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The document discusses how evolving consumer behaviors driven by digital technologies are impacting demand planning and forecasting. Key points discussed include: 1) Global e-commerce sales are growing significantly each year and more purchases are being made online. 2) Consumers now have more touchpoints than ever to research and shop across different devices, and digital factors influence over half of purchase decisions. 3) This creates challenges for retailers around supply chain visibility, omni-channel order fulfillment, and meeting direct-to-consumer demand and return volumes. 4) In response, retailers are expanding SKU selections, improving inventory accuracy, building direct-to-customer fulfillment capabilities, and partnering with 3PL

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Next-level fulfilment strategies and their impact on demand planning and forecasting Danie Schoeman
The ubiquitous consumer
© 2016 Danie Schoeman & Company. Global retail e-commerce keeps on clicking … $1.077 $1.316 $1.592 $1.888 $2.197 $2.489 25.9% 22.2% 20.9% 18.6% 16.4% 13.3% 5.1% 5.9% 6.7% 7.4% 8.2% 8.8% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% $- $0.500 $1.000 $1.500 $2.000 $2.500 2013 2014 2015 2016 2017 2018 Retail e-commerce sales worldwide, 2013-2018 (US$ trillions) eMarketer: Retail Sales Worldwide Will Top 22 Trillion This Year, Dec 2014
© 2016 Danie Schoeman & Company. … and clicking. Both sides of the globe 6.5% 7.2% 7.8% 8.5% 9.1% 9.8% 12.4% 15.9% 19.6% 23.8% 28.6% 33.6% 2014 2015e 2016e 2017e 2018e 2019e Share of retail sales made online expected for US and China US China 306 349 394 443 494 548473 672 911 1208 1568 1973 2014 2015e 2016e 2017e 2018e 2019e Projected size of e-commerce markets for US and China (In US$ billions) US China By 2017, China's e-commerce market is expected to exceed US$ 1 Trillion and more of what people buy will be bought online. eMarketer, 2015; Alibaba Group 2015 Annual Report
© 2016 Danie Schoeman & Company. The consumer’s newfound power Web (search, comparison shopping, etc.) Social (social network, reviews, community, etc.) Digital content (video, editorial, etc.) Company website Mobile (apps, mobile Web) In-store device (kiosk, associate device, etc.) Tablet (apps, Web) Call centre Branch / outlet /store External digital touchpoints Branded digital touchpoints Traditional touchpoints Depth Forrester report: Welcome To The Era Of Agile Commerce, 2014
© 2016 Danie Schoeman & Company. Highly influenced by digital factors 17% 20% 23% 30% 29% 29% 29% 35% 37% 31% 35% 39% 49% 52% 55% 55% 59% 62% Food/Beverage Misc. Supplies Health/Wellness Apparel Baby/Toddler Entertainment Automotive Home Furnishings Electronics Digital and mobile influence by category Digital influence Mobile influence Deloitte: Navigating the new digital divide - Capitalizing on digital influence in retail The influence of digital devices on the shopping journey are shaping how customers shop and make buying decisions.
© 2016 Danie Schoeman & Company. Touch points of the ever connected consumer on her shopping journey The consumer’s shopping journey is not linear anymore. Web SocialCompany website Mobile Call centreBranch/store Purchase Forrester report: Welcome To The Era Of Agile Commerce, 2014 Trust Evangelize Friend Discover Search Research Compare Decide Use Get help Share Personalize
© 2016 Danie Schoeman & Company. Touch points that matter for the consumer on her shopping journey Touch points that matter are different for different categories. Web SocialCompany website Mobile Call centreBranch/store Purchase Forrester report: Welcome To The Era Of Agile Commerce, 2014, Deloitte: Navigating The New Digital Divide, 2015 Trust Evangelize Friend Discover Search Research Compare Decide Use Get help Share Personalize Apparel Electronics Baby/toddler Furniture/ Home furnishings/ Home improvement Food/beverage
The anything, anywhere, anytime challenge
© 2016 Danie Schoeman & Company. Challenges abound 17% 22% 30% 32% 17% 42% 25% 45% 37% 35% 7% 19% 23% 29% 32% 32% 32% 39% 39% 48% Not enough visibility into our supply chain within our “four walls” (store-store, store-DC, store-direct, etc.) Not enough visibility into the supply chain outside our “four walls” Information gleaned from our processes and systems comes too late to enable corrective action We do not have the ability to determine optimal (lowest cost) locations for cross-channel order fulfilment Our supply chain is not designed for the current / projected volume of direct-to-consumer shipments Direct to consumer shipments are not fast enough We don't have good visibility into how demand flows through our selling channels Our stores were not designed for current / projected volume of omni-channel order fulfilment Marketing promotions cause unintended consequences on supply chain The volume of returns is increasing as a result of consumer omni-channel purchases Top operational challenges around supply chain execution Leaders Followers RSR Research: Retail Supply Chain Execution: New Requirements To Meet New Demand Benchmark Report 2015
© 2016 Danie Schoeman & Company. Challenges abound 17% 22% 30% 32% 17% 42% 25% 45% 37% 35% 7% 19% 23% 29% 32% 32% 32% 39% 39% 48% Not enough visibility into our supply chain within our “four walls” (store-store, store-DC, store-direct, etc.) Not enough visibility into the supply chain outside our “four walls” Information gleaned from our processes and systems comes too late to enable corrective action We do not have the ability to determine optimal (lowest cost) locations for cross-channel order fulfilment Our supply chain is not designed for the current / projected volume of direct-to-consumer shipments Direct to consumer shipments are not fast enough We don't have good visibility into how demand flows through our selling channels Our stores were not designed for current / projected volume of omni-channel order fulfilment Marketing promotions cause unintended consequences on supply chain The volume of returns is increasing as a result of consumer omni-channel purchases Top operational challenges around supply chain execution Leaders Followers RSR Research: Retail Supply Chain Execution: New Requirements To Meet New Demand Benchmark Report 2015 Omni-channel order fulfilment and returns Direct-to-consumer speed and volume Supply chain visibility
© 2016 Danie Schoeman & Company. Are you ready? 33% 26% 29% 10% 2% No capability Inconsistent Competent Efficient High performing How prepared do you think your organization is to handle omni- channel retailing? Nearly one third of the retailers participating in the study said they are not prepared to handle omni-channel retailing. 2015 19th Annual Third-Party Logistics Study.
