Fulfillment: Retail’s New Loyalty Factor

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Covid has forced many retailers to make dramatic shifts toward digital transformation of their business models. Many have successfully pivoted to offer services including BOPIS, curbside pick-up, and same-day home delivery across their digital, customer facing touchpoints. But as many customer surveys have shown, the ability to execute on the fulfillment part of that equation in aggregate has been lackluster.

Why It Matters

 These statistics reported by Salesforce in October 2020 are all too familiar:

  • 60 percent of customers will cancel an order if a delivery delay occurs.
  • 92 percent of customers say that delivery speed is a primary purchase decision factor.
  • 60 percent of online shoppers take advantage of free shipping or alternate delivery alternatives.

Bottom Line

Fulfillment has become a key value driver and the quality of the fulfillment experience means the difference between winning and losing in the post-Covid retail environment. It will become a new battleground for customer loyalty.

[callout]Fulfillment has become a key value driver and the quality of the fulfillment experience will mean the difference between winning and losing in the post-Covid retail environment. It will become a new battleground for customer loyalty.[/callout]

What Customers Expect

 If flawless fulfillment equals customer loyalty, what does it look like? Today’s customer uses his or her smart phone to augment experiences and drive convenience and they expect at the minimum:

  • Deliveries on demand at speed, fully connected communication and delivery tracking visibility.
  • Safe and contactless delivery options.
  • Fully harmonized shopping, fulfillment and returns.
  • Returns must be hassle free with prompt refund processing.
  • Processes that are sustainable and environmentally responsible.
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What’s It Going to Take to Get There?

Retailers need to change their mindsets and rethink how they manage their supply chains. The key shift is moving from managing the supply chain as a cost center toward viewing it as a strategic value driver. Retailers also need to evolve from seeking to optimize the cost within each node of the supply chain to re-engineering the supply chain to produce a targeted, brand fulfillment experience. Once that task has been accomplished, the retailer needs to think how to optimize the costs across the entire network.

This change in mindset requires the development of new capabilities built around managing the supply chain as a customer focused, order fulfillment network. It will force a re-architecting of organizational structures to eliminate silos and encourage integrated thinking. This requires new ideas with respect to KPI’s that measure and manage performance.

In addition, retailers need to rethink their business processes end-to-end. As a colleague of mine likes to say, “What happens in the last mile is determined by what happened in the first ten thousand miles.” Businesses need to thoughtfully consider everything they do, including:

  • How they architect assortments, plan inventory, forecast demand.
  • Deploy inventory to the right forward fulfillment locations.
  • Schedule labor to execute order fulfillment.
  • Complete last mile delivery.

These process changes require strategic investments in systems that enable end-to-end visibility to demand forecasts and inventory across the entire supply chain network.

New Capabilities

 What does it take to ensure stock availability across all nodes of the supply chain including raw materials positions? How can we compress order cycle times and accelerate speed to market? And how do we get better at understanding where to deploy inventory to best fulfill customer orders as more and more sales transactions begin to have both a digital and physical component?

In order to deliver on customer fulfillment expectations businesses can seamlessly integrate demand forecasts with all supply chain partners. End-to-end inventory visibility needs to be enabled across every node of the supply chain including customer delivery access points with notifications powered by SMS.

Retailers also need to increasingly leverage customer data and advanced analytics to enable smarter forward inventory deployment and fulfillment. In addition, businesses will begin to leverage customer data and collaborate directly with customers to enable smarter assortment decisions and increased speed from concept to market.

Lastly, with the growing shift toward digital ordering, two other key capabilities need to become core competencies. Returns management needs to become a more focused process discipline, and supply chains need to become more flexible and agile. Retailers also need to constantly anticipate and assimilate new customer touchpoints to create new fulfillment services that drive convenience.

 Organization, KPI’s and Performance Measurement

 World-class fulfillment can’t be delivered by a siloed organization and an antiquated KPI measurement system focused on channel performance. It also can’t be delivered by a supply chain that is focused solely on reducing unit transportation and processing costs across each individual node of the supply chain.

Organizationally, savvy retailers eliminate channel silos within their merchandising, planning, and inventory management functions.  This is not exactly new news, but, in a world where flawless fulfillment equals superior customer service, where should the logistics team sit organizationally? Should logistics have a dotted line into the now-popular chief customer experience officer position?

These are questions that need to be worked out during the post-Covid reset. A less daunting step would be to create a supply chain coordination group focused on orchestrating the target customer fulfillment experience. That step would enable brokering the required tradeoffs between functions and eliminate the zero-sum games that currently hinder progress.

When it comes to KPI’s and how to measure performance here are some guidelines to consider:

  • Give sales and fulfillment equal weight when evaluating performance.
  • Measure demand according to where and how customers want their orders to be fulfilled.
  • Manage and reward performance of the entire ecosystem.
  • Adopt customer-focused fulfillment KPI’s such as percentages for on time shipping, order fulfillment cycle time, perfect order and return cycle time.

This framework encourages going beyond merely treating the supply chain functions as a cost center and  treats it as part of the customer value chain.

Process Implications, Systems Investments, and Data Flows

Fulfillment is not just about what happens in the last mile and how a customer takes possession of their purchase — it’s everywhere. Many retailers have already made great strides in retooling their planning and inventory management processes to enable inventory to move more freely to the right forward fulfillment location. Customers’ increasing demands for speed and free delivery will continue to escalate and will require more inventory to be placed closer to customers. That requirement will challenge how retailers approach endless aisle and assortment localization strategies. Retailers are already testing concepts like dark stores, hub stores, pop-up warehouses and micro-fulfillment centers to increase same-day delivery capability on a broader range of the assortment. And in today’s climate building sustainability, safety and hygiene into all of your operating processes has become an operating imperative.

All of this requires strategic technology investments including AI powered demand forecasting, fulfillment, order management solutions and solutions that improve inventory accuracy and visibility across the supply chain network (like Rain RFID). Customer driven data analytics need to be leveraged upstream in the assortment building process and downstream to enable smarter forward inventory deployment and fulfillment. And lastly, investments in supply chain collaboration solutions and SMS communication networks will be key enablers to better coordination and synchronization within the supply chain and better engagement with customers.

Fulfillment may not end up being the single competitive differentiator in the post-Covid environment, but it is an area that must be prioritized to ensure a business survives in the digital marketplace.

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