The Retail Supply Chain

Summary Market Report

1 Which supply chain strategies are successfully being implemented by retailers and manufacturers in order to increase exibility and drive the customer service experience? 1 What denes a successful outsourced logistics model and what are suppliers still looking for from their logistics service providers? 1 To what extent are key supply chain initiatives among retailers and manufacturers creating competitive advantage? This initial report sets out to present indicative answers to these questions and nd evidence of UK retail sector organisations making substantive strides to embed customer focus and continuous improvement activities into their ways of working.

The Retail Supply Chain

Strategic signicance
The strategic signicance of the supply chain is clearly understood by retailers and manufacturers, who recognise that the correct supply chain strategy presents a source of competitive advantage: We dont have as much buying power as some of our competitors, therefore our supply chain must allow us to compete Retailer Logistics has moved very rmly from being seen as a necessary evil to something that can add enormous value when its working well Retailer Logistics is denitely about value-add now, but it wasnt always the case Manufacturer The report found that a companys nancial performance and its position in the supply chain also has a bearing on organisational strategy, such that most evidence of customerfocused behaviour and decision making is to be found within organisations that are performing well. However, the reality is that truly focusing on end customer needs requires excellent forecasting or an extremely responsive supply chain. This report reveals a trend of manufacturers successfully working towards increasing product ow, partly as a result of the demand from their retail trade customers.
Weve got so many stores and such a large number of SKUs that weve got to hold a fair amount of stock in our DCs to make a delivery with our double-decker trailers worthwhile Retailer We reduced stock by about a half so the emphasis now is all about the flow of goods, smaller more frequent deliveries Manufacturer Distribution centres are NOT for storage, I want to get stock flowing through them, not just sitting around Retailer

Among retailers, the grocery sector shows the greatest focus on ow in the supply chain, due to the fast moving nature of their sales and the importance of availability.
We currently hold millions in inventory we are not as lean as we could be in this area Manufacturer We try to keep inventory levels as low as possible but there will inevitably be delays in the supply-chain so we need some level of stock as a back-up Retailer Continuous flow of stock allows us to become leaner and more efficient, which has benefits for the customer experience Retailer

Stock

Flow

The Relative Emphasis on Stock vs. Flow in the supply chain

Level of satisfaction
The level of satisfaction with third party providers tends to reect the nature of the relationship between client and provider to the extent that, when an outsourced solution is working well: We jointly look at improvement initiatives and regard them [the provider] as partners Manufacturer When a provider is proactively providing ideas to meet current and latent needs and a true business partnership is created, the benets to both parties are very apparent: Our relationship with our 3PLs are as close as they can be with a separate business. We have a high level of symbiosis Retailer In contrast, greater levels of dissatisfaction were experienced by clients whose providers do not adopt a partnership approach, but limit the scope of their relationship to the fullment of transactional needs: they do not add value as we would expect a 3PL to do Retailer Most partnerships appear to have been established as part of a strategy for growth, or one that was focused on cutting costs, but some of these strategies are now being reviewed:

Primarily Customer Driven

The supply chain is totally driven by the customer and the factories dont run without customer orders Manufacturer The messages that Im getting from the Board are all about meeting our customers demand even if that adds costs to our supply chain they know that they cant fight the retailers Manufacturer The supply chain is absolutely customer focused; its about making things easy for the customer, making sure products are available, adding extra SKUs and delivering goods to peoples homes Retailer

Manufacturers Supply chain confrontation

With sales reducing year on year our goal and the philosophy driving our supply chain is cost-saving FULL STOP Retailer

Retailers Cost reduction

Companies UnderPerforming

We are a very costcentric business, focused on taking costs out at every opportunity Retailer

Primarily Cost Driven

Customer-focused decision making in organisations that are performing well

Customers

Suppliers

Companies Performing Well

Investment

Supply chain collaboration

Customer satisfaction

Our 3PL partners have delivered signicant savings over time, however we believe that with our current need for responsiveness, a 3PL model does not give us a sufcient level of control Retailer The challenge now for all 3PL businesses is to nd a way of delivering increasing service options and exibility at ever reducing cost, whilst ensuring that the overall relationship with both manufacturer and retailer remains strong.
Proactivity Most organisations want their suppliers to continuously suggest improvements in a proactive way

Cost Savings The core driver for underperforming retailers

Consolidation Organisations with large or international footprints are constantly looking for ways to simplify their supplier base

Full outsourcing
The preference for full outsourcing of the management and operation of distribution centres as well as transport was high in the report sample group, with 46% of respondents reporting full outsourcing. Partial outsourcing represented 27% and is dened as the outsourcing of some distribution centres as well as transport.
In-house 18% Transport outsource 9% Full outsource 46%
Better Forecasting Manufacturers are constantly looking at ways to improve this, with limited success