The supply chain response
© 2016 Danie Schoeman & Company. SKU proliferation Much larger SKU assortments 23% Some SKU expansion 37% Little or no change in SKU assortments 30% Smaller SKU assortments 10% Chart TitleImpact of e-commerce and mobile consumers on SKUs, % of respondents saying their supply chain is supporting… 30% 10% 23% 37% SCMWorld Chief Supply Chain Officer Report 2014
© 2016 Danie Schoeman & Company. 65% 53% 77% 75% 42% 55% 61% 74% Too many inventory transfers between stores Too many out of stocks in stores Too much inventory in stores Inaccurate inventory levels in stores Agreed or Strongly agreed: "We have..." Leaders Followers With an aching, persistent pain Inventory accuracy and levels continue to be a stumbling block. RSR Research: Retail Supply Chain Execution: New Requirements To Meet New Demand Benchmark Report 2015
© 2016 Danie Schoeman & Company. Changes in channels and networks … Building direct-to- customer fulfilment capabilities 45% Relying on e-commerce retailers for customer fulfilment 17% Seeing little or no change to existing channels for customer fulfilment 38% Chart Title 45% 17% 38% Impact of e-commerce and mobile consumers on customer fulfilment, % of respondents saying their supply chain is… Customer demand volatility is the most significant factor impacting channel and network design decisions. Larger, more centralised distribution centres 33% Smaller, more local distribution centres 21% The same type of distribution centres 46% Chart Title 33% 21% 46% Impact of e-commerce and mobile consumers on DCs, % of respondents saying their supply chain is building… SCMWorld Chief Supply Chain Officer Report 2014
© 2016 Danie Schoeman & Company. …but not all networks are created equal 59% 58% 48% 49% 46% 45% 41% 44% 35% 33% 24% 18% 17% 25% 20% 22% 22% 26% 19% 27% 22% 24% 23% 25% 27% 31% 32% 33% 33% 37% 38% 45% 52% Automotive Chemicals Retail Healthcare & Pharma CPG Food & Beverage Industrial Hi-Tech Media & Telco Logistics & Distribution Fabric & Apparel Chart Title Larger Smaller Same DC building plans by sector (% of respondents) SCMWorld Chief Supply Chain Officer Report 2014
© 2016 Danie Schoeman & Company. 3PLs - part of the solution Shared DCs 36% DCs by channel 16% Outsourced 15% Mix 33% How do you manage fulfilment by channel? 3.6% 9.2% 9.9% 9.9% 10.2% 13.5% 19.1% 20.1% 26.3% 26.3% 26.6% 31.3% 38.2% Picking & waving logic Long-term DC leases Expedited delivery Return management Pick/Pack efficiency Efficiency Technology Order management Inventory control Inventory accuracy Inventory visibility System integration Order flexibility What is your largest issue in fulfilling orders across multiple channels? (select top 3) Retailers & shippers use a mix of solutions including 3PLs to manage fulfilment, but fulfilling orders across multiple channels creates certain issues. 2015 19th Annual Third-Party Logistics Study.
© 2016 Danie Schoeman & Company. Providing the necessary infrastructure 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 $1 billion in-store sales $1 billion e- commerce sales Logistics Space (square meters) As e-commerce volumes grow due to omni-channel, so will the need for more logistics space further up the distribution chain. E-commerce users require 3x the logistics space, or more, as compared with brick-and-mortar LEGACY Supply Chain Services: Keeping Up with the Retail Consumer - The Impact of E-Commerce on Retail Supply Chains.
© 2016 Danie Schoeman & Company. Evolving supply chains of companies had re- structured their distribution network in the last year. of the cases the distribution re-structuring had involved relocating distribution centres to a lower cost country. More Fewer National DCs 49.5% 50.5% Regional DCs 58.5% 41.5% Global DCs 52.8% 47.2% of respondents cited the main reasons for the distribution re-structuring were predominantly related to cost. indicated that they were establishing more regional (multi-country) distribution hubs. 75% 20% 50% 58% How has the structure of your distribution network changed? Supply chains are evolving to become more product- and/or channel-specific enabling them to adapt to different customer and product service level requirements. Transport Intelligence Global Distribution Strategies Survey 2008
© 2016 Danie Schoeman & Company. 73% 76% 82% 65% 94% 97% Increase flexibility by holding more work-in-process inventory, rather than finished goods Source more from emerging, lower-cost markets as existing markets get more expensive Source/replenish closer to the point of demand Agreed or Strongly Agreed: “Our supply chain currently needs to… Leaders Followers …but the endless search for lowest-cost sources continues Retail leaders show more concern about keeping what’s been working for them i.e. sourcing from emerging lower-cost markets while simultaneously having a more agile supply chain via more localized sourcing and replenishment closer to the point of demand. RSR Research: Retail Supply Chain Execution: New Requirements To Meet New Demand Benchmark Report 2015
The need for speed
© 2016 Danie Schoeman & Company. Emergence of direct-to-store delivery aka DC bypass DC bypass strategies • Direct shipment to customer • More regionalized distribution • Velocity based networks using cross-docking CEIBS Port of Barcelona Logistics Chair: Direct-to-store distribution impact on European Ports, 2008 Offshoring logistics • Cargo consolidation from China and other Asian sourcing countries • Value added logistics activities • Multi-country distribution
© 2016 Danie Schoeman & Company. Direct-to-store – how it works Traditional centralized European distribution Direct-to-store distribution Deconsolidation centres or Regional DC Multiple inbound flows Suppliers Continental DC Consolidation platform Suppliers CEIBS Port of Barcelona Logistics Chair: Direct-to-store distribution impact on European Ports, 2008
© 2016 Danie Schoeman & Company. DC bypass at UPS Shanghai, China Los Angeles, CA New York, NY Cologne, Germany Guadalajara, Mexico Laredo, Texas Direct-to-Store Illustration Freight deconsolidation into individual shipments at destination port or gateway for direct-to-store delivery. UPS, Supply Chain Digest, When Does “DC Bypass” Make Sense?, 2008
© 2016 Danie Schoeman & Company. DC bypass for air/sea freight at Bakers Footwear Group Overseas Goods In-Transit Allocations Domestic Factory CFS Facility Carriers 3PL Warehouse Corporate Office Retail Stores ARC - Bypassing the Distribution Center, 2013 Accept receiver and examine store needs Allocations Delivers to stores Inventory & sales needs Cartons delivered and received into the system PLD is transmitted to small package carrier Destination labels are printed and applied based on allocations Labelling is shifted to the factory
