Increasing Cost Of

supply chain

High shortagerate

Major issues impacting omni-channel transformation

Traditional retail channel management model leads to stocking split

Inventory is the most severe issue impacting profitability of Omni-channel

Source: Deloitte analysis, JDA retail and consumption industry CEO survey

The traditional retail management model divides theinventory into fragmented inventory pools that allocates todifferent channels and locations.

A growing number of companies have multiple warehousesto supply inventories. The KPI responsibilities, ownershipand physical locations of warehouse have became majorissues .

Consequently, out of stock together with slow moving andobsolete inventory is now becoming a common issueamong retailers.

Unreasonable inventory deployment decisions will not onlylead to increase of supply chain cost, but also affect theservice level.


Initiative #3Inventory planning and allocation

Brand Retailers should plan and control procurement and inventory allocation from three dimensions(channel, geographic and time). Data visibility, analytical capability and supply chain execution are the foundation of agile inventory deployment

Time

dem

and

Replenishment cadence

Network strategyPerformance

monitoringReplenishment

BUSINESS LOGIC

BUSINESS PROCESS

STATISTIC ANALYSIS

MODEL

EXECUTION

DASHBOARD

Connected

inventory across

channels

Demand-driven

Inventory

planning and

allocation

End-to-end

Inventory visibility

optimized

Supply

network

Demand-driven

Inventory planning and allocation

High responsive inventory planning and allocation

Inventory planning and allocation should be considered in three dimensions: channel,geography and time.

Channel deployment should consider the production and procurement arrangementbased on the needs of the various channels. Channel inventory plan should alsoconsider brand retailer’s channel strategy, category strategy and pricing management.

Geographic determines product mix and inventory depths in warehouses acrosslocations. The purpose of regional inventory planning is to deploy close to market sothat to improve service level and control logistics cost. Retailers need to considerforecast reliability, order volume and size, as well as safety inventory, to achieveoptimized total ownership cost and better service.

Timing decision needs to consider replenishment cadence and percentage. In Omnichannel, inventory deployment should be agile and low cost, efficient replenishmentflow design can ease seasonal fluctuation, reduce channel inventory pressure anddecrease inventory transfer.

Inventory planning should be based on end to end inventory visibility. Efficiency andservice level can be improved if logistics and allocation team can obtain real timesales/inventory data visibility.

The level of supply chain responsiveness and execution capability has the mostpotential to be improved, since it can largely impact the inventory cycle and safetystock level at each warehouse.



Trend #4Intensification & sharing of logistics operation

Logistics industry is developing in the direction of increased scale, intensification and refined operation. The future of supply chain management will revolve around operation excellence and value chain control

3PL increase rapidly

751704685662507

631

2009

+8%

2013 201420112010 2012

Global 3rd party revenue scale (billion dollars)

188176

270256

4245

2013

158 174

2014

North America

South America

Asia Pacific

Europe

Regional 3rd party logistics revenue scale (billion dollars)

Logistics development trend

Source: Deloitte analysis，Deloitte“China logistics industry investment and development report 2015-2016”

In the future, we will see refined smart logistics withhigh level of flexibility and intelligence. Thecommercial value of logistics will be evaluated baseon its capacity to serve. Data driven logistics andoptimization will become new trend.New Retail requires fast response to fulfill shiftingmarket demand and corporate strategy, and it willshift to adapt to “high volume, small size“ and “directto customer”. Currently, companies in both logisticsand e-commerce industry are building their capabilityto serve e-commerce and new retail business.

Logistics giants share resources

• As industry leaders opening up ecosystem and platform, they provide service on data, finance, management etc.

• Sharing economy is a revolutionary opportunity to boost more agents and solution providers within the industry

The future battlefield for logistics are no longercompeting on scale of logistics assets. Logisticsinfrastructure will turn to a sharing economic modelthat open to public.Future logistics competition will emphasize more onoperations, focusing on customer and value chaincontrol. Such as Cai Niao shared their logistics networkto public to consolidate resources and provide valueadded service. Similarly, JD.com opened its warehouseand logistics infrastructure to the public.


