Retail’s million dollar business problems – and opportunities

by | Jan 9, 2018

The thing about small problems is that they often turn into big problems further on down the line. NASA lost the $125 million Mars Orbiter due to a “failed translation of English units into metric units.” A French railway bought 2,000 cars that were just a few inches too wide to fit into 1,300 rail stations, costing $70 million. A non-existent Oxford comma cost a company almost $10 million in overtime pay. A typo at Amazon cost at least $150 million in losses after taking servers down across