© 2016 Danie Schoeman & Company. DC bypass for sea freight Bakers Footwear Group Factories CFS Facility Ocean Vessel 3PL Warehouse Corporate Office Retail Stores Overseas Floating Warehouse Last Minute Allocations Domestic ARC - Bypassing the Distribution Center, 2013 Serialised labels printed and applied to cartons Container arrives and a receiver message is sent to corporate Cartons delivered and received into the system Cartons are scanned into the container Visibility to the container through web based tracking Cartons are scanned and destination labels are printed and applied PLD is transmitted to small package carrier Accept receiver and examine store needs Last minute allocations Delivers to stores Inventory & sales needs
© 2016 Danie Schoeman & Company. Requirements for direct-to-store • Products need to be allocated earlier than in a traditional environment • Sensing of products demand must be accurate and reliable • Volume and scale to ensure full-container load (FCL) shipments • Reliability of transit times and cargo visibility from origin to destination • Visibility across the supply chain • Products need to be packaged “customer or store ready” and labelled as close as possible to origin www.inboundlogistics.com: Optimize 'Obnoxious Freight' With DC Bypass, 2006; How to Develop a Direct-to-Store Delivery Model, 2010
© 2016 Danie Schoeman & Company. Is a direct-to-store delivery model right for you? • Time sensitive products – Perishable products such food, flowers, etc. – Trendy items that are fast old-fashioned such as clothes, electronics, etc. – Promotional products for trade shows, concert events, products launch etc. and collectibles • Seasonal products – Heating or air conditioning units – Snow shovels, fertilizer, and lawn mowers, etc. – Seasonal sports products – Items for short, high-volume periods such as Christmas decoration items, back-to-school products, Valentine’s day, etc. • High unit value products – Jewellery, routers or other products that require security • Obnoxious freight – High unit volume products that do not palletize efficiently or aren’t compatible with standard storage layouts such as furniture, outdoor equipment, automotive replacement parts, and outdoor toys – Heavy products such as major appliances – Easily damaged items such as glass www.inboundlogistics.com: Optimize 'Obnoxious Freight' With DC Bypass, 2006; How to Develop a Direct-to-Store Delivery Model, 2010
The return of the milkman
© 2016 Danie Schoeman & Company. of online shoppers in China say they are going direct to brand sites. The gap between retailer and brand is closing 3% 8% 12% 17% 23% 24% 29% 30% 41% 44% Other Better experience Customization / personalization Better service Good stock availability Better warranty / guarantee Love of brand / loyalty That’s all I needed - one brand Full range or more choices Lower price Reasons consumers buy directly from a brand or manufacturer 35% 56% 52% of consumers globally have already bought products directly from brands or manufacturers. of online shoppers in the USA say they are going direct to brand sites. Consumers are shopping directly from manufacturers and many no longer distinguish between retailers and their favourite brands. PwC: Demystifying the online shopper 10 myths of multichannel retailing, 2013
© 2016 Danie Schoeman & Company. Giving brand owners and manufacturers a new point of view 5% 9% 22% 23% 41% We compete with retailers’ private-label offerings We battle for shelf space with other brands We share consumer data and insights to enable better planning, though we act on those insights separately We continue to work with retail partners but we are also committed to expanding our competing direct-to- consumer strategies We work together to serve consumers through a variety of marketing, sales and service programmes How do you view your relationship with retailers as it relates to consumer engagement? (% respondents) 41% of respondents say they expect to sell products directly to consumers over the next 12 months - up from the 24% who say they currently offer direct-to-consumer sales. Economist Intelligence Unit: New directions: Consumer goods companies hone a cross-channel approach to consumer marketing, 2012
© 2016 Danie Schoeman & Company. To go for direct-to-consumer 5% 10% 21% 25% 40% Other Through third-party, direct- to-consumer sites (eg, Alice.com, Amazon) Directly to consumers (eg, through your website or social media sites) Through wholesale distributors Through retail partners How do you see percentages of your total sales shifting over the next 3 years through the following channels? (Average % respondents) 21% 4% 22% 25% 29% Don't know Other We have increased the % of spending on trade promotion to complement DTC… We have shifted some trade promotion budget to DTC programmes Our % of trade promotion spending has not changed What has been the impact of your direct-to-consumer programmes on trade promotion? (% respondents) Economist Intelligence Unit: New directions: Consumer goods companies hone a cross-channel approach to consumer marketing, 2012
Enter amazon.com
Amazon user? Be careful what you wish(-list) for!
© 2016 Danie Schoeman & Company. When consumers “go digital” 78.4% Amazon 36.6% Brands 46.6% Online retailers is the No. 1 digital source for researching products is the No. 1 digital shop for buying products 58.4% Google 22.7% Brand website 14.9% Digital retailer site Brandshop: 2015 Digital Consumer Preferences Survey, September 2015
© 2016 Danie Schoeman & Company. 31.4% 7.6% 23.8% 25.7% 14.3% 45.7% None Kindle Fire TV Kindle Reader Kindle Fire Amazon Visa Amazon Prime Chart Title They go prime of Amazon customers are Prime members which translates to about 40 million members and that they spend 2.4 times more each year than other Amazon shoppers. US Amazon Customer Affiliations, % of respondents 46% Consumer Intelligence Research Partners, 2015
© 2016 Danie Schoeman & Company. Amazon Prime Air Amazon.com
© 2016 Danie Schoeman & Company. Anticipatory shipping US Patent Office: Patent US8615473 B2 - Method and system for anticipatory package shipping Expedited service path Non-expedited service path Tender to common carrier at fulfilment centre Tender to common carrier at hub Private carrier Fulfilment centre Common carrier
© 2016 Danie Schoeman & Company. • They are the No 1 online store in the US • They collect data while you browse – even mouse hover! • Big data • Advanced data mining techniques • Machine learning algorithms • Predictive analytics How do they do it?
