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The “Buy” button is the start of the Online Retail challenge

Ian Wong

Partner, Global Business Services

Strategy & Transformation – Digital Front Office Lead

Retail Industry Lead

IBM Australia

13th November 2013

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This is changing

the entire way

products are sourced,

manufactured and

distributed—and

making business more

complex

than ever

Customer

expectations of

service, price and

delivery are soaring

Customers now

have unlimited

access to information

and can instantly

share it with the

world

Social networking

and mobile commerce

have dramatically

changed the dynamic

between buyer and

seller

The age of the empowered customer.

How the C-suite is preparing for the future:

– Open up to customer influence

– Pioneer digital-physical innovation

– Craft engaging customer experiences

To understand how our clients planned to

address these rapid changes, IBM

conducted the 2013 Global C-Suite

Study covering 4,183 face-to-face

conversations with CxOs.

250 millionNumber of tweets sent via Twitter

each day

75%Percentage of people who believe companies don’t tell the truth in

advertisements

$93 billionAmount in sales missed due to out of

stock inventory

ustomer activated Enterprise

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Globally, the major response to the empowered customer has been a

focus on marketing and customer engagement.

Optimising visibility

& integration to

balance supply and

demand

Growing revenue

through integrated

cross-channel

execution

Creating highly

personalised and

targeted offers

Maximising the

performance of the

marketing

organisation

Marketing

Performance and

Optimisation

Ke

y O

bje

ctive

s Innovating to drive

revenue and growth

Capitalising on the

shift to digital,

mobile, and social

interactions

Marketing Strategy

and

Transformation

Cross Channel

Integration &

Execution

Customer

Engagement and

Experience

Optimising customer

engagement at

every touch

View of all customer

interactions

regardless of

channel

Post Purchase

PurchasePre- Purchase

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enceThe focus on marketing and customer engagement has resulted in many

ideas for attracting and converting customers…

Digital merchandising with endless

inventory

Active Display Advertising

Innovative customer service

developmentIn-store dynamic queue

management

Augmented RealityPersonalised, interactive

technology

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… and there is a constant stream of innovation in this area.

Quirky helps consumers get their

brilliant ideas to market through a

social and collaborative

development process

Smart hangers

Best Buy’s “Connected Store”

focuses on hands-on service

through use of innovative checkout

Macy's is staying ahead by

integrating online shopping

into the physical world

…and there is always something on the horizon

Converse is enabling fans to

let their creativity flow and be

rewarded for their work

Virtual Shopping

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In the last few years there has been a renewed focus on cross channel

execution within the supply chain...

Optimising visibility

& integration to

balance supply and

demand

Growing revenue

through integrated

cross-channel

execution

Ke

y O

bje

ctive

s

Cross Channel

Integration &

Execution

Customer analytics

IBM studies show supply

chain visionaries and

planners have achieved

strong returns by investing in

visibility, process collaboration

and analytics

3 year avg ROIC

Source: IBM Institute for Business Value, "New Rules for a New Decade"

3 year avg revenue growth

Post Purchase

Question:

Which is more important in forming your lasting opinion of a retailer?

Source: Smarter Commerce Consumer Advocacy Study; IBM; August 2012

Pre-purchase Post Purchase

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….because in the end, the critical step in any on-line transaction is fulfilling the

order.

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The real challenge starts after the “Check Out” button is clicked because of

the complexity of fulfilment in an Omni-channel world.

Multiple Back-End Systems

ERP / CRM

Merchandising

POS

Database

Multiple Catalogs

Products

Services

Banks

Suppliers

Distributors

Carriers/3PL

Customs

Warehouses

DCs

Store 3

Call Center

WebCatalog

Store 1

Customers

Store 2

Multiple Customer Segments

Consumer

Distribution

Corporate

Multiple Channels

Store / Retail

Website / Mobile

Catalog / Call Center

Kiosk

Commercial / Contractor

Distributors / Resellers

Multiple Fulfillment Methods

Warehouse

Stores

Lockers

Suppliers

Drop-ship

3PL Networks

Multiple Product

Choices

Configuration

Guided Selling

Multiple Enterprises

Brands

Divisions

Business Units

Acquisitions

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Example: The competing requirements of the traditional retail supply

chain compared to a Omni-channel supply chain

.Dimension Store Retail Omni-Channel

Supply Chain

Complexity

Managing range, promotions,

pricing, customer service,

buying, merchandising,

marketing and logistics across a

single channel

Managing range, promotions, pricing,

customer service, buying, merchandising,

marketing and logistics for and across

Multiple channels

Logistics

Complexity

Distribution Centres cross-docks

and stores

Distribution centres, cross-docks, on-line

fulfilment centres, dark stores, store picking,

collection points, drop ship

Operational

Objectives

Better, faster, and cheaper -

Efficient store replenishment,

lower costs and fast turnover

Efficiency plus meeting customer

requirements 24/7.