Initiative #4Warehouse and logistics management

Logistics evolution for New Retail

B2B

delivery

Trunk / transit

Front-end

integration

B2C

delivery

End

• Data sharing between- Store and logistics

- Online platform and logistics

• Quick and frequent replenishment to Retail stores

• Reduce inventory level of retail stores

• Last mile delivery• Self-pickup will drive integration of

logistic service and community commerce

• Cloud-based storage provides omni-channel order delivery service

• Diversified local delivery services

• Logistics infrastructure can leverage social resources

• Companies concern more about rationality and necessity of inventory movement

Big data will help to accelerate the transformation of large scale logistics system

Warehousing and logistics functions should focus on providing value added services; Implementation of appropriate logistics outsourcing strategy will help to reduce cost and improve efficiency

Intelligent

logistics

• Push orders• Order review and validation• Order release to warehouse

In New Retail, the primary goal for brand retailer isto establish an internal organization structure thatcan adapt the transformed logistics operation andcapability including closer cooperation betweenlogistics and business unit, higher logistics flexibilityand better cost effectiveness.Future logistics services should be more intelligent,and forward looking. Such as the seamlessconnection between logistics system and store POSsystem can help logistics department gain visibilityon demand and improve service level.Future logistics channel should also be flat, as theB2C portion has become an irrepressible trend.

Due to the fact that investment on logistics is costlyand time consuming, brands retailers may consider asuitable logistics outsourcing strategy to leveragethird-party service capabilities. Instead of simplywarehousing and logistics service, what brandretailers really require is end to end supply chainsolution design and delivery capability, from ordercapture to delivery.The integration of the internal logistics operationssystem with external third-party facilities andoperational services is very important for effective3PL management. This will require effectiveoperating model and reliable technical support.

Online business operation modelOmni-channel

warehouse layouts

Warehouse layouts designing

Receipt flow Picking flow Shipping flow

B&M store operation model



Trend #5Supply chain transformation driven by data and analytics

Data has never been this important as end-to-end supply chain data collection and integration is fundamentally critical for omni-channel retailing; The supply chain continuous improvement will be driven by data and analytics

Data sharing and integrationRetailers are often unware of the way to applydata though with data visibility.

One key reason is that enterprises are shortof a robust data governance mechanism: datathroughout the supply chain is derived fromdifferent systems with various data definitionsand structures.

Then it’s about decentralized and separateddata application. Most traditional brands stillapply data for reporting purpose within their

departments. Consequently, data is under-utilized to support decision making.

The future trend is that multi-sourceheterogeneous data in all parts of the supplychain will be integrated into a shared dataplatform for comprehensive analysis. Theanalysis results then will be sent or revertedto the functions of the supply chain as neededto support decision making and performanceoptimization.

End-to-end data collection and application

Supply chain and

operation data

(inventory and

order)

Consumer behavior data(traffic, preference,

comment and consumption)

Market and public-opinion data (trend, social data)

Data collection and analysis is the key strength of leadingretailers (especially e-commerce platforms). Future enterprisesmust obtain two strategic assets, i.e. user base and data, in thefuture state of omni-channel retailing competition, collectinglarge amounts of real-time data to support business operation.The trends of retailers’ future data application include:

R&D Planning Purchase Manufacture Delivery Support

Data

Report

Data

Report

Data

Report

Data

Report

Data

Report

Data

Report

Digital

Core

Delivery

R&DManu-facturing

Planning

Support

Purchase

Data

Center

AnalysisData

Analysis

Analysis

Analysis

Analysis

Analysis

Data

Data

Data

Data

Data

End-to-end data visibility based on system integration and enterprise architecture

Separated but repetitive data processing and analysis due to data and report with split parts

Data integration with transparent data flow and traceable analysis

process

Expand data collection from internal to external, from operation data to user and market data,

and from structured data to unstructured data

Apply real-time data in management, such as

production and schedule monitoring, sold products

tracing, etc.

Apply data in predictive analysis, not just the historical summary or

performance assessment

Source: Deloitte analysis, Deloitte’s China Logistics Investment Promotion Report 2015-2016


Brand retailers’ IT strategy shall be alignedwith business and supply chain strategies insupport of omni-channel transformation toachieve the strategic target of connecting withcustomer and strengthening control on datasource.

Firstly, brand retailers need to build anenterprise application architecture customizedto the omni-channel retailing, including thefront, middle and back-end systems coveringusers, transactions, orders and inventory.

Secondly, brands must have the capability ofsystem integration. As the system integrationwith upstream and downstream partners is acritical competitiveness, brands shall considerhow to build data sharing mechanism throughmutual trust. Companies will see theiroperations more smooth and stable due to datatransparency and visibility. Thus, data willpromote the further cooperation betweenenterprises and their partners.

Thirdly, a comprehensive data governancemodel is also needed to meet the requirementon internal control, financial management anddata security. With diversified order sources,shared channel inventories and complextransaction paths, enterprises shall develop thecapability to reconcile cross-system data,monitor and address data differences or errorsintra/inter-systems.