© 2016 Danie Schoeman & Company. Amazon in talks to lease Boeing jets to launch its own air-cargo business The online retail giant is looking to expand its delivery operations to avoid the bottlenecks caused by overwhelmed carriers such as UPS. Amazon.com is negotiating to lease 20 Boeing 767 jets for its own air-delivery service, cargo-industry executives have told The Seattle Times. The online retail giant wants to build out its own cargo operations to avoid delays from carriers such as United Parcel Service, which have which have struggled to keep up with the rapid growth of e- commerce. Own air-delivery service? A Boeing 767 arrives at Boeing Field ferrying parcels for UPS. Amazon is considering venturing into the same territory as UPS and FedEx, acquiring similar freighters for its own air cargo service. (Dean Rutz / The Seattle Times) http://www.seattletimes.com/business/amazon/amazon-in-talks-to-lease-20-jets-to-launch-air-cargo-business/
© 2016 Danie Schoeman & Company. Could be a game-changer as Amazon is awarded sea freight forwarder licence by US FMC Amazon has continued its much anticipated foray into the freight and logistics sector – yesterday the US Federal Maritime Commission (FMC) awarded one of its Chinese subsidiaries an Ocean Transportation Intermediaries (OTI) licence that allows it to operate as a sea freight forwarder. Registered in 2004 by Amazon founder Jeff Bezos as Beijing Century Joyo Courier Service Ltd, the Sea freight forwarder! © Frank Gartner http://theloadstar.co.uk/game-changer-amazon-awarded-sea-freight-forwarder-licence-us-fmc/
© 2016 Danie Schoeman & Company. What’s next Jeff? Use the what? Mendhak - flickr
Enter the dragon
© 2016 Danie Schoeman & Company. A small comparison Total Online Sales In 2014, Alibaba Singles Day sales were about 3.5 times more than the total Cyber Monday Sales in the US. parcelhero.com
© 2016 Danie Schoeman & Company. • Alibaba smashed its Singles Day record with US$14.3bn of sales - a 60% increase on 2014 • 2014 record beaten in 14 hours - sales had already hit US$10bn • 71% of Alibaba’s Singles Day sales came from mobile devices • More than US$1.4bn bought within the first eight minutes • US$5bn bought within the first 90 minutes • 100m orders placed within the first hour - packages were already starting to arrive at shoppers’ homes within that hour • 120,000 orders placed every minute • 40,000 merchants, and more than 30,000 brands from 25 countries took part • 6m products were on offer from international brands such as P&G , Unilever, Burberry, Estee Lauder, Zara, Huggies, Macy’s, Costco, Apple, and Nike • 180,000 brick-and-mortar stores took part across 330 cities A new record Econsultancy; Fortune Magazine, 2015; Photos - Reuters
© 2016 Danie Schoeman & Company. • Cainiao, Alibaba's Logistics Arm • Operates a proprietary logistics information platform that links a network of logistics providers, warehouses and distribution centers, which allow participants to confidentially share information on orders, delivery status and user feedback • Ensures high-quality delivery services to sellers and buyers on a large scale • Information flow and related data analysis help logistics companies to achieve higher efficiency and quality service for both merchants and consumers • Big data • Advanced data analysis techniques How do they do it? TheStreet; Alizilla.com, 2015
© 2016 Danie Schoeman & Company. • Next-day delivery of goods ordered from Alibaba’s online marketplaces in 50 cities • A network of delivery vehicles, warehouses and distribution centres owned by thousands of independent delivery companies and 15 strategic logistics partners • These partners operate 1,800 distribution centres and more than 97,000 delivery stations • Employs more than 1.5 million delivery personnel, located in more than 600 cities in 31 provinces • A network of more than 20,000 self-pick up spots which provide last-mile delivery and other services to consumers Cainiao - “network of networks” Alizilla.com, 2015; Photo - Reuters
© 2016 Danie Schoeman & Company. Final thoughts • Next level fulfilment strategies are designed so that e- commerce and omni-channel retailers can enable customers to engage with the brand, rather than with the channel – all customers need to have full access to the retailer’s offer through all channels during the shopping journey • This requires a total overhaul of all operations • Supply chains were traditionally designed around stores - these now need to be re-engineered around customers • Speed and agility are key for future success • There is the potential for collaboration of non-competitors around e.g. the sharing of delivery networks and collection points.
© 2016 Danie Schoeman & Company. What are the three things you hope to achieve? “Demosthenes, the greatest of Athenian orators, was asked what the three tests of a great speech were. “Action, action and action‟ was his reply.” James C. Humes
© 2016 Danie Schoeman & Company. Danie Schoeman +27 82 940 6028 danie@danieschoeman.com www.danieschoeman.com There’s more to talk about, so let’s have coffee …
© 2016 Danie Schoeman & Company.
© 2016 Danie Schoeman & Company. Disclaimer This document has been prepared by Danie Schoeman and Company to provide background information on the subjects mentioned herein, the forecasts, opinions and expectations are entirely those of Danie Schoeman and Company. This presentation was prepared with the utmost due care and consideration for accuracy and factual information; the forecasts, opinions and expectations are deemed to be fair and reasonable. However there can be no assurance that future results or events will be consistent with any such forecasts, opinions and expectations. Therefore the authors will not incur any liability for any loss arising from any use of this presentation or its contents or otherwise arising in connection herewith. Neither will the sources of information or any other related parties be held responsible for any form of action that is taken as a result of the proliferation of this document.

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Vicenda DPF2016 DSC Ver1.3 Distribute lin

  • 1.