Unfulfilled Needs
Vehicle Tracking Retailers see benefits of being prepared for deliveries at store level

Shared Use Logistics Increased drive for flexible deliveries makes running a dedicated fleet less cost effective

Unfullled supply chain needs common to many retailers and manufacturers

Partial outsource 27%

Lean principles
Retailer and manufacturer understanding of Lean principles and their strategic signicance for supply chains varies considerably. Many organisations understand waste removal as a central concept within Lean logistics, though some dene waste simply in terms of stock: In the context of Lean, waste refers fairly specically to stock Retailer Others identify it as related to by-products: Were currently trying to reduce cardboard wastage. Getting rid of little non value added costs can be as effective as across the board waste reduction initiatives Retailer Some organisations have successfully adopted a holistic view whereby: Waste for me is all about reducing the number of touches in the supply chain, double and triple touches really increase cost and waste time Retailer Others have incorporated lean thinking into their own ways of working: Lean Logistics is what we refer to as business process improvement, which is taking the waste out of a process, so its probably very similar Manufacturer Overall the report nds that there is scope for the retail sector to more fully embrace the strategic implications of adopting a lean approach, to create more responsive and agile supply chains and a source of competitive advantage.

Continuous improvement
The successful outcome of continuous improvement initiatives is signicantly inuenced by the level of proactive involvement by the logistics provider as well as willingness on both sides to implement a programme. A proactive approach by the 3PL also increases the levels of satisfaction for the client: Our logistics providers come to me on a regular basis with a variety of cost saving initiatives that they want to go ahead they plan and own the whole process from start to nish Retailer When the 3PL adopts a less proactive approach, the relationship is viewed less positively: My suppliers do come to me with initiatives at our quarterly review meetings, but only because I twist their arm! Their view is that there just isnt very much cost saving to be made Manufacturer

Unfullled Needs
Unfullled supply chain needs are often specic to the organisations position in the supply chain or to the industry sector, but several broad issues are common to many retailers and manufacturers. It is these, amongst others, which represent opportunities for partnerships between retail sector clients and the logistics provider.

Shared Supply chain issues for Retailers and Manufacturers:

Drivers Role of Supply Chain Waste Removal Bottom line performance fundamentally drives Supply Chain and Logistics initiatives. Supply chains and logistics are now being seen as an area in which organisations can add value and differentiate, not as a cost of sales. Most organisations are implementing initiatives to remove waste from the supply chain in order to create more efficient processes. However, organisations have different definitions of what waste might entail. Retailers are becoming less reliant on high levels of stock and becoming less risk adverse, with many organisations trialling stockless or flow-improvement initiatives. Most organisations strive for continuous improvement, but there is a relatively even split between those who have formal programmes in place and those who do not. Equally though, all client companies want and expect logistics suppliers to proactively come forward with improvement initiatives. Although all supply chains are set-up to serve the end customer, there are differing levels of focus on customer needs versus internal efficiency. Organisations which are under-performing tend to look internally for cost-based improvements rather than focusing on higher levels of service. Almost all organisations are seeking logistics providers who provide ideas to meet current and latent needs, although only 26% of the respondents were currently experiencing that level of proactive partnership. Some of the common unfulfilled needs include: further cost savings, supplier proactivity, consolidation of contracts and suppliers, better forecasting systems, shared use logistics and vehicle tracking.

Stock vs Flow

Continuous Improvement

Unipart Logistics provides logistics and supply chain solutions across a broad range of sectors, including: Retail, Manufacturing, Technology, Aerospace and Automotive customers. Current clients include Boots, Halfords, Homebase, Vodafone, Jessops, 3, Sky and ASOS.com. Core services include warehousing, transport, inventory management, supplier management, service and repair management, information systems, process design and commercial services, which can be combined to provide bespoke solutions for specic clients. White Space Insight are a commercially focused, bespoke research consultancy, providing direct marketplace insight to senior management decision making. For more information contact: Nick Edwards, Director +44 (0)1865 793800 [email protected]

Alignment with End Customer

Partnership

Unfulfilled Needs

The research from which this summary report is derived was commissioned by Unipart Logistics and undertaken by White Space Insight. The purpose of the research was to deepen the understanding of customer supply chain drivers, logistics models and improvement initiatives, to assist Unipart Logistics in providing optimal solutions for Retailers and Manufacturers. To conduct the research, interviews were held with major companies from several different areas of retail and manufacturing including some of the following. Respondents included representatives from middle and senior management within supply chain and related business divisions. This report is based on 35 interviews in total.

For more information contact: Paul Brooks Sales Director Unipart Consumer Logistics Unipart House Cowley Oxford OX4 2PG +44 (0)1865 384755 [email protected] or visit our web site: www.unipartlogistics.com