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Retail logistics growth challenges


Patrick McGrath

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More and more Quebec retailers are facing a rapid growth in sales in the last two years. A sizable part of this growth comes from E-Commerce sales, but it does seem that our retailers also do a very good job with their store operations. With this rapid growth comes logistical challenges that may affect your service levels and client satisfaction. In order to better prepare yourselves, here are some of the most up to date challenges you might face in the retail world today.

1- Optimizing your network configuration: There are an infinite amount of possible network configurations, each store could have its own back store that contains its overstock, a small number of stores could have larger back stores and act as mini-distribution centers for the other stores, you could operate your own warehouse close to your stores or you could use an external partner for distribution purposes. Apart from inventory location, you must consider proximity to your suppliers and to the area’s main roads. Each scenario provides various levels of flexibility, service level and space requirements.

2- The decision between insource and outsource: It seems that this challenge has been around since the beginning of operations management, do you want to have total financial and operational control over your logistics network or would you prefer focusing on your core business and let professionals handle your inventory? Handling your operations in-house means that you must build an internal logistics expertise to handle the everchanging world of retail, it could be a great advantage in terms of product expertise, lead time and control. On the other hand, outsourcing your operations could be the decisions that takes your business to the next step, using a logistics expert that will provide flexibility for growth, inside knowledge on operations best practices and provide economies of scale in terms of freight.

3- Stock movement and transfers: There are many reasons to move inventory throughout your network; for in-store clients, for ship-complete E-Commerce orders, to level out stock levels across your stores, to renew store inventory for a new collection, for repairs or destruction purposes, etc. Acknowledging that moving inventory requires time, resource allocation, money and an IT infrastructure, it is wise to try to limit stock transfers through inventory optimization and when a transfer is required, processes need to be established to reduce costs and lead times.

4- Your fastest growing store: your E-Commerce operations: A small retailer might have a different strategy than a larger one for managing its E-commerce growth, but it all comes down to 4 things: inventory accuracy, service level or lead time, shipping costs and returns policy. Should you decide on shipping directly from your stores, you need to ask yourself about which store will geographically service which client, what happens when the available items are in different stores, how do you handle backorders, where are returns shipped to, who handles the E-Commerce order at store level, is your inventory on your selling space available on your website and is your inventory accurate and available in real time? The other option is to ship your E-Commerce order through an in-house or outsourced warehouse that would limit the variability and uncertainty in your E-Commerce processes, through solid inventory management, warehouse processes and system integration.

5- The choice between availability and space optimization: The cost of retail square footage is very expensive, hence the need to optimize your back stores and the way you manage your inventory. Having a warehouse, responsible for receiving, dispatching, inventory management, order preparation and returns can be an important benefit in terms of space costs, economies of scale, time and resource optimization and having your salespersons focusing on closing sales instead of packing boxes. Therefore, a decision needs to be made on inventory at store level, inventory at the warehouse and the lead time to source units from the supplier. Take the example of a sofa, you probably can’t afford to have units of every shape and color in stock, where do you draw the line?

6- Managing peaks through external distribution centers: The retail business fluctuates throughout the year and mixing in E-Commerce orders, that are accompanied by events like Black Friday and Cyber Monday, makes for high peaks in your demand. Should your stores or warehouses not be able to handle the load during these peaks, why not employ an external warehouse dedicated to retail and E-Commerce operations? You could double or triple your throughput without risking lost sales.

7- Maneuvering through everchanging SKU offerings: Collections, seasons and fashion, from a logistics standpoint, mean a SKU overhaul, new product offerings, returns, transfers, slow movers and dead stock. Logistics processes must be implemented to go through this situation every year; analysis on inventoried stock, return to supplier policies, end of season sales and exhaustion of existing stock through dedicated sales channels.

8- Managing lead times: Sourcing from around the world means working with long lead times, your supply chain experts must be aligned with your inventory management resources. These lead times must be considered when determining on-hand stock levels, re-order points, clients’ special orders, promotions, freight and customs partners, as well as incoterms.

9- Inventory accuracy throughout your network: Whether you use a warehouse or manage inventory at store level, inventory accuracy is key to win clients and close sales through in-store clients, inter-store transfers or online sales. If you can guaranty stock availability when your system shows a product as available, your clients are much more inclined to buy and you are more inclined to repeat sales.

10- Choosing between an internal fleet and dedicated freight partners: Justifying the use of an owned truck is quite easy from a flexibility and service level standpoint, but from a costing perspective there are a lot of factors that need to be analyzed; cost of the truck, insurance, cost of driver, repairs, parking, tickets, branding, etc. Once combined, a comparative analysis must be conducted between the cost of servicing a client with the company truck, compared to using a dedicated freight expert. From a best practice standpoint, the companies that manage to make an owned fleet profitable are the ones who have solid WMS, TMS and route management software.

All in all, we know that today’s retailers face endless challenges, but we believe that these ten are some of the most frequent logistics opportunities to differentiate yourselves from your competitors.

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