    Next-level fulfilment strategiesand their impact on demand planning and forecasting Danie Schoeman
  • 2.
  • 3.
    © 2016 DanieSchoeman & Company. Global retail e-commerce keeps on clicking … $1.077 $1.316 $1.592 $1.888 $2.197 $2.489 25.9% 22.2% 20.9% 18.6% 16.4% 13.3% 5.1% 5.9% 6.7% 7.4% 8.2% 8.8% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% $- $0.500 $1.000 $1.500 $2.000 $2.500 2013 2014 2015 2016 2017 2018 Retail e-commerce sales worldwide, 2013-2018 (US$ trillions) eMarketer: Retail Sales Worldwide Will Top 22 Trillion This Year, Dec 2014
  • 4.
    © 2016 DanieSchoeman & Company. … and clicking. Both sides of the globe 6.5% 7.2% 7.8% 8.5% 9.1% 9.8% 12.4% 15.9% 19.6% 23.8% 28.6% 33.6% 2014 2015e 2016e 2017e 2018e 2019e Share of retail sales made online expected for US and China US China 306 349 394 443 494 548473 672 911 1208 1568 1973 2014 2015e 2016e 2017e 2018e 2019e Projected size of e-commerce markets for US and China (In US$ billions) US China By 2017, China's e-commerce market is expected to exceed US$ 1 Trillion and more of what people buy will be bought online. eMarketer, 2015; Alibaba Group 2015 Annual Report
  • 5.
    © 2016 DanieSchoeman & Company. The consumer’s newfound power Web (search, comparison shopping, etc.) Social (social network, reviews, community, etc.) Digital content (video, editorial, etc.) Company website Mobile (apps, mobile Web) In-store device (kiosk, associate device, etc.) Tablet (apps, Web) Call centre Branch / outlet /store External digital touchpoints Branded digital touchpoints Traditional touchpoints Depth Forrester report: Welcome To The Era Of Agile Commerce, 2014
  • 6.
    © 2016 DanieSchoeman & Company. Highly influenced by digital factors 17% 20% 23% 30% 29% 29% 29% 35% 37% 31% 35% 39% 49% 52% 55% 55% 59% 62% Food/Beverage Misc. Supplies Health/Wellness Apparel Baby/Toddler Entertainment Automotive Home Furnishings Electronics Digital and mobile influence by category Digital influence Mobile influence Deloitte: Navigating the new digital divide - Capitalizing on digital influence in retail The influence of digital devices on the shopping journey are shaping how customers shop and make buying decisions.
  • 7.
    © 2016 DanieSchoeman & Company. Touch points of the ever connected consumer on her shopping journey The consumer’s shopping journey is not linear anymore. Web SocialCompany website Mobile Call centreBranch/store Purchase Forrester report: Welcome To The Era Of Agile Commerce, 2014 Trust Evangelize Friend Discover Search Research Compare Decide Use Get help Share Personalize
  • 8.
    © 2016 DanieSchoeman & Company. Touch points that matter for the consumer on her shopping journey Touch points that matter are different for different categories. Web SocialCompany website Mobile Call centreBranch/store Purchase Forrester report: Welcome To The Era Of Agile Commerce, 2014, Deloitte: Navigating The New Digital Divide, 2015 Trust Evangelize Friend Discover Search Research Compare Decide Use Get help Share Personalize Apparel Electronics Baby/toddler Furniture/ Home furnishings/ Home improvement Food/beverage
  • 9.
  • 10.
    © 2016 DanieSchoeman & Company. Challenges abound 17% 22% 30% 32% 17% 42% 25% 45% 37% 35% 7% 19% 23% 29% 32% 32% 32% 39% 39% 48% Not enough visibility into our supply chain within our “four walls” (store-store, store-DC, store-direct, etc.) Not enough visibility into the supply chain outside our “four walls” Information gleaned from our processes and systems comes too late to enable corrective action We do not have the ability to determine optimal (lowest cost) locations for cross-channel order fulfilment Our supply chain is not designed for the current / projected volume of direct-to-consumer shipments Direct to consumer shipments are not fast enough We don't have good visibility into how demand flows through our selling channels Our stores were not designed for current / projected volume of omni-channel order fulfilment Marketing promotions cause unintended consequences on supply chain The volume of returns is increasing as a result of consumer omni-channel purchases Top operational challenges around supply chain execution Leaders Followers RSR Research: Retail Supply Chain Execution: New Requirements To Meet New Demand Benchmark Report 2015
  • 11.
    © 2016 DanieSchoeman & Company. Challenges abound 17% 22% 30% 32% 17% 42% 25% 45% 37% 35% 7% 19% 23% 29% 32% 32% 32% 39% 39% 48% Not enough visibility into our supply chain within our “four walls” (store-store, store-DC, store-direct, etc.) Not enough visibility into the supply chain outside our “four walls” Information gleaned from our processes and systems comes too late to enable corrective action We do not have the ability to determine optimal (lowest cost) locations for cross-channel order fulfilment Our supply chain is not designed for the current / projected volume of direct-to-consumer shipments Direct to consumer shipments are not fast enough We don't have good visibility into how demand flows through our selling channels Our stores were not designed for current / projected volume of omni-channel order fulfilment Marketing promotions cause unintended consequences on supply chain The volume of returns is increasing as a result of consumer omni-channel purchases Top operational challenges around supply chain execution Leaders Followers RSR Research: Retail Supply Chain Execution: New Requirements To Meet New Demand Benchmark Report 2015 Omni-channel order fulfilment and returns Direct-to-consumer speed and volume Supply chain visibility
  • 12.
    © 2016 DanieSchoeman & Company. Are you ready? 33% 26% 29% 10% 2% No capability Inconsistent Competent Efficient High performing How prepared do you think your organization is to handle omni- channel retailing? Nearly one third of the retailers participating in the study said they are not prepared to handle omni-channel retailing. 2015 19th Annual Third-Party Logistics Study.
  • 13.
  • 14.
