Australian retail supply chains are becoming more and more complex. They must be capable of managing increasing customer expectations, channel diversification and increasingly complex product sourcing strategies. A step-change in supply chain design and capability is required if retailers are to remain competitive. GRA has released a whitepaper explaining why online retailing is so challenging, what can be learnt from overseas, and how retailers can be positioned to profit through their online business.

1. “Increasing customer
expectations - greater
choice, transparency in
price and product
substitution, to top it all off
there are a range of highly
competitive delivery
offerings”
“Less tolerance for getting
it wrong as reverse
logistics is expensive, unit
pick costs are high. Stock
transparency via real-time
data and managing stock
obsolescence becomes
more critical”
E-Commerce - Transforming Australian Supply Chains
© GRA 2015

2. About GRA and the Authors
James Allt-Graham
Partner
GRA Sydney
GRA is Australia’s premier, expert consulting firm specialising in
supply chain & logistics strategy, planning and execution. We offer
consulting, professional services, supply chain systems, training &
education and benchmarking across a broad range of industries.
Shanaka Jayasinghe
Senior Consultant
GRA Sydney
Phillip Diao
Consultant
GRA Melbourne
© GRA 2015

3. This year has been challenging for retailers. As the economy struggles to pull itself
out of the most recent financial crisis, consumer confidence is low which is negatively
influencing discretionary spending. The warm start to winter also saw apparel retailers with
greater import lead times slow to respond to changes in demand. Contrasting promotional
strategies from leading retailers such as Myer and David Jones highlighting how some supply
chains are more exposed than others.
Supply chains are becoming more complex. Australian retail supply chains today
must be capable of managing increasing customer expectations (lead-times, pricing, options),
channel diversification (online, store, multi-channel, omni-channel) as well as increasingly
complex product sourcing strategies.
A step-change in supply chain design and capability is required if retailers
are to remain competitive in the long-run. The unseasonable weather could arguably
be a one-off, but e-commerce is not. The emergence of multi and omni-channel retailing
requires structural changes for Australian retailers.
Our Perspective…
Supply chain design
is currently based
on supporting the
traditional bricks &
mortar business
strategy
Online means
business strategies
and customer value
propositions are
evolving
This is prompting a
step-change in
supply chain design
to deliver this new
business strategy
© GRA 2015

4. Transparency
Low Cost
Communications
Information Processing
Greater Expectations
Increased pricing pressure
Product Proliferation
Shorter lead-times
E-commerce
Supply chain step-change
Why is online challenging?
Consumer expectations are shifting as they take more of their spending online.
The latest Productivity Commission report projects growth of up to 15% per annum in online sales. Driven by the
proliferation of the internet and smart phones, Australians are increasingly making their clothing and electronic
goods purchases from the office or the comfort of their homes.
 Because of this, many brick and mortar (B&M) retailers are taking their offerings online. In this rush, companies
with supply networks designed to support their B&M stores cannot adequately serve their online customers
without impacting their bottom lines. The challenge is making ecommerce work for the consumers and the
business. In this paper we will explore these challenges to understand the opportunities and constraints.
© GRA 2015

5. Online complexity…
 Greater choice and transparency in price and product; with information readily accessible, consumers are more informed than ever
about the products they want. From online reviews and comparisons customers have already made up their mind on what they want
to buy before going to a store website.
 Highly competitive delivery offerings with free shipping and prompt shipping offered by most online retailers. Studies have indicated
almost half of all carts are abandoned due to shipping charges and respondents said shipping charges weighed heavily on their
choice of on line retailer. Getting the delivery offering right can be a competitive advantage.
Planning becomes even more pivotal to success…
 Ranging and availability to offer same or next day delivery means optimal stock must be on hand. Warehouse space is limited, when
ranging for online, SKUs have to be carefully selected to offer the customer value but must also have sufficient margins. Servicing
customers profitably and range planning for each channel is vitally important if a retailer is to survive e-commerce profitably.
 Stock transparency is crucial, giving customers the assurance that any orders placed will be fulfilled in a timely manner. This
requires an IT infrastructure that will allow for up to the minute inventory tracking. Proper inventory tracking will also allow the
business to be more agile and smarter about stock management.
Execution and physical network requires re-design…
Less tolerance exists for getting it wrong as reverse logistics can be expensive, unit pick costs are inflated and stock transparency via
real-time data as well as managing excess stock becomes more critical.
 Picking costs are higher since items have to be picked at the unit level. Traditionally done by the customer in-store, unit picking for
online sales have to be done by staff as an added cost.
 Reverse logistics can be handled by B&M stores or via return shipping; with the aim of returning sellable products to inventory
quickly. How do we ensure a seamless and pleasant experience for the customer at a moment where we can either earn their loyalty
or lose future sales?
Why is online challenging?
Online Complexity
Planning (ranging and
availability of product)
Execution
(responsivenes
s & price)
© GRA 2015

