Supply chain software key in UK’s £114bn online retail market
Amazon's "slick" supply chain has allowed it to dominate the £114bn UK online market, but if its rivals want to compete on the same level, like Argos, a part of the Home Retail Group, they need to invest in supply chain modelling tools, according to Capgemini and online retail industry association IMRG. Having the ability to test and modify supply and demand means the customer is less likely to experience an "unavailability of products", the key factor in businesses retaining consumers.

Amazon’s efficiency and scale have made it such a force that competing has not been an easy task for even the largest retailers.

The vast marketplace company has significantly heightened what web shoppers demand, in terms of product availability and ease of purchase, and has a powerful position in what Capgemini and online retail industry association IMRG have calculated as a £114-billion UK online market.

Amazon’s slick warehouse processes, stock control and delivery have given it a major edge. Customers want regular updates on their orders and the company does exactly that. Recently, it stepped up its game by offering same-day delivery on many products.

The sophistication of even Amazon’s largest competitors is much more mixed. In the lead up to Christmas, 48 per cent of online shoppers said their deliveries from various companies were late or never arrived, according to research by software firms JDA and Centiro. The frustration is driving them to take their business elsewhere.

Retailers are turning to sophisticated technology in order to tackle these problems and regain a foothold against their rivals. Supply chain modelling tools allow them to test different supply chain set-ups, and to optimise for fast-changing customer and manufacturer expectations.

Demand forecasting software

Among the more advanced companies, Argos and Homebase, which have complex supply chains consisting of tens of thousands of products, use such tools to test supply and distribution modifications before they roll them out.

Many businesses combine this modelling with demand forecasting software, in order to predict when stock is needed, and to cut their dead inventory. Walmart, the world’s largest retailer, has invested heavily here, improving its forecasting and even analysing social media so it can hold more relevant product levels in each store.

At the same time, the supermarket chain has used the systems to reduce its out-of-stock products in store by 16 per cent. This is particularly important given that an unavailability of products is the top reason for losing customers at nearly half of bricks-and-mortar retailers, according to research by Planet Retail and Wipro.

Careful management of the supply chain is also highly important in fashion, where product lines are switched rapidly. At online retailer Asos, where annual sales crossed the £1-billion mark last year, a full suite of customer demand forecasting, inventory tracking and sales software is being rolled out to support international expansion.

Meanwhile, clothes retailer Zara predicts demand at each store to inform its own production and to line up twice-weekly shop deliveries. By stocking limited quantities of each product in store, it has the ability simultaneously to maintain an image of exclusivity and frequently switch to new clothing lines.

Real-time trading

All of this planning only represents half the high-tech change. During actual manufacturing and distribution, real-time tracking of goods is essential for businesses in knowing where their products are. Source tagging, in which an item is fitted with an electronic label or radio-frequency identification tag, feeds into software that shows accurate levels of inventory.

Food company Del Monte has implemented the technology for a real-time view of products across its entire supply chain, through air, sea and road networks. It also uses the data to inform modelling of future distribution.

For retailers, similar tracking initiatives exist, but they become more complex when both stores and online operations are involved. Research by JDA and PwC found globally three- quarters of chains still run the operations separately, hindering their total view of stock. Companies such as John Lewis and Home Depot have merged the two.

The need for efficient product movement to stores and customers’ homes is prompting additional investment, and the delivery business itself is improving this transport “last mile”. UPS has invested heavily to provide exact information on where every parcel is on a journey and DHL is using artificial intelligence to improve its processes. Even Google has its own fast-delivery service in parts of the United States.

Companies must consider investing in supply chain modelling, forecasting, tracking and improved delivery wherever they recognise realistic competitive gain

Online retailers are experimenting with offering their own forms of getting products to customers. Argos draws from its new end-to-end sophistication – warehouse automation, forecasting and a real-time visibility of stock – to offer same and next-day delivery.

Not all store chains will aim to steal Amazon’s market share, but many would be wise to ask themselves how important it is to compete with each other using fast delivery. If they pursue this route, according to Planet Retail, they need to have well-placed warehouses and stores, smart product tracking, and to consider working with shuttle delivery firms and local locker companies to draw closer to customers.

Whatever the size of retailer, having access to real-time actionable information across their entire supply chain creates the basis for more flexible, reliable and integrated web and store services, and it helps keep customers in the loop.

In order to exist alongside firms with the scale of Amazon and Walmart, companies must consider investing in supply chain modelling, forecasting, tracking and improved delivery wherever they recognise realistic competitive gain. Their sales will depend on it.