    © 2016 DanieSchoeman & Company. SKU proliferation Much larger SKU assortments 23% Some SKU expansion 37% Little or no change in SKU assortments 30% Smaller SKU assortments 10% Chart TitleImpact of e-commerce and mobile consumers on SKUs, % of respondents saying their supply chain is supporting… 30% 10% 23% 37% SCMWorld Chief Supply Chain Officer Report 2014
  • 15.
    © 2016 DanieSchoeman & Company. 65% 53% 77% 75% 42% 55% 61% 74% Too many inventory transfers between stores Too many out of stocks in stores Too much inventory in stores Inaccurate inventory levels in stores Agreed or Strongly agreed: "We have..." Leaders Followers With an aching, persistent pain Inventory accuracy and levels continue to be a stumbling block. RSR Research: Retail Supply Chain Execution: New Requirements To Meet New Demand Benchmark Report 2015
  • 16.
    © 2016 DanieSchoeman & Company. Changes in channels and networks … Building direct-to- customer fulfilment capabilities 45% Relying on e-commerce retailers for customer fulfilment 17% Seeing little or no change to existing channels for customer fulfilment 38% Chart Title 45% 17% 38% Impact of e-commerce and mobile consumers on customer fulfilment, % of respondents saying their supply chain is… Customer demand volatility is the most significant factor impacting channel and network design decisions. Larger, more centralised distribution centres 33% Smaller, more local distribution centres 21% The same type of distribution centres 46% Chart Title 33% 21% 46% Impact of e-commerce and mobile consumers on DCs, % of respondents saying their supply chain is building… SCMWorld Chief Supply Chain Officer Report 2014
  • 17.
    © 2016 DanieSchoeman & Company. …but not all networks are created equal 59% 58% 48% 49% 46% 45% 41% 44% 35% 33% 24% 18% 17% 25% 20% 22% 22% 26% 19% 27% 22% 24% 23% 25% 27% 31% 32% 33% 33% 37% 38% 45% 52% Automotive Chemicals Retail Healthcare & Pharma CPG Food & Beverage Industrial Hi-Tech Media & Telco Logistics & Distribution Fabric & Apparel Chart Title Larger Smaller Same DC building plans by sector (% of respondents) SCMWorld Chief Supply Chain Officer Report 2014
  • 18.
    © 2016 DanieSchoeman & Company. 3PLs - part of the solution Shared DCs 36% DCs by channel 16% Outsourced 15% Mix 33% How do you manage fulfilment by channel? 3.6% 9.2% 9.9% 9.9% 10.2% 13.5% 19.1% 20.1% 26.3% 26.3% 26.6% 31.3% 38.2% Picking & waving logic Long-term DC leases Expedited delivery Return management Pick/Pack efficiency Efficiency Technology Order management Inventory control Inventory accuracy Inventory visibility System integration Order flexibility What is your largest issue in fulfilling orders across multiple channels? (select top 3) Retailers & shippers use a mix of solutions including 3PLs to manage fulfilment, but fulfilling orders across multiple channels creates certain issues. 2015 19th Annual Third-Party Logistics Study.
  • 19.
    © 2016 DanieSchoeman & Company. Providing the necessary infrastructure 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 $1 billion in-store sales $1 billion e- commerce sales Logistics Space (square meters) As e-commerce volumes grow due to omni-channel, so will the need for more logistics space further up the distribution chain. E-commerce users require 3x the logistics space, or more, as compared with brick-and-mortar LEGACY Supply Chain Services: Keeping Up with the Retail Consumer - The Impact of E-Commerce on Retail Supply Chains.
  • 20.
    © 2016 DanieSchoeman & Company. Evolving supply chains of companies had re- structured their distribution network in the last year. of the cases the distribution re-structuring had involved relocating distribution centres to a lower cost country. More Fewer National DCs 49.5% 50.5% Regional DCs 58.5% 41.5% Global DCs 52.8% 47.2% of respondents cited the main reasons for the distribution re-structuring were predominantly related to cost. indicated that they were establishing more regional (multi-country) distribution hubs. 75% 20% 50% 58% How has the structure of your distribution network changed? Supply chains are evolving to become more product- and/or channel-specific enabling them to adapt to different customer and product service level requirements. Transport Intelligence Global Distribution Strategies Survey 2008
  • 21.
    © 2016 DanieSchoeman & Company. 73% 76% 82% 65% 94% 97% Increase flexibility by holding more work-in-process inventory, rather than finished goods Source more from emerging, lower-cost markets as existing markets get more expensive Source/replenish closer to the point of demand Agreed or Strongly Agreed: “Our supply chain currently needs to… Leaders Followers …but the endless search for lowest-cost sources continues Retail leaders show more concern about keeping what’s been working for them i.e. sourcing from emerging lower-cost markets while simultaneously having a more agile supply chain via more localized sourcing and replenishment closer to the point of demand. RSR Research: Retail Supply Chain Execution: New Requirements To Meet New Demand Benchmark Report 2015
  • 22.
  • 23.
    © 2016 DanieSchoeman & Company. Emergence of direct-to-store delivery aka DC bypass DC bypass strategies • Direct shipment to customer • More regionalized distribution • Velocity based networks using cross-docking CEIBS Port of Barcelona Logistics Chair: Direct-to-store distribution impact on European Ports, 2008 Offshoring logistics • Cargo consolidation from China and other Asian sourcing countries • Value added logistics activities • Multi-country distribution
  • 24.
    © 2016 DanieSchoeman & Company. Direct-to-store – how it works Traditional centralized European distribution Direct-to-store distribution Deconsolidation centres or Regional DC Multiple inbound flows Suppliers Continental DC Consolidation platform Suppliers CEIBS Port of Barcelona Logistics Chair: Direct-to-store distribution impact on European Ports, 2008
  • 25.
    © 2016 DanieSchoeman & Company. DC bypass at UPS Shanghai, China Los Angeles, CA New York, NY Cologne, Germany Guadalajara, Mexico Laredo, Texas Direct-to-Store Illustration Freight deconsolidation into individual shipments at destination port or gateway for direct-to-store delivery. UPS, Supply Chain Digest, When Does “DC Bypass” Make Sense?, 2008
  • 26.
