4 things that FMCG retailers need to be aware of as they build their future omnichannel supply chain

Brian Kilcourse, Managing Partner at RSR Research, overviews key recommendations based on the new ‘Supply Chain Management 2018’ study and exclusive special extract report undertaken for Symphony RetailAI.

Here’s the reality. Shifting demand and fulfilment patterns are forcing change across the entire supply chain and retailers, particularly grocery retailers, need to rethink how they will support these. Not surprisingly, Retail Winners (those whose sales outperform their peers), are already accommodating this new environment but many continue to operate in a no-man’s land between knowing that consumer omnichannel shopping is really starting to affect them and recognizing that their store-centric supply chains and supporting systems will need fundamental modernization.

Based on our research, below are the four areas that FMCG retailers need to be aware of as they build their future omnichannel supply chains:

1. Change signals

Until now, 90% of FMCG retailers have been secure in knowing that their supply chains help overall corporate performance. But times are changing and retailers are increasingly aware that new digitally-enabled consumer behaviors are challenging a key operational assumption – that consumers will start and end their consumer journeys within the four walls of the physical store.

We also found that 70% of FMCG retailers see the change in the pattern of consumer demand and how they fulfil it as the top business challenge affecting supply chain management. Traditional systems were designed to support standardized assortments bought in big quantities to achieve the lowest unit cost-of-goods at a time when the store was the only point of customer order fulfilment. As this isn’t the case anymore, supply chain management systems need to step up to the change.

Top FMCG business challenges affecting supply chain management
Source: RSR Research. Click to enlarge


2. Learning to play with new service models

The self-service model has been adopted by all FMCG retailers to some degree, but the model is being challenged by omnichannel consumers who want something more than the old self-service experience. However, many retail executives are concerned that omnichannel orders are not profitable, with 70% of FMCG retailers stating that quantifying labor and shipment costs for cross-channel fulfilment is a challenge in supply chain management. To address this concern, retailers need to implement operational KPIs that will measure the new costs and when these are implemented, retailers will be able to prioritize improvements to the supply chain to meet the new demand.

3. Change starts at the top

FMCG retailers, more than other verticals, cite “lack of top-level understanding of supply chain issues” and “no internal appetite” for changing the supply chain as top organizational inhibitors. So, whether senior executives want to change or not, they have to as new formats like the Amazon Go! store, fresh food direct-to-consumer delivery (such as U.S. grocer Kroger’s autonomous vehicle test in Scottsdale, Arizona), and agile new competition (for example, Lidl U.S.), are already challenging traditional operators’ most basic operating assumptions. The old adage of “if it ain’t broke, don’t fix it” is now irrelevant. Today, the new mantra is, “it is broke, so fix it”.

Top three organizational inhibitors standing in the way of making supply chain management improvements
Source: RSR Research. Click to enlarge


4. What was a differentiator is now a necessity

Previously, supply chain masters offered products at low prices to consumers, but since the relatively halcyon days of the late 1980’s to 2000, using low price as the primary competitive wedge has been harder to do, as other retailers have figured out ways to compete at that level.

Retailers that responded early to the looming challenges created by consumer omnichannel shopping behaviors gained an early strategic advantage. But what was a strategic differentiator has now become a strategic necessity, according to 60% of those FMCG retailers that participated in our benchmark survey. As retailers are learning how to calculate demand with greater precision than before, and how to manage complex last mile of the omnichannel supply chain – these efforts are tied to how retailers are redesigning the role of the store as an omnichannel order fulfilment center, in addition to offering a great experience for those consumers that choose to use the store in the traditional way.

Progress is definitely being made, but not at lightning speed. There is still plenty of room for improvement, but even Winners need to go faster. Consumers expect it.

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