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November 29, 2011

Layaway and Buy Now Pay Later Payment Options!

In my previous blog, I had talked about the Cash on Delivery payment option. A couple of other payment options, which were in vogue earlier and are now making a comeback due to the recession, are Layaway and Buy Now Pay Later (BNPL).

The ongoing recession has forced retailers to innovate and encourage customer s to shop and spend. Layaway and BNPL are two options encouraging the customer to shop now and pay at a later date.

• The customer selects the product that she wants to buy. (Not all products may be covered by the Layaway program; this is reserved for high value items such as electronics, home appliances etc.
• The customer may be required to pay a deposit depending on the retailer's layaway policy.
• The customer signs a contract with the retailer and pays the balance amount in the form of interest-free equal monthly installments.
• The item selected is stored in a separate layaway location at the store or a warehouse until the entire amount is paid by the customer.
• Once the item is paid for completely, the item is shipped to the customer or picked up at store.

Buy Now Pay Later:
• The customer selects the product that she wants to buy. (Not all products may be eligible for BNPL)
• The customer walks home with the product and is charged after a 'free period'. For e.g., a customer may shop for a home theatre and pay for it after a period of 3 months.

These options allow the retailer the following benefits:
• Encourage customer s to shop; their presence in the store to purchase a specific high value item may result in other impulsive spend.
• Service differentiation w.r.t other retailers

However, it may result in an increased cost of sale for the retailer (layaway item storage) and accrual of the sale may not be immediate.

From the customer's perspective, it allows them to shop without running the risk of falling into a debt trap, which may occur if payment was made by a credit card and the customer fails to pay the credit card company in time. In a layaway program, the retailer may choose to deduct a small administrative fee and refund the customer money if she is unable to pay the entire amount.

Please let me know if you have any thoughts on this blog.

Retailer Multi-Channel Operations Capabilities Get an Early Test in the 2011 Holiday Buying Season

Guest Post by

Bob Ferrari, Founder and Executive editor of the Supply Chain Matters blog

Today is Cyber Monday and we provide our first update to our previous commentary on how retailer multi-channel operations (MCO) capabilities will be challenged in the current 2011 holiday buying season. We noted previously that while overall holiday shopping sales will not increase significantly overall, the real story will be reflected on how both online and physical retailers capture the interests and buying motivations of far more tech-savvy and mobile empowered consumers.

According to a National Retail Federation survey conducted by BIGresearch over this weekend, traffic and spending were up both online and in stores, reaching historic highs.  The huge hype of advertising and holiday promotions has seemed to have drawn consumers to shopping a bit early. A record 226 million shoppers visited stores and websites over Black Friday weekend, up from 212 million last year. The average holiday shopper spent $398.62 this weekend, up from $365.34 last year, an increase of slightly over 9 percent.  Total spending reached an estimated $52.4 billion vs. $45 billion during last year's period, an increase of 16 percent. Additionally, shoppers also checked out retailers' deals online, spending an average of $150.53 on the web - 37.8 percent of their total weekend spending.

For the first time, NRF asked how shoppers would use their smartphones and tablets over the weekend. More than one-quarter (25.7%) of Americans with tablet devices said they did or will purchase items with their devices and 37.4 percent will or have researched products and compared prices with their tablets.  Overall, more than half (57.1%) said they have or will use their tablet devices to shop for gifts this weekend.

Shopping patterns were even more interesting.  More than half (51.4%) bought clothing and clothing accessories, and gift buyers were also drawn to promotions on electronics and computer-related accessories. Nearly four in 10 (39.4%) bought electronic items, up from 36.7 percent last year. Additionally, shoppers stocked up on home décor (21.3%), gift cards (23.1%), toys (32.6%), and jewelry (21.8%).

An article published in USA Today on Friday (paid subscription or metered view required) observes that retailers and shoppers are both experimenting this holiday season to figure out the most effective and useful ways to shop.  Some retailers have been adroit at equipping salespersons with mobile devices to assist shoppers and keep them in the store or on their web site.

Consumers shopping for the hottest toys can utilize to order their toys and pick-up from a neighborhood store.  Macy's executive vice president of marketing and advertising is quoted: "My challenge is to give shoppers that great experience from every channel." The retailer has equipped store personnel with special tablets to order special or non-stocked merchandise on Macy's web ordering site to assure a sale.  Retailers such as Macy's, Nordstrom and Sears are providing free in-store Wi-Fi access. Home Depot will be testing the deployment of 30,000 mobile devices among 2000 stores which feature bar-code scanners, cameras and video playing capabilities to assist home improvement shoppers with gift selections.

A spokesperson with the NRF notes that the holiday shopper who utilizes multiple channels, online, mobile and in-store, will spend 22 percent more than people who shop only in stores. Wal-Mart is also focusing on assuring a seamless experience by allowing consumers sneak peeks at upcoming in-store specials.