    © 2016 DanieSchoeman & Company. DC bypass for air/sea freight at Bakers Footwear Group Overseas Goods In-Transit Allocations Domestic Factory CFS Facility Carriers 3PL Warehouse Corporate Office Retail Stores ARC - Bypassing the Distribution Center, 2013 Accept receiver and examine store needs Allocations Delivers to stores Inventory & sales needs Cartons delivered and received into the system PLD is transmitted to small package carrier Destination labels are printed and applied based on allocations Labelling is shifted to the factory
  • 27.
    © 2016 DanieSchoeman & Company. DC bypass for sea freight Bakers Footwear Group Factories CFS Facility Ocean Vessel 3PL Warehouse Corporate Office Retail Stores Overseas Floating Warehouse Last Minute Allocations Domestic ARC - Bypassing the Distribution Center, 2013 Serialised labels printed and applied to cartons Container arrives and a receiver message is sent to corporate Cartons delivered and received into the system Cartons are scanned into the container Visibility to the container through web based tracking Cartons are scanned and destination labels are printed and applied PLD is transmitted to small package carrier Accept receiver and examine store needs Last minute allocations Delivers to stores Inventory & sales needs
  • 28.
    © 2016 DanieSchoeman & Company. Requirements for direct-to-store • Products need to be allocated earlier than in a traditional environment • Sensing of products demand must be accurate and reliable • Volume and scale to ensure full-container load (FCL) shipments • Reliability of transit times and cargo visibility from origin to destination • Visibility across the supply chain • Products need to be packaged “customer or store ready” and labelled as close as possible to origin www.inboundlogistics.com: Optimize 'Obnoxious Freight' With DC Bypass, 2006; How to Develop a Direct-to-Store Delivery Model, 2010
  • 29.
    © 2016 DanieSchoeman & Company. Is a direct-to-store delivery model right for you? • Time sensitive products – Perishable products such food, flowers, etc. – Trendy items that are fast old-fashioned such as clothes, electronics, etc. – Promotional products for trade shows, concert events, products launch etc. and collectibles • Seasonal products – Heating or air conditioning units – Snow shovels, fertilizer, and lawn mowers, etc. – Seasonal sports products – Items for short, high-volume periods such as Christmas decoration items, back-to-school products, Valentine’s day, etc. • High unit value products – Jewellery, routers or other products that require security • Obnoxious freight – High unit volume products that do not palletize efficiently or aren’t compatible with standard storage layouts such as furniture, outdoor equipment, automotive replacement parts, and outdoor toys – Heavy products such as major appliances – Easily damaged items such as glass www.inboundlogistics.com: Optimize 'Obnoxious Freight' With DC Bypass, 2006; How to Develop a Direct-to-Store Delivery Model, 2010
  • 30.
    The return ofthe milkman
  • 31.
    © 2016 DanieSchoeman & Company. of online shoppers in China say they are going direct to brand sites. The gap between retailer and brand is closing 3% 8% 12% 17% 23% 24% 29% 30% 41% 44% Other Better experience Customization / personalization Better service Good stock availability Better warranty / guarantee Love of brand / loyalty That’s all I needed - one brand Full range or more choices Lower price Reasons consumers buy directly from a brand or manufacturer 35% 56% 52% of consumers globally have already bought products directly from brands or manufacturers. of online shoppers in the USA say they are going direct to brand sites. Consumers are shopping directly from manufacturers and many no longer distinguish between retailers and their favourite brands. PwC: Demystifying the online shopper 10 myths of multichannel retailing, 2013
  • 32.
    © 2016 DanieSchoeman & Company. Giving brand owners and manufacturers a new point of view 5% 9% 22% 23% 41% We compete with retailers’ private-label offerings We battle for shelf space with other brands We share consumer data and insights to enable better planning, though we act on those insights separately We continue to work with retail partners but we are also committed to expanding our competing direct-to- consumer strategies We work together to serve consumers through a variety of marketing, sales and service programmes How do you view your relationship with retailers as it relates to consumer engagement? (% respondents) 41% of respondents say they expect to sell products directly to consumers over the next 12 months - up from the 24% who say they currently offer direct-to-consumer sales. Economist Intelligence Unit: New directions: Consumer goods companies hone a cross-channel approach to consumer marketing, 2012
  • 33.
    © 2016 DanieSchoeman & Company. To go for direct-to-consumer 5% 10% 21% 25% 40% Other Through third-party, direct- to-consumer sites (eg, Alice.com, Amazon) Directly to consumers (eg, through your website or social media sites) Through wholesale distributors Through retail partners How do you see percentages of your total sales shifting over the next 3 years through the following channels? (Average % respondents) 21% 4% 22% 25% 29% Don't know Other We have increased the % of spending on trade promotion to complement DTC… We have shifted some trade promotion budget to DTC programmes Our % of trade promotion spending has not changed What has been the impact of your direct-to-consumer programmes on trade promotion? (% respondents) Economist Intelligence Unit: New directions: Consumer goods companies hone a cross-channel approach to consumer marketing, 2012
  • 34.
  • 35.
    Amazon user? Becareful what you wish(-list) for!
  • 36.
    © 2016 DanieSchoeman & Company. When consumers “go digital” 78.4% Amazon 36.6% Brands 46.6% Online retailers is the No. 1 digital source for researching products is the No. 1 digital shop for buying products 58.4% Google 22.7% Brand website 14.9% Digital retailer site Brandshop: 2015 Digital Consumer Preferences Survey, September 2015
  • 37.
    © 2016 DanieSchoeman & Company. 31.4% 7.6% 23.8% 25.7% 14.3% 45.7% None Kindle Fire TV Kindle Reader Kindle Fire Amazon Visa Amazon Prime Chart Title They go prime of Amazon customers are Prime members which translates to about 40 million members and that they spend 2.4 times more each year than other Amazon shoppers. US Amazon Customer Affiliations, % of respondents 46% Consumer Intelligence Research Partners, 2015
  • 38.
    © 2016 DanieSchoeman & Company. Amazon Prime Air Amazon.com
  • 39.
