Seasonal sales during the 'peak' period in the run-up to Christmas can account for up to 50% of a retailer's annual profits, highlighting just how critical the festive period is for retailers of all types and sizes. To ensure success, retailers need to guarantee their usual standard of service despite an increase in consumer demand, whilst also offering additional options that will draw in the crowds. In addition, it is vital that customer orders arrive on time, regardless of whether logistics are managed in-house or processes are outsourced, says Andrew Dalziel, VP Product Management at Kewill.
However, even with the right practices in place this is a tough order for any retailer to deliver on, with heightened volumes of orders and potentially severe weather conditions to contend with. Temporary staff and modes of transport (such as trucks) are a good starting point, but what exactly is the best way to manage logistics and ensure that customer expectations are met, delivering a stress-free Christmas?
Building a multi-channel strategy
As the challenging economy places increasing pressure on retailers and brands, more and more retailers are looking to deliver a true multi-channel strategy, to not only meet customer demands but gain that competitive advantage.
The first step for a traditional retailer is to establish an eCommerce website and more recently, with the growing mobile channel, to ensure that its mobile optimised. Many new emerging retailers also choose the Internet as a primary channel to market, as the capital expenditure is far less and the consumer outreach far wider than launching a store. However, promoting the merchandise, taking orders and completing the consumer purchasing transaction are only the start of the order fulfilment process.
Whether a traditional bricks and mortar retailer or a pureplay online retailer, you have to ensure that your back-end processes are in place so that the operations of end-to-end product lifecycle run smoothly and customer expectations are met. With consumers becoming increasingly fickle, it is ever more important to ensure a high level of customer service from browsing to the shopping experience, ease of ordering and finally delivery.
Current trends in logistics to fulfil across all channels, including; track and trace, next day delivery, click & collect and collection points are being driven by consumer demand for more control over when, where and what they purchase. If the consumer does not receive their order quickly and undamaged, they are likely to shop elsewhere next time; and with the growing popularity of social networking, it's likely that they will share their negative feedback globally, discouraging potential future customers.
Each year, more people are choosing to order their Christmas gifts over the Internet, for ease of purchase and comparison of prices for the best deal available. Online sales in the UK are expected to increase by 14% over the 2012 Christmas trading period, with sales expected to reach £57.39 billion, according to a report released by the Centre for Retail Research, commissioned by online shopping comparison site Kelkoo.
As online sales have grown consecutively over the past four years, delivering on time at Christmas has never been so crucial, but with sales on the increase it's only going to becoming tougher for retailers to process higher volumes of orders along with more varied delivery options. There have been many stories over the past decade of Internet orders not arriving until after the crucial date – not least in 2010, when snow and harsh weather conditions severely affected delivery times.
Snowfall certainly makes for a picturesque setting and a festive environment, but the only option retailers and logistics companies have in these weather conditions is to ready the reindeer and sleighs!
It is not only the online retailers that face this challenge. Other channels - such as catalogue companies and retailers offering home delivery – are confronted with the same dilemma. So when it comes to guaranteeing that your customers receive their orders in good time ahead of Christmas, what is the best delivery management method?
The first temptation might be for the retailer to completely manage the process in-house, such as Next, thus assuming sole responsibility for the delivery of goods to its customers. To achieve this, the retailer would have to prepare in a similar fashion to a third party, and make sure that they employ temporary Christmas staff and additional modes of transport to ensure that they are ready for all conditions.
Whilst this method allows the retailer to stay firmly in control and oversee their entire operation from start to finish – which can help to minimise errors - it does mean they will have to spend a vast amount of time and investment looking after storage and warehousing, inventory control and shipping, which could prove a costly and timely distraction when trying to focus on core business objectives at this important time of year.
Third Party Logistics Providers
Alternatively, a third party logistics provider (3PL) could be selected, with the retailer utilising their expertise to take care of the process for them. There are two primary ways in which a 3PL can be put to use. The first is for a retailer to simply outsource logistics processes, while using its own warehouse. Although, the cost of running and managing a warehouse is a major challenge in itself, with technology requirements and management of the workforce to consider, which is magnified in the run up to Christmas. If the retailer does not achieve the right balance within the warehouse it is likely that the whole logistics process will be affected as a result, so the pressure is on to get it right.
