Digital Demand & E-Commerce – Chief Supply Chain Officer Report 2013

The data shows that most supply chains have already begun the pivot to a new model of ominchannel retailing, which means consumers now flow demand back into the supply chain not only by their in-store purchases but also by their use of smartphones, tablets and desktop devices. Retailers have long been aware of the need to accommodate this shift and are now well along the road to implementing it.

When asked how the demands from today’s e-commerce and mobile-enabled customers are affecting current channel operations, a clear majority report that changes are underway. Nearly half overall are building direct-to-customer fulfilment capabilities. This includes not only consumer-facing industries like hi-tech and apparel, but also industrial manufacturers, 46% of whom say they are going direct to customers. The retail sector is clearly under siege as core consumer industries like CPG and food & beverages move towards either direct models or selling through e-commerce channels such as Amazon. Recognising the inevitability of this trend, retailers are themselves rapidly outfitting an omnichannel supply chain – almost three-quarters of survey participants in the sector say they are now going direct to the customer.

The move to an omnichannel supply chain is not only pervasive across industries, it is also common regardless of company size. Larger companies (those with sales above $5 billion) are marginally more likely to have made the move to enable direct-to-customer fulfilment, while the smallest (those with sales below $1 billion) are still apparently behind in responding to digital demand. But clear minorities across all demographics say that they see little or no change to their channels.

Among the most important considerations facing supply chain strategists is what type of supply chain infrastructure this omnichannel movement will require. The survey asked about distribution centres (DCs) being built today in response to this new force of digital demand and found a distinct movement away from business as usual. More than a third are increasing the size and centralisation of DCs, while another fifth are building smaller and more local DCs. Operational dynamics driving these differences lie largely in SKU variety, which most say is increasing with digital demand. In fact, when the DC architecture plans of respondents are cut according to the degree of SKU complexity one can see a definite link between increasing complexity and a bias toward larger, more centralised DCs.

Cutting this data by industry reveals significant diversity with a few prominent examples of clear moves toward the big, central DC (apparel and media & telecoms), but many others apparently juggling options, including hi-tech, which is almost evenly split across responses that are radically different strategically.

Added complexity driven by the power of digital/mobile customers comes not only from transactions fragmenting beyond the retail store, but also from other forms of demand. One of the most prominent is social media, which although generally not a point of purchase has become a vital source of consumer (and customer) insight. In 2012 almost half of respondents (47%) said they saw no effect of social media
on supply chains. In 2013 the proportion saying the same has dropped to 37% – a large change in the course of only one year.

Source: Lee, H., O'Marah, K., Geraint, J., Blake, B. 2013. The Chief Supply Chain Officer Report 2013: Pulse of the Profession, SCM World, September 2013.