The Growing World of Online Supply Chain

Online retail sales were only 5% of all retail sales in 2011 according to NAB  and Australia lags behind the rest of the world, (which is unusual for us). The online retail (and online B2B) market is set to grow rapidly over the next few years and whole new supply chains are going to be established and old ones are going to die (or shrink or adapt) as the traditional retail shop supply chain
is augmented and changed by the online retail direct to consumer supply chain.  Logistics Help is now offering specialist supply chain consulting services to online retailers to help them get up to speed with current processes and technology as well as meet the new challenges of their particular business.

Bricks and mortar retailers have had their head in the sand with regard to online sales and have seen it as a threat to their retail shops rather than an opportunity to value add and extend sales. There is currently no major retailer who is showing the way with an integrated online and retail shop experience that allows customers to seamlessly interact with them. Some stores do both but they are not integrated and work in silos.

Here are a couple of personal examples of what I mean by non-integrated.  A few months back I bought some parts for a TV antenna from Dick Smith’s online store and had them shipped to my in law’s house to set up a new TV for them.  When I arrived to do the installation they had not shipped the antenna mast so I had to go to a local store to get one, instead of being able to resolve the short shipment and supply me a replacement, the store staff have no relationship with the online store and I had to buy another one.  I had to follow up the short delivery with the online store who never contacted me again nor gave me a refund.

I recently went to an Apple retail outlet with my non-functioning VGA adapter for my Macbook that I had bought online.  They couldn’t help me and said I had to arrange the return with Apple online.  Whilst I know that Apple’s return process will work fine, why the problem?  From a supply chain perspective it is cheaper for Apple to take returns from one retail outlet than arrange many pick-ups from individual homes.

The hiccup in both cases is of course the nature of the business relationships which make it too hard to present a seamless service to the customer.  Franchisee vs. parent in both cases.  This is not insurmountable and the first one to do this will win.

The extension of integration may ultimately lead to display terminals in store where shoppers can seamlessly flow between searching the online store and then being directed to see the physical goods in store.  Why not have large touch screens in the menswear department so I can view a bigger range of shoes than can be displayed but are still in store stock and can be retrieved for me to try on.  When I am ready to buy I can use the terminal to call for a personal shopping assistant to fit my new shoes.  Please save me from having to say “no I’m just browsing”  and talk to me when I am ready to buy.  Let me buy five pairs of shoes and a new clothes and get them delivered to my home via an efficient online fulfillment centre.

I did some work for Cell Bikes (a BRW Fast100 company) who have a well integrated offering between their online and retail outlets and I think are showing how this model can really work for an innovative specialist retailer.  Their business is deservedly rocketing along.

Another issue for online retailers that is inconsistently managed is freight charges. Amazon proved the value of free shipping when they decided to invest their traditional advertising spend into free shipping and they had a dramatic boost in sales.  People don't mentally calculate their costs of going shopping (fuel, car running costs, time) and so they regard conventional retail as free delivery.   So any shipping charges are an instant mental barrier to a sale, particularly a smaller sale.  Handling charges are also an insult to the customer, the warehouse is not a profit centre and I do not tip the sales staff at David Jones.

Online sellers who build this into their costs with minimum spends and special offers do very well because they eliminate a psychological barrier to customers trading with them. Unfortunately some online retailers clearly still regard shipping and handling charges as a way to price gouge; using a cheap headline price to get you in and a late reveal of high shipping fees, (no wonder that the cart abandonment rate is ~75%).  I think that eventually free, or at least honest low cost shipping will become the norm for successful online retail.

Everything I have been talking about here are all issues of supply chain and business integration.  This is a new world and new ways of working are being developed every day.  Business systems and processes, warehouse management, freight management, inventory management and visibility of stock and activity throughout the value chain are all critically important to business success, and that is where Logistics Help can help.

If warehousing, logistics and supply chain are important to your business or your personal career then why not follow this blog by email or on Google+.  To tap in to the full benefits of business and career boosting ideas I suggest you join The Warehouse Performance Initiative.