Let it flow

While making cost-cutting service proposition changes is tempting, improving information flow is ultimately the most powerful cost lever of all for boosting omnichannel apparel profits.

The evidence in GS1 UK’s recently published white paper ‘Where did your profitability go?’ clearly identifies cost pressure points along the full length of the apparel omnichannel supply chain. In particular, it highlights the negative potential of some upstream activities on workload and costs downstream. It’s nevertheless easy to see why apparel e-tailers might first cast their eye downstream in search of ‘quick win’ cost reductions, starting with the service proposition itself.

Quick wins: not what they seem?

The decision by many online sellers to offer free deliveries and returns has created a costly consumer expectation that countries like the USA have so far managed to avoid. “In the US they charge you, offering a range of choices in place of free delivery and returns”, says white paper launch panellist Simon Ratcliffe, sourcing and supply chain director for Fat Face. “I think that ultimately people will start seeing the true cost of free services here.”

While it may be that the UK comes into line with the US on the high costs of ‘free’ delivery at some point, the reality is that it’s what customers currently expect. And they may well vote with their feet (and wallet) if retailers try and take it away.

It’s a view with which Ratcliffe concurs. “We’ve created a monster,” he said, “because the customer expectation is that delivery is free and it’s fast. And getting them back from that view is going to be really, really tricky.”

One popular US import that has shaped what customers expect from their ecommerce experience is the trend towards extreme discount events such as ‘Black Friday’. Responsible for quadrupling the number of delivery vehicles needed to fulfil orders – and a big spike in costly staff required to process them – Black Friday can play havoc with cost-to-serve and margin pressure. And it’s a situation only made worse by the massive reductions themselves.

Customers and a hyped-up UK media, however, are in love with the Black Friday concept. And modifying or withdrawing events such as this and free delivery/returns poses considerable risk in terms of devaluing the retail proposition – bringing consequent negative impact on sales.

Big wins: looking to the longer term

There’s nevertheless an alternative route to tackling the cost-to-serve challenge. This trades the riskier quick wins for longer-term strategic advantage through efficient use of data to make delivering the customer proposition more sustainable.

Improved information flow, the lifeblood of the cost-efficient supply chain, is the driver acknowledged by all in GS1 UK’s white paper launch panel as key to bringing down costs. Panellists were asked which of five ‘big win’ areas were most significant for them, choosing from supplier relationship management and collaboration; inventory management and centralisation; data integrity management; system integration; and internal structures.

Terry Murphy, director of national distribution at John Lewis, described how online purchasing has led the store to remodel its supplier relationship management. “We now pick in singles for the shops as well as online – allowing us to centralise the inventory. In turn this helps us reduce the size of the stock held in shops – and drive productivity.”

Supplier relationship management is also a priority cost lever for GS1 UK’s Jacky Broomhead – specifically when it comes to highlighting the need for a more standardised approach.

“Unnecessary costs due to lack of consistency in inbound deliveries is one of the biggest complaints we hear from retail members,” explained Jackie. “If you had greater standardisation across how retailers and suppliers work together – or even just better communication – you could really reduce those costs.”

For Stuart Higgins, retail partner at LCP Consulting, it’s using a combination of information levers that offers the opportunity not just to reduce costs, but boost valuable incremental sales.

“If by getting that stock holding and inventory deployment right you can capture an extra few percentage points in full-price sales, you can generate massive returns to the business. That demands a combination of inventory management and centralisation, data integrity – all driven by systems. Where that works, you can drive three points of the net profit – a big gain on the 10-15% the sector typically delivers.”

However, it’s creating an information culture backed by the right structures company-wide that white paper author and panellist Richard Wilding, Professor of Strategy at Cranfield School of Management, sees as the prime cost lever on which all other activities depend.

“It’s because the only way you’re going to survive nowadays,” says Wilding, “is by having access to the information you need for a 360º supply chain view.”

Find out more about pushing the right cost-to-serve levers

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