Fourthly, companies shall focus more on therapid iteration of their IT capabilities andservice responsiveness. While China’s e-commerce giants achieve the disruptiveinnovation in business models based on theirtechnology strengths, brand retailers shall alsodevelop IT responsiveness to meet the fast-changing business needs.

Finally, data analysis capability and agovernance model of data-based scientificdecision-making are required. Companies shallconduct data analysis on the following sixprinciples:

1. Define definite business targets 2. Understand data3. Start with simple matters4. Leverage existing experience and

knowledge5. Take actions based on analysis results6. Persist in testing and conclusion for

improvement

Initiative #5System architecture and supply chain analytics

Brand retailers need be equipped with appropriate enterprise architecture,system integration, IT service capability and data governance to drive supply chain transformation through effective data analytics

Omni-channel analytics framework

Data source

Data integration

Data

analytics

Commercial

value

Promotion data

Transaction data

Loyalty data

Membership data

Non-transaction

data

Customer analysis

Data visibility

Data mining

Wifi Mobile Social media

Store data

Website traffic

Service center

Source: Deloitte analysis

Key success factorTo promote the digital transformation of business, brands need to establish a customized roadmap based on their capabilities and development stages, and identify relevant targets, strategies, processes and talents.


ConclusionDeloitte Supply Chain Management provides one-stop-shopping consulting services throughout the omni-channel value chain, to prepare clients for future changes

Omni-channel transformation of traditional supply chain Omni-channel supply chain transformation services provided by Deloitte

Supply chain strategy—Brand retailers should consider customer segmentation and segment-specific service target, and align their supply chain strategies to omni-channel business strategies, to transform the role of supply chain from being supportive to capturing market share.

Omni-channel customer insights, omni-channel strategic transformation support, supply chain strategic diagnosis and planning, and omni-channel customer experience design and delivery

Forecast and coordination plan—Improvement of tools and technologies helps to make accurate demand forecast. Brands, however, should focus on the improvement of cross-functional coordination.

Demand forecast, sale and operation planning, production planning and scheduling, OTBplanning for stores, and planning system design and implementation

Order delivery management—Brands need to match inventory with orders for efficient fulfilment, and design reasonable order delivery networks for sound logistics systems.

Order visualization and tracking, order to delivery (OTD) optimization, omni-channel order transaction and tax solutions consultation, order management system design and implementation, and third-party data integration service

Inventory planning and arrangement—Omni-channel inventory planning and arrangement are conducted from three dimensions including channel, geography and time, based on end-to-end data visibility and data analysis skills; brand retailers should pay attention to other components of the supply chain beyond their own networks to optimize inventory arrangement for end-to-end supply chain.

Supply network planning and optimization, retail category/assortment management. Store space and shelf optimization, regional product mix design, replenishment and distribution optimization, inventory diagnosis and optimization, and distribution management system design and implementation

Products and manufacturing—Promotion of digital and intelligent manufacturing will drive manufacturers to produce more personalized and customized products with intelligent means. brand retailers are more likely to win in the omni-channel age based on smart manufacturing.

Product life cycle management, implementation of Industry 4.0, digitalized and smart manufacturing strategy planning and solutions, Lean Six Sigma , operational efficiency improvement, and quality visualization and tracking

Logistics and warehousing—Brands should develop proper logistics and warehouse management outsourcing strategy and establish partnerships with appropriate third-party logistics service providers. Meanwhile, the warehouse systems should also be rebuilt to align with the supply chain strategy.

Logistics strategy planning and implementation, omni-channel warehousing planning and implementation, logistics and purchasing, and 3PL management and outsourcingmanagement consultation

IT architecture and data analytics—brand retailers need appropriate corporate structures,upstream-downstream integrated system, as well as IT capability for comprehensive data governance and prompt response. Depending on real-time and reliable data, data analytics can improve the efficiency of the supply chain.

IT strategic planning for omni-channel transformation, supply chain IT diagnosis, supply chain structure planning of enterprises, supply chain information system implementation, system and data integration, data analysis and presentation, and supply chain analytics


Contacts

Tianbing [email protected]

PartnerLeader of ConsumerProducts and Retail Sector;Leader of Supply Chain & Manufacturing Operations

Geliang [email protected]

PartnerDeputy Leader of Supply Chain & Manufacturing Operations

John [email protected]

PartnerLeader of Transportation and Logistics Industry

Jessie [email protected]

DirectorLeader of New Retail Transformation

Hao [email protected]

Director Leader of Industry 4.0 Transformation

Sheryl [email protected]

Associate DirectorConsumer Products and Retail Industry

Samuel [email protected]

Associate Director Leader of Omni-channel Transformation

mailto:[email protected]







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