While much of the retail industry and business media is focusing on retailers attempts to integrate online and in-store retailing, the real test in our view, lies with smarter inventory management and supply chain fulfillment capabilities among retailers.  Brick and mortar retailers will have to balance total inventories among in-store and regional distribution center stocking plans, figuring out what channels are drawing the most consumer activity.  No doubt, sensing and response management capabilities will be put to the test.  Online retailers on the other hand, will lure customers with a more pleasing web experience, the convenience of free shipping, inventory availability and lowest price. As in the past, the biggest beneficiaries will likely be parcel and air freight carriers such as FedEx and UPS who will become the last mile fulfillment agents of the holiday sale.

We all get the opportunity to learn when this holiday season finally unfolds over the coming weeks.  For retailers however, the early indicators of this year's season bring forth the importance of viewing the integration of online and in-store not solely as a multi-channel commerce (MCC) and web capabilities investment initiative, but rather a balancing of web and supply chain inclusive multi-channel inventory and operations management (MCO) capabilities as well.  A sale is only consummated when the consumer is satisfied with both the buying experience and receives the physical goods on-time within price expectations.


Factors Influencing Delivery Address Amendment

Sometime in 2005, I had ordered a birthday gift hamper for my friend from one of the web based retailer in US, to be delivered on her birthday, which happened to be a couple of week later. When I placed the order, my friend was staying in Chicago, so I chose Chicago as delivery location. However, during that two-week time frame she moved to New York. Learning this, I thought of delivering gift to her New York address. So when I called customer service executive of online retailer to change the delivery address of my order, I was surprised to learn that I cannot change delivery address my order. Instead, I had to cancel the existing order and place a new one, if I wanted my gift to be delivered to another address. Unaware of supply chain complexities involved in changing delivery address of customer order, I was wondering what a big deal changing delivery address is. Is it really difficult for retailer to provide option of changing delivery address? What are the various system requirements to carry out this process? Let's discuss it...

The complexity of address amendment depends on following factors -

Order Fulfillment Method
The retailer may be using different methods to fulfill orders like, drop ship fulfillment, delivery and installation and home delivery using 3rd party carriers. In case of drop ship and 3rd party carrier orders, amendment of address may not be possible after order information has been sent to drop ship suppliers or 3rd party carriers respectively.

Inventory and Capacity Visibility to Order Management System
Address amendment can be broadly classified into two types. First is the one which does not result in postcode change. This happens when customer either wants to add some landmark in the existing address or wants to correct the incorrectly filled address, due to typo errors. As, there is no postcode change in this case, there is no change in inventory sourcing warehouse and delivery van route. Hence, address can be amended without re-checking inventory and capacity.
The other type of address amendment is the one which results in postcode change. This can happen in a situation, when customer is not available at home on the day of delivery and he/she wants to receive the order at office address. This may or may not result in change in inventory sourcing warehouse and delivery van route. If, postcode change results in change in inventory sourcing warehouse and delivery van route, then inventory and capacity should be re-checked before allowing address change. Depending on their availability, system can allow address change.

Delivery time frame
Retailers provide various delivery options like same day delivery, next day delivery, express delivery in which products are generally delivered in 2-3 days and a standard delivery in which products are delivered in 5-6 days. In case of, same day and next day deliveries, the timeframe available to modify the address is very less. Because of short timeframe, possibility of customer requesting for address change is also minimal. Hence, retailer can choose to offer address amendment only when there is no postcode change or not to offer this facility at all. For express and standard delivery orders, address amendment can be done till sales order is not released for warehouse processing.

Payment Method Used on Order
Retailer may want to do a fraud check for an order, if customer has paid by credit/debit card or gift card. This is because, it is quite likely that a fraudster, would first place the order to keep billing and delivery addresses same to avoid initial fraud check. Later, he can choose a fraudulent address to get product delivered. In such case, a call to third party fraud check system would be required while amending address. Some retailers like Walmart do not ship to a new address unless it is registered with credit/debit card issuer bank. Hence, a real-time interface to validate address with issuer bank is needed before the address is amended.

So based on what exactly is being amended in address, the Order Management system would need to check capacity and/or inventory, fraud score and order status before allowing modification. Do you think of any other factor playing important role in it?

November 11, 2011

Demand Planning in CPG industry - Practising the Best Practices

No matter which industry you are in, I am sure you would have constantly encountered the term - "Best Practices". In order to maximize the shareholder value, organizations are constantly striving to adopt these best practices in almost every domain or process relevant for them. Demand planning is the most critical process in the CPG industry, since it drives all downstream processes (raw material/finished goods inventory planning, procurement planning, capacity planning, manpower planning, transportation planning, etc.) for running the organization in the most effective and efficient manner.

In this and next couple of blogs, I will make an attempt to capture the best practices in Demand Planning area in the CPG industry based on my past experience of working with some of the Fortune-200 companies..