    © 2016 DanieSchoeman & Company. Anticipatory shipping US Patent Office: Patent US8615473 B2 - Method and system for anticipatory package shipping Expedited service path Non-expedited service path Tender to common carrier at fulfilment centre Tender to common carrier at hub Private carrier Fulfilment centre Common carrier
  • 40.
    © 2016 DanieSchoeman & Company. • They are the No 1 online store in the US • They collect data while you browse – even mouse hover! • Big data • Advanced data mining techniques • Machine learning algorithms • Predictive analytics How do they do it?
  • 41.
    © 2016 DanieSchoeman & Company. Amazon in talks to lease Boeing jets to launch its own air-cargo business The online retail giant is looking to expand its delivery operations to avoid the bottlenecks caused by overwhelmed carriers such as UPS. Amazon.com is negotiating to lease 20 Boeing 767 jets for its own air-delivery service, cargo-industry executives have told The Seattle Times. The online retail giant wants to build out its own cargo operations to avoid delays from carriers such as United Parcel Service, which have which have struggled to keep up with the rapid growth of e- commerce. Own air-delivery service? A Boeing 767 arrives at Boeing Field ferrying parcels for UPS. Amazon is considering venturing into the same territory as UPS and FedEx, acquiring similar freighters for its own air cargo service. (Dean Rutz / The Seattle Times) http://www.seattletimes.com/business/amazon/amazon-in-talks-to-lease-20-jets-to-launch-air-cargo-business/
  • 42.
    © 2016 DanieSchoeman & Company. Could be a game-changer as Amazon is awarded sea freight forwarder licence by US FMC Amazon has continued its much anticipated foray into the freight and logistics sector – yesterday the US Federal Maritime Commission (FMC) awarded one of its Chinese subsidiaries an Ocean Transportation Intermediaries (OTI) licence that allows it to operate as a sea freight forwarder. Registered in 2004 by Amazon founder Jeff Bezos as Beijing Century Joyo Courier Service Ltd, the Sea freight forwarder! © Frank Gartner http://theloadstar.co.uk/game-changer-amazon-awarded-sea-freight-forwarder-licence-us-fmc/
  • 43.
    © 2016 DanieSchoeman & Company. What’s next Jeff? Use the what? Mendhak - flickr
  • 44.
  • 45.
    © 2016 DanieSchoeman & Company. A small comparison Total Online Sales In 2014, Alibaba Singles Day sales were about 3.5 times more than the total Cyber Monday Sales in the US. parcelhero.com
  • 46.
    © 2016 DanieSchoeman & Company. • Alibaba smashed its Singles Day record with US$14.3bn of sales - a 60% increase on 2014 • 2014 record beaten in 14 hours - sales had already hit US$10bn • 71% of Alibaba’s Singles Day sales came from mobile devices • More than US$1.4bn bought within the first eight minutes • US$5bn bought within the first 90 minutes • 100m orders placed within the first hour - packages were already starting to arrive at shoppers’ homes within that hour • 120,000 orders placed every minute • 40,000 merchants, and more than 30,000 brands from 25 countries took part • 6m products were on offer from international brands such as P&G , Unilever, Burberry, Estee Lauder, Zara, Huggies, Macy’s, Costco, Apple, and Nike • 180,000 brick-and-mortar stores took part across 330 cities A new record Econsultancy; Fortune Magazine, 2015; Photos - Reuters
  • 47.
    © 2016 DanieSchoeman & Company. • Cainiao, Alibaba's Logistics Arm • Operates a proprietary logistics information platform that links a network of logistics providers, warehouses and distribution centers, which allow participants to confidentially share information on orders, delivery status and user feedback • Ensures high-quality delivery services to sellers and buyers on a large scale • Information flow and related data analysis help logistics companies to achieve higher efficiency and quality service for both merchants and consumers • Big data • Advanced data analysis techniques How do they do it? TheStreet; Alizilla.com, 2015
  • 48.
    © 2016 DanieSchoeman & Company. • Next-day delivery of goods ordered from Alibaba’s online marketplaces in 50 cities • A network of delivery vehicles, warehouses and distribution centres owned by thousands of independent delivery companies and 15 strategic logistics partners • These partners operate 1,800 distribution centres and more than 97,000 delivery stations • Employs more than 1.5 million delivery personnel, located in more than 600 cities in 31 provinces • A network of more than 20,000 self-pick up spots which provide last-mile delivery and other services to consumers Cainiao - “network of networks” Alizilla.com, 2015; Photo - Reuters
  • 49.
    © 2016 DanieSchoeman & Company. Final thoughts • Next level fulfilment strategies are designed so that e- commerce and omni-channel retailers can enable customers to engage with the brand, rather than with the channel – all customers need to have full access to the retailer’s offer through all channels during the shopping journey • This requires a total overhaul of all operations • Supply chains were traditionally designed around stores - these now need to be re-engineered around customers • Speed and agility are key for future success • There is the potential for collaboration of non-competitors around e.g. the sharing of delivery networks and collection points.
  • 50.
    © 2016 DanieSchoeman & Company. What are the three things you hope to achieve? “Demosthenes, the greatest of Athenian orators, was asked what the three tests of a great speech were. “Action, action and action‟ was his reply.” James C. Humes
  • 51.
    © 2016 DanieSchoeman & Company. Danie Schoeman +27 82 940 6028 danie@danieschoeman.com www.danieschoeman.com There’s more to talk about, so let’s have coffee …
  • 52.
    © 2016 DanieSchoeman & Company.
  • 53.
    © 2016 DanieSchoeman & Company. Disclaimer This document has been prepared by Danie Schoeman and Company to provide background information on the subjects mentioned herein, the forecasts, opinions and expectations are entirely those of Danie Schoeman and Company. This presentation was prepared with the utmost due care and consideration for accuracy and factual information; the forecasts, opinions and expectations are deemed to be fair and reasonable. However there can be no assurance that future results or events will be consistent with any such forecasts, opinions and expectations. Therefore the authors will not incur any liability for any loss arising from any use of this presentation or its contents or otherwise arising in connection herewith. Neither will the sources of information or any other related parties be held responsible for any form of action that is taken as a result of the proliferation of this document.