Logistics

Execution

One way - moving full cases of

inventory to stores in truckload

quantities on a static schedule

Picking, packing despatching small orders to

individual customers and orchestrating inter-

store transfers

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Dimension Store Retail Omni-Channel

Order

Management

Customer present in store Complex business rules for order fulfilment

based on channel, cost, availability,

processing capacity and channel

Range Limited by shelf space Expanded through fulfilment centres

and/or inter-store transfers or unlimited

through endless aisle and drop ship

Availability Stock available at specific store,

expectation of customer

conditioned by available choice

and substitution decisions

Customer expectation of stock available at

any collection point or ready for immediate

delivery with no substitutions

IT Systems Information systems stratified by

level or function

Integrated data across inventory, order

management, logistics execution, store

operations and marketing

The competing requirements of the traditional retail supply chain

compared to a Omni-channel supply chain (cont’d)

.

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Dimension Store Retail Omni-Channel

Returns Limited and very often linked to

store of purchase enabling

exchange and put back to shelf

Return to Multiple stores (even cross banner

if allowed) or by mail requiring returns

processing.

Track and

Trace

Generally not required Integrated view of order fulfilment with near

real-time alerts

Store

Personnel

Know the location of products

and sell them

Guide and orientate customers to Multiple

channels

The competing requirements of the traditional retail supply chain

compared to a Omni-channel supply chain (cont’d)

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Example: Deciding on the “right” Omni-channel strategy.Example Decisions

How will you compete and differentiate

yourself from your competitors?

Insource or outsource to 3PL?

Separate supply chains for on-line and

store?

Fulfilment sources:

o Store picking?

o Separate eFulfillment Hub?

o Combine Store and eFulfillment DC’s?

o Dark stores?

o Drop Ship?

o International and national consolidation

centres?

Delivery:

o Home delivery?

o Pick up in store?

o Drive Thru?

o Collection points?

o Lockers?

o Mobile delivery points?

Mobile collection point Collection Lockers

Drive Thru

Image: Sipa Press from WSJ On-Line

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There is no clear winning model… each retailer and manufacturer has to

determine the best strategy for its particular circumstances…

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… and answer the question of how it will profitably meet the new demands of

its customers.

Cross

Channel

Integration

and

Execution

Omni-

Channel

Strategy

Processes

&

People

Analytics &

Metrics

Facility

Design

Information

Technology

Supplier Collaboration

• Supplier Inventory Visibility and CTP

• Supplier Order Management

• Logistics Execution Visibility

- Into Store

- Into DC

- Drop Ship

• Supplier Life Cycle

Performance

Inventory Management

• Demand Forecasting

• Demand Shaping

- Price Optimisation

- Promotion Planning

- Markdown Optimisation

• Multi-Echelon Multi-Banner

Inventory Optimisation

• Replenishment Planning

Transport Strategy

Transport Management

• Routing & Scheduling

- Replenishment

- Interstore Transfer

- Home Delivery

- Returns

• Transport Execution Visibility

Supply Chain Network

Design

• Supply & Demand

Demographics

• Optimised location/capacity of

logistics facilities

• Optimised location of online

fulfilment

• Operational Modelling

Fulfilment Execution

- Optimised Sourcing

(ATP,CTP)

- Optimised In Store Picking

- Omni-source consolidation

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Australian Retailers have made significant investments to build their foundation capabilities.

Roadmap for transformation

Key takeaways

Some Australian

Retailers have very

mature customer front-

end capability.

However, significant

investment is still

required to build the

supporting foundation

capabilities (supply

chain, merchandising

& support function

optimisation)

Immediate focus

Maturity by phase2:

Strong investment

with leading front-

end capability

Limited focus on

foundation

capabilities relative

to global peers

Ad-hoc, misguided

investment in

marketing function

Minimal maturity

both locally and

globally

Time1 Indicative based on IBM client experience; 2 IBM local experience

Phase 0

Minimal digital

capability

Phase 1

Build front-end

Phase 2

Build

foundational

capabilities

Phase 3

Develop

marketing

capabilities

Phase 4

Optimise &

integrate

“Grab for market”

strategy

Merchandising &

supply chain not

scalable

Increase sales via

broad product

range

Strong foundation

capabilities to

reduce cost to

serve

Increase

operational agility

and flexibility

Influence

customer buying

behaviour (i.e.

channels)

Further decrease

cost to serve

Targeted

marketing to

increase cross

sell/ up sell

Increased

personalisation

Limited

investment in

digital

transformation

IBM Perspective

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But as capabilities mature, Enterprises will experience a tapering effect on revenue and margins requiring continual investment.