Another way of utilising a 3PL provider is to outsource both your warehouse and logistics operations, whilst still owning the stock. The 3PL would therefore hold the responsibility of directly delivering goods on time to customers and would need to consider preparing for Christmas, employing temporary Christmas staff (i.e. drivers) in the warehouse and logistics chain and expanding modes of transport – ensuring that there are sufficient trucks available to cope with the surge in deliveries.
However, there are complications that come with owning the stock – a 3PL may not take full responsibility for any product damage that may occur unless they are directly at fault, and the same may apply for product shrinkage. With this in mind, visibility of stock and deliveries is of the upmost importance. Therefore, it's essential in this circumstance that retailers tightly integrate the back-office processes with the 3PL's warehouse and logistics operations – providing a clear picture of the end-to-end order management cycle, including; inventory levels and customer orders at every stage in the supply chain.
In recent times, an ever increasing number of retailers are opting for a direct despatch model. Many retailers have outsourced the delivery of the goods to their suppliers, so that when the consumer orders, the retailer processes the order directly with their supplier who then delivers the goods directly to the end customer. This allows the retailer to offer a wider product range and react to changing trends without the initial outlay of purchasing and holding inventory, improving cash flow while reducing the risk.
However, while these retailers may benefit from not having to hold the physical goods or take care of the actual logistics, they must still manage the information and financial flows with their suppliers. The supplier then picks and packs the goods, prints the delivery note, package label (and often a returns label), before shipping direct to the consumer.
Communicating with a wide number of suppliers, both large and small, is a challenge in itself. Becoming increasingly more complicated during the busy period in the run-up to Christmas, with an increase and wider assortment of orders placed. Having a direct despatch management system automates the entire process, allowing suppliers to gain easy and fast access to order information, reducing complications and eliminating the chance of manual errors, while streamlining the process to shorten delivery lead-times.
This type of direct despatch is not supported by most standard software packages. However, having a system that enables supply chain visibility and control over this process is important if you are to deliver high customer service levels and ensure loyal customers. For instance, it's important for consumers to be kept aware of order delays, or to be able to enquire into the status of their order at any given point.
Shop Direct sets the standard for Direct Despatch (case study)
Shop Direct Group uses Direct Despatch as one of its key strategies to increase customer choice, keep its costs low and ensure excellent customer service throughout peak periods, such as the festive season.
Shop Group Direct embarked on a 'Competitive Direct Despatch' project with Kewill to gain even greater control of its Direct Despatch service, driven by an initiative to deliver on the 'Customer Delivery Promise'– in which all customer orders are delivered on or before the promise date communicated at the point of order.
This becomes a heightened challenge in the run up to Christmas, with heightened levels of orders coming in and being sent out to customers in time for the big day.
The ongoing challenge is gaining real-time visibility of stock, which impacts the ability to detect and notify customers to any delays in the fulfilment cycle.
Taking control of orders
To deliver on the 'Customer Delivery Promise' the direct despatch system had to documents default lead times against each supplier and product stocked. This information was then made visible to customers on any of Shop Direct's websites and customers ordering via telephone. This way, customers are kept accurately informed in real time on stock levels.
Pauline Lauder, Planning & Operations Director at Shop Direct Group, comments, "We now have improved stock availability information flow from suppliers, with quicker and more accurately dated deliveries also having a positive impact on our returns and cancellation rates. This advanced functionality has better prepared us for the Christmas rush."
Lauder continued, "Across our brands, we will make 6.5m deliveries to customers over the Christmas period. The Direct Despatch system supports this high volume of orders, ensuring that all of those deliveries reach our customers in time for the big day."
The impact of a more efficient fulfilment system
Regardless of which of the above methods is implemented, ensuring shorter delivery lead-times through automation and faster data transfer can significantly help to reduce returns and claims.
Time will soon tell which retailers are geared up for the Christmas peak. Some retailers may have the processes and systems in place, while others may incur additional costs or sadly risk missing the Christmas Day deadline, disappointing expectant customers... and Santa cannot be late!