First best practice is to set up the formal demand planning process in the organization. Setting up of the process would also need setting up of a "demand planning organization", and demand planning systems which would offer best-in-class performance. Demand planning process has many sub-processes which includes - setting up demand planning objectives and metrics for different business units/customers/key items/locations, setting up the frequency of the forecasting process (create/review/publish) with the time horizons, formulating a plan to cleanse the history data which is the main input to the statistical models, deciding upon the level at which the forecast has to be generated at, setting up the process for - accounting for a short term market event or promotional forecast, establishing a consensus forecast (a part of S&OP process), and finally reconciling the top level collaborate forecast at the bottom level before transferring the operational forecast for replenishment purpose. Demand Planning is a cyclic process and the last step in the cycle is a formal review of the forecast with the ongoing Sales. In this step, the actuals are compared with the planned metrics (MAPE, forecast accuracy, bias etc.) and the appropriate steps are taken to increase the forecast performance in the next cycle.

In the subsequent blogs, I will discuss on the best practices in some of the sub-processes in the demand planning cycle. Please note that I will not concentrate on Demand Sensing in this series of blogs as it is a separate topic altogether. So till then, please feel free to comment and share any best practice that you are aware of in the demand planning space in CPG industry.

November 2, 2011

The Upcoming 2011 Holiday Buying Season will again Test Retailer MCO and Supply Chain Capabilities

Guest Post By
Bob Ferrari, Executive Editor, Supply Chain Matters blog

Just about a year ago,I penned a guest posting on the Infosys Supply Chain Management blog that commented on the pending 2010 holiday buying season and how consumers would test retailer multi-channel operations (MCO) and synchronization. In our commentary, we cited three trends that would manifest themselves in 2010, namely.
1.Far more value-oriented shoppers would embrace just-in-time shopping techniques, balancing perceived best price with product availability.
2.A more empowered consumer who would gain the information advantage by deeper utilization of online shopping and research tools.
3.The state of product demand planning and inventory management among retailers becoming more advanced.

When all the dust had settled, consumers indeed tested these capabilities, using a variety of online and mobile applications to search, shop, and ultimately fulfill their holiday buying needs. Online retail sales reached an all-time high in 2010. Retail visits were frequent as shoppers, after doing preliminary homework, visited physical stores to touch and feel products, or to partake of the classical mall shopping experience.

As we approach the 2011 holiday season, the environment has somewhat changed, requiring retailers to adjust their supply chain fulfillment strategies.On the one hand,continued unemployment and eroding economics across the global economy reinforce the presence of value-oriented, frugal shoppers.Then again,there may be that one special item that shoppers have placed on the holiday gift list for months.  Retailers themselves have shifted more investments toward their online presence.As an example, electronics retailer Best Buy has augmented its online assortment by 20,000 items.Similarly,Target and Wal-Mart and other general merchandise retailers have boosted their online capabilities and product offerings. Overall,retailers performed a decent job in forecasting holiday demand,managing promotions and overall inventory in the 2010 season.

What therefore should retailers expect in the upcoming 2011 season?

A recent survey conducted under the auspices of the National Retail Federation (NRF) notes that nearly 70 percent of online retailers expect their holiday sales to grow at least 15 percent or more.Yet, many retailers are expecting a muted amount of overall holiday sales, and have reflected that belief in conservative buying and inventory staging.The NRF is forecasting that the average shopper plans to accomplish 36 percent of their holiday shopping online vs. slightly under 33 percent last year.Online retailers are also planning to start their promotional activities much earlier,hoping to capture consumer buying impulses and avoiding consumer tendencies to wait for the late season price promotions that have occurred in prior years. Consider also that last year's most popular items were high end electronics,specifically smartphones and tablets, followed by children's toys and gifts.

But something else has fundamentally changed,something that relates directly to product availability and retailers ultimate capabilities in inventory allocation and multi-channel balancing.

Supply chains have experienced a year of unprecedented disruption, starting with the floods in China at the beginning of the year,the devastating earthquake and tsunami that occurred in northern Japan in March, and currently the devastating monsoon floods that have impacted Thailand and adjoining regions of Asia.There are warning signs and alerts stemming from automobile, disk drive, camera, printer, and soon,PC and smartphone manufacturers regarding dwindling supplies and shortfalls in production.

Last year we cited multi-channel commerce and supply chain fulfillment augmented by demand-sensing and supply-chain wide agility as important capabilities for retailers in 2010. That turned out to be true.

Supply Chain Matters believes that a new dimension will unfold in the coming weeks. One will be that of not having the most popular and desired products the consumer desires, because suppliers will fall short of meeting holiday demand spikes.Consumers are far more astute in noting trends and will be highly sensitized to potential product shortages of the most desired products.

The other will be properly planning for the right alternative products, or insuring that bets on other products do not turn out to be busts because consumers decide to postpone buying altogether. This will again test the ability of retailers to adequately sense and respond to multi-channel demand volumes and be able to close the sale as more sophisticated consumers exercise all sorts of mobile and online searching tools to find and exercise their holiday buying choices.Intelligence as to what buyers are searching for will ultimately translate to the best product demand and inventory balancing intelligence.

The upcoming 2011 holiday buying season will once again drive home the premise that MCO and responsive supply chain inventory management can often be the best complement to effective multi-channel and online commerce plans.

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