Based on IBM Client case example, IBM experience

Illustrative onlyNot to scaleRoadmap for transformation

Phase 0

Minimal digital

capability

Phase 1

Build front-end

Phase 2

Build

foundational

capabilities

Phase 3

Develop

marketing

capabilities

Phase 4

Optimise &

integrate

Revenue

Margin

Gro

wth

rate

High

…but…an optimised supply

chain, merchandising & support

functions will significantly

improve margins

2

Targeted marketing &

promotions will further

drive up sales

volumes…

3

…with significant margin

improvement via cross-

functional optimisation and

integration across people,

process, technology

4

Increased sales volumes

via online channel

however, suboptimal

foundational capabilities

erodes margin

improvement…

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IBM Perspective

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There have been good examples of department store retail transformations

in Australia over the past two years.

Digital initiatives

Significantly invested in their merchandise management

system, POS system, and supply chain have set the

foundations for effective inventory and order management.

During 2012, good progress made on its website, built on

the WebSphere Commerce platform. Significant number of

enhancements, both visible to customers and behind the

scenes, with a strong pipeline of future improvements.

Key improvements included a new inspirational homepage

design, a one-page check out, customer ratings and

reviews, and enhanced conversion tactics.

Company’s online sales more than doubled as they

continued to increase the number of SKUs online to 30,000,

all showcased with improved imagery, product information,

ratings and reviews, and enhanced search capability.

14 million unique visits to the website yearly, we believe this

represents a significant opportunity for the business.

Outcomes

New‘Omni-channel’ technology to fuse its digital

experiences, offering ~90,000 SKUs, a mobile store, an

iPad App with the ability to purchase online, digital gift

cards and a store booking tool (for in-store services) which

can be used across all channels and devices.

Scalable IT platform consisting of a new content

management system, a new order management system &

a new warehouse mgt. system has been implemented.

Fully integrated into the company’s proprietary systems

giving the business one view of all products, pricing,

promotions & inventory across all channels.

Digital initiatives

Web store achieved a 288% increase in sales in the three

months ending 26 January 2013, compared with the prior

corresponding period.

Sales in that quarter were double the entire online sales

achieved in the full year 2012 and visitor numbers more

than doubled to 5.4 million visits.

Invested in the bricks-and-mortar element of Omni-channel

retailing by upgrading the point-of-sales system &

increasing sales staff - customer service complaints

dropped by 17 per cent.

Outcomes

Information sourced from newspapers and Annual Reports.

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Sterling Commerce Order Management and Fulfillment enabled a unified

customer experience in the Australian Department Store segment by:

Streamlining complex business processes across

disparate systems

Improving cross-channel efficiencies

Incorporating advanced analytics

Providing:•Greater order visibility

•Reduced fulfillment costs•Superior customer experience

Automating shipment planning and execution

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Cross-Channel Order Management streamlines order and fulfillment processes

across all channels and the extended supplier network.

SpecialOrder

CallCenter

WebSales

CatalogSales

DCs

Stores

Kiosk

Cross-Channel Order Management

Customers

Customers

Order configuration – substitutions, pre-order, split shipments,

drop shipments

Order aggregation, optimized source of supply, prioritization

Order visibility, monitoring, status, and exception alerts

Global inventory visibility and available-to-promise

Management of supply locations with demand locations

Schedule, sequence, and execute service requests

Fulfillment cost analysis, recommendation, and

orchestration

Product returns management

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Transforming the organisation

for efficiency, effectiveness and

to enable new growth.

Globally Integrated Enterprise

Reimagining everything

about the way people connect,

transact and engage with

companies, institutions and

governments—and how they

create mutual value.

DigitalFront Office

Omni-channel is just one area of change that is driving enterprises towards a

Digital Front Office that is fully enabled by a Globally Integrated Enterprise.

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Questions?

Ian WongPartner, Global Business Services

Strategy and Transformation – Digital Front Office Lead

Retail Industry Lead

IBM Australia

IBM Centre

60 City Road (Southgate)

Melbourne Vic 3006

+61 3 9262 3700