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Blog postsNovember 21, 2019

How to optimize your supply chain: 3 strategies for retailers in 2020

How to cut costs, shorten delivery times, and increase customer satisfaction with an optimized supply chain

As we close out the year, now’s the time to consider how effective your supply chain strategy has been in 2019 and what changes to consider in the years ahead.

Now more than ever, the success of your business hinges on your supply chain and logistics strategy. Meeting the ever-changing demands of your customers requires innovation, agility, and a supply chain that can handle it all.

Here are 3 strategies you can take in 2020 to make your supply chain a strategic advantage:

  1. Leverage stores to shorten the last-mile
  2. Improve your delivery promise to increase sales
  3. Go back to basics and invest in your inventory to reduce stockouts

3 ways retailers are making their supply chains more efficient

1.) Leverage stores to shorten the last-mile

Once a liability, traditional brick-and-mortar stores are now a retailer’s secret weapon. Retailers like Nordstrom, Target, and others are using their stores to expand their fulfillment footprint through owned assets to offer more competitive delivery speeds.

The number one reason online shopping carts are abandoned is because shipping costs are too high, but the only way to reduce last-mile costs is to get inventory closer to customers. By leveraging stores as fulfillment centers, you can use the capacity you already have to improve your delivery promise and reduce transportation costs.

Target has been doing this to shorten the last-mile of delivery to customers since 2016. And, 25% of Target’s 1,800 stores are now able to fulfill online orders.

For the past five years, they’ve focused on opening new small-format stores in cities and on college campuses. These small-format stores contain limited, tailored inventory geared towards their respective audiences: Busy, urban professionals and college students.

But there’s more to it. These smaller stores are also mini fulfillment centers, doubling as fulfillment nodes in their network and enabling same- and next-day delivery in areas where their competitors typically struggle to find space.

2.) Improve your delivery promise to boost sales

Your delivery promise can have a huge impact on your sales. Sixty-five percent of consumers report looking up free-shipping thresholds when online shopping, and 29% of consumers report having abandoned a purchase because two-day shipping wasn’t offered for free. But, improving your delivery promise starts with finding out what your customers want.

Home Depot did just that when it looked into improving its delivery offerings. It found that when you’re in the middle of a home improvement project, the last thing you want to do is wait seven days for your supplies to arrive.

As a result, they found a way to shorten delivery times and it’s paying off. CEO, Craig Menear, said, "Every time we take time out of the delivery lead time, we increase conversion." Currently, they can reach 90% of the U.S. with two-day or less parcel shipping and 36% of the U.S. for next-day.

In our recent 2019 eCommerce Fulfillment & Logistics report, we found that retailers think its equally important to offer both free (63%) and fast (64%) shipping, and that most respondents are optimizing for fast shipping OVER free shipping.

But fast delivery isn’t always best, or only, choice. Deloitte found that 88% of consumers prefer free shipping over fast shipping. The best way retailers can boost sales is to look at customer preferences and provide options: Fast, free, and everything in between.

3.) Get the basics right: Invest in your inventory

Avoiding stock-outs is a fundamental rule. A study from ECR Europe found that after the first occurrence of a stock-out, 31% of consumers will abandon their purchase and go to a different store. After the second time, it jumps to 50%, and after the third instance, 70% will abandon. Retailers can’t afford to get this wrong.

In fact, Lowe’s new CEO, Marvin Ellison, identified that the company’s core problem was with inventory. He said, "If you take a look back at Lowe's historically, Lowe's had one of the worst in-stock positions of any major retailer.” Their internal supply chain was extremely inefficient, which required maintaining high-levels of safety stock within their stores as a result.

To rectify this, Ellison says they’re taking a “data-driven approach” to increasing inventory efficiency and improving in-stock status, and that they’ve already seen a 2.3% increase in sales growth as a result.

Optimize your logistics network with on-demand warehousing and fulfillment

Across all three strategies, the common components that retailers and brands need to focus on are: 1.) Optimizing inventory management and 2.) Reducing the last-mile of delivery.

Whether it’s through mini-fulfillment centers, expanding your network to decrease the last mile, or ensuring your inventory is where it should be when consumers are shopping, it all comes down to getting your goods close to your customers.

On-demand warehousing and fulfillment can help. With on-demand warehousing and fulfillment, retailers and brands can increase flexibility across their logistics networks and create smarter networks that support the business and meet customer demands.

For more ways to increase efficiencies across your network, check out: On-demand warehousing 101: Network optimization and on-demand warehousing.

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