Forrester urges retailers to shop around for smarter supply chain tools

Opportunity: Furniture retailers may be able to compete with Ikea on service rather than price

Retailers can gain an advantage over rivals by implementing smarter supply chain management tools and by targeting international markets where online shopping is pervasive, according to a leading research analyst.

George Lawrie, principal analyst at Forrester Research, explained in an interview with Computing how retailers can get ahead of the market.

Lawrie highlighted a strong and significant trend among retailers to extend the range of their product offering.

Retailers believe that the best way to increase their market share is to provide their customers with more choice. However, this makes it difficult to analyse masses of data relating to consumer behaviour and also means that the retailer is has to stock masses of new inventory. Arguably, these challenges can be overcome by collaborating with manufacturers in order to satisfy customers.

“The future for retailers is that you’ve got to get closer to your customer,” he said. “It means being able to provide them with all the colours and sizes but not necessarily have them in your store. It means entering into a partnership with other people, such as the manufacturer or a partner who holds the product in-store when you don’t,” said Lawrie.

Therefore, inventory visibility is a key technology area that retailers need to concentrate on, with recent research in furniture retail suggesting that in some cases, retailers do not actually know the quantities of products that they hold or the schedules for new orders. He suggests that the solution is in order management systems.

“There’s been some recent research into why the lead time for furniture is always six weeks,” explained Lawrie. “It turns out the reason is because it’s just a guess, because nobody can actually tell.

“But you could imagine that there could be a business for a furniture retailer saying: ‘I can’t compete with Ikea on price, there’s no way, but I can compete on service. I would need very good order management processes and I would need to collaborate with everyone involved and have an agreement with the manufacturer about what the lead time would be.’”

The tendency for retailers to rely on distributors to supply products may not be the best way forward. While this approach is fine for everyday household items, such as washing powder and toilet tissue, it may be more useful to interact directly with the manufacturer for products that are seasonal or centred around promotional events.

“Things that are promoted for a short time – something like the football World Cup – have a short shelf life, so does it make sense to take it to the distribution centre first or does it make more sense to deliver these products directly to the store?”

In such cases, retailers could rely on the new wave of mobile supply chain management solutions that are entering the market to know how many products are actually on the shelf and to sustain communication with the manufacturer about when to reorder products.

Online shopping

Another area that retailers should be looking to advance their IT capabilities in is the world of online shopping. Lawrie identified South Korea, a country where eight out of 10 people browse online retail sites every day, and Japan as key markets to pursue. Not only are consumers extremely keen on buying products online, they are also willing to shop internationally.

“South Korea and Japan represent a huge opportunity. South Korea is really the internet shopping capital of the world, they really do a lot of shopping online.

“So what does it take to sell to them? The answer is in managing organisational processes. It is complex because you’ve got to use supply chain management technology to stay in constant touch with partners, not just those shipping the product, but those on the other end importing it and also the people at customs. Then you also have to use technology to handle different types of payments and currencies.”

He also explained that certain statistics published about online shopping may be misleading as there is a difference between consumers using the online retailers to research products and actually purchasing them.

“What people research most is consumer electronics and sports equipment; things like golf clubs,” Lawrie explained. “When it comes to purchasing, for instance with consumer electronics, people often purchase in the store. They go online to do their research and sometimes with golf clubs too, they want to feel it and try it out before they buy. But things like running shoes, people will buy those online.”

A reason that people are shopping online is the ability to compare products. Lawrie reckons the intelligent retailers are beginning to provide comparison services on their own web sites, and incorporating customer service functions such as “ask an expert” and “phone a friend”.

Tools such as one developed by eyewear retailer Sunglass Hut are also a sign of things to come, according to Lawrie.

“What they do is take a picture of you wearing the glasses and show you, virtually, how you would look in different places, such as a nightclub. They’ll even let you publish it to Facebook so you can ask your friends what they think about the sunglasses before you buy them.”