Staying commerce-ready in the digital age

Academic and industry speakers at the 2016 Conference on Next Generation Retail Operations discussed innovative solutions that may help brick-and-mortar store retailers fend off stiff competition from e-commerce companies.

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Above: William Chaylis of Manhattan Associates speaking at the 2016 Conference on Next Generation Retail Operations

Photo Credit: Nurfilzah Rohaidi

By Nurfilzah Rohaidi

SMU Office of Research – Think about the last five things that you bought: where did you buy them? Chances are, at least three out of those five items were bought online or on a mobile device as you idly browsed e-commerce websites during your lunch hour.

With the convenience of the Internet at our fingertips, e-commerce has grown into a huge industry: RedMart, Zalora and Lazada are just three of many home-grown online businesses that have sprung up in Singapore over the last four years—all three have enjoyed swift growth in a relatively short amount of time.

Indeed, estimates suggest that the size of Singapore’s online retail market reached US$3.5 billion (S$4.8 billion) by the end of 2015, four times the size of the market in 2010, according to a 2014 SPeCommerce white paper report, The changing face of ecommerce and logistics in Asia Pacific.

For traditional retailers, competing in this challenging arena will require a willingness to change with the times. “People ordering online—Internet and web orders—it’s not going to stop. In fact, I don’t think the pace will change very soon,” says William Chaylis, regional sales manager at Manhattan Associates, speaking at the 2016 Conference on Next Generation Retail Operations on 26 February, 2016.

Organised by Singapore Management University (SMU), the conference was co-chaired by Lee Kong Chian School of Business (LKCSB) operations management experts Associate Professor Lim Yun Fong and Assistant Professor Fang Xin. Professor Gerry George, dean of LKCSB, delivered the welcome address.

Tackling the online onslaught: the omni-channel approach

As an integral part of expanding their business to online channels, traditional retailers, particularly in the fast fashion industry, need to be “commerce-ready”, says Chaylis. A commerce-ready enterprise is one that is available to deliver goods to the customer on the promised delivery date, while ensuring the best customer experience possible, and at the same time also maintaining a profit margin, he explains.

And, in a way, traditional retailers may already have an edge over their e-competitors. Instead of a dedicated distribution centre handling all direct-to-customer deliveries, their retail stores, which dot major city landscapes, can double up as distribution centres.

“On average, [e-commerce companies] are going to spend five to seven days to deliver to customers [in Bangkok or Jakarta]. How are brick-and-mortar stores going to win it back? By making the retail stores fulfilment centres. Then, they can actually deliver within one day, if it is local and near to your house,” he points out.

Another key to being commerce-ready in the digital age is the omni-channel, or multi-channel, approach to retail sales, Chaylis says. This basically means that the customer enjoys a seamless shopping experience, no matter which platform she uses to make her purchase—be it at a brick-and-mortar store, on a desktop, or on her mobile phone.

Here is where an online presence truly works to a traditional retailer’s advantage. In this age of big data and the ‘Internet of things’, information on one’s customers opens up the opportunity to deliver personalised customer service that is on par with a face-to-face encounter at a brick-and-mortar store.

“When a customer calls, chats or tweets with me, I immediately know what she bought online, on mobile or in-store; [giving me] a lot more information as well to help me deal with this customer,” he says.

And with the customer’s needs in mind, here is where Manhattan Associates’ technological solutions can help. According to Chaylis, the supply chain commerce solutions firm provides clients such as Adidas, Cotton On and Under Armour with a “single view of inventory”, helping them to fulfil orders as efficiently and cheaply as possible.

Mathematics to the rescue

However, when it comes to managing the sheer number of individual inventory products, things can get very complicated, very quickly. If you have hundreds of thousands of stock keeping units—or SKUs—in your inventory, how do you execute restocking of items in the most logical way possible?

A simplistic solution is to have all of your warehouses stock each and every one of your products, but according to another speaker at the conference, Stephen Graves, Abraham J. Siegel Professor of Management Science at the Massachusetts Institute of Technology, that’s just impractical. There is simply no space for all of them, particularly if one has many low volume items. Furthermore, there is also the question of indivisibility.

Illustrating his point, he explains, “If I’m only going to stock three units in the system, I can’t spread those units over 20 warehouses. At most, it’ll go to three warehouses. There may also be inbound reasons that you ship things in cases; there’s a minimum amount that has to go out to any warehouse.”

Professor Graves’ inventory models—such as a ‘sparsity index’ he is working on—come in handy for logistics problems like these. As he explains, “You’ve got all these different items; complexity comes in from the number of items. A natural thing to do is to think about aggregating items, putting items together into a family; items that have the same sparsity index.

“Items that somehow have been specified they will go into three fulfilment centres—that can be one aggregate product. Items that go into six fulfilment centres—that’s another aggregate product.”

Other ways of grouping items would be by those which have similar physical characteristics, as well as demand distribution across geography. Then, you can set all this data up with an algorithm to do the thinking for you, he says.

Making the most of opportunities and demand

A consensus emerged during the conference: it is clear that traditional retailers that operate out of brick-and-mortar stores will continue to face stiff competition from e-commerce websites. In this constant tussle for our attention—and our wallets—these retail stalwarts have to get creative, the speakers agreed.

The speakers and audience at the conference reflected a mix of academia and industry, and were affiliated to organisations such as INSEAD, SMU, RedMart and Procter & Gamble. In their talks, they identified key areas of how brick-and-mortar stores can fight back—by responding to trends and evolving their business models, creating an unparalleled customer experience over multiple channels, and having a clear understanding of inventory and fulfilment.

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