6. What can we learn from overseas?
The Australian market has some unique characteristics that limits the effectiveness of replicating
models from overseas. Therefore, a solution that can be customised for the Australian environment is required.
Three key challenges to overcome:
 Volume requirement: Centralised fulfilment due to the economies of scale is more efficient, however, critical mass in volume
is required. Arriving at such volumes for most businesses is challenging in the Australian market.
 Ranging Discipline: Multiple sources of supply and increasing global import trends mean bricks and mortar retailers require
well defined and disciplined ranging policies to drive volume in a range that does not become overly exposed to obsolescence.
 Warehouse design: Most existing warehouses are designed for bulk storage to cover production & overseas lead times, and
efficient store replenishment, not discrete item level picking which is typically required for online fulfilment.
These challenges are not insurmountable. Many businesses are already restructuring their supply chain networks, incorporating
omni-channel retail in its design, turning these challenges into competitive advantages.
Pure online Bricks and mortar
Start up challenge is to grow to critical mass and get efficiency - businesses
initially lose money and buy market share
Are looking to protect market share and face dilution of sales from current
stores and struggle with the consequence of unprofitable stores
Once they achieve critical mass they are very price and service competitive.
Kogan. Who in 8 years are now the biggest online electronics retailer and can
now even source their own branded product due to volume sales and buying
power
Many are trying a variety of store fulfilment, separate online fulfilment center
models as a protective measure rather than a strong growth strategy
Lower corporate overheads with focus on IT, product and 3rd party contract
management
High corporate overheads to manage property, people, finance.
© GRA 2015

7. Recently GRA purchased product from over 25 major retailers on line.
We found that many had challenges in delivering the required products on time.
Poor performers all incurred significant costs of being unable to deliver:
• Transaction costs/Reverse logistics where errors were made in pick / pack
• Increased warehousing /labour costs where product was sourced from alternative sources
• Unsatisfied Customers where orders were not delivered or delivery windows were not achieved
• Follow on damage to brand and customer loyalty due to a poor service experience
Those that delivered well demonstrated the following characteristics:
 A well laid out and intuitive website
 Clarity of what stock was available for ordering
 Ease of ordering and payment
 Delivery on (or earlier) than promised
 Good presentation of product upon arrival
 A positive service experience that builds brand loyalty and repeat sales
Currently many Australian online retailers are not well positioned to increase
profit through their online business…
© GRA 2015

8. When it goes wrong…
When it goes well…
Some key attributes of what works and what can go wrong online…
Order
Stock Out
Partial Pick
Shipment
Incorrect
Shipment
Contact
Customer
Partial Pick
Delayed
Shipment
Return
Logistics
Re-stock
Unsatisfie
d
Customer
Re-pick
Re-ship
Order
Stock
Available
Single Pick
and Pack
Speedy
Shipment
Happy
Customer
The difference in number of transactions involved, cost and ultimately customer satisfaction can be significant…
© GRA 2015

9. Substantial opportunities exist for retailers that implement a well-designed and executed multichannel strategy.
There is a significant opportunity if you get it right...
When it goes well…
Order
Stock
Available
Single Pick
and Pack
Speedy
Shipment
Happy
Customer
Enter new markets and interact with new customers. The reach of online retail is only limited by the reach of your supply chain
networks. There is greater opportunity to grow your customer base as your supply chain matures.
Availability of real time transactional data is one opportunity that has been leveraged by many retailers. Even greater
opportunities are offered by real time browsing data. Leveraged effectively, this insight can offer greater supply chain
agility and ensure the right products are available in the right volume at the right time.
New KPI’s such as lost sales can now be tracked. Insight into previously hidden avenues can be utilised to evolve customer
value propositions.
© GRA 2015

10. Retail and delivery offerings are likely to continue evolving…
Online retail is on the path to
becoming increasingly
personalised and agile.
Business that can provide
personalised service and are
responsive to customers
while growing their margins
in this competitive channel
will become the future
leaders in retail.
© GRA 2015
Same day delivery is becoming increasingly common, novel delivery methods are being explored...
The pace of change is accelerating, businesses slow to react will face diminishing market share. Retailers replicating solutions ill-suited to
their business are seeing shrinking margins. The key to creating a competitive advantage is a tailored supply chain that suits both the
business and the customers.
Amazon has gained much publicity for its Amazon Prime Air concept, in which automated aerial drones deliver products directly into your
backyard. Automated logistics – from unmanned aerial drones to self-driving cars, automation is a developing area in the logistics space.
As regulations have worked out, automated vehicles will become more prolific. Another initiative is on ‘anticipatory shipping’. Leveraging
large amounts of customer data, purchases can be predicted and sent to hubs near the customer prior to the order being placed. This
allows the customer delivery times to be reduced while using traditionally cheaper but slower forms of transport.
Uber is likely to be another disruptor in the logistics fulfilment space, particularly last mile fulfilment. Currently their main business is as an
on-demand car service however Uber are looking to leverage this driver network and have conducted many promotional activities
delivering products such as Christmas trees and ice creams to customers within minutes. An example of this is Uber’s recently launched
‘Corner Store’.

11. Is your business ready?
Order analytics to gauge supply
chain weaknesses and
strengths
Well presented and protective
packaging
Up to date and visible stock
tracking at fulfilment locations
Low cost or free delivery, and
expedited delivery options
Tracked packages and
deliveries made within the
promised window
Distribution network
configuration suited to product
and delivery promise
Streamlined returns process
and rapid re-stocking
capabilities
Efficient unit level picking
capabilities suited to
operational scale
How many of these boxes does your business tick?
© GRA 2015
www.gra.net.au (03) 9421 4611

12. Find out more…
At GRA we understand the complex challenges retail organisations are facing.
We can help you with not only designing an optimal retail supply chain, but also
ensuring that your inventory is optimised to ensure that the highest possible service
levels can be achieved at the lowest possible cost.
To find out more, call (03) 9421 4611 or visit www.gra.net.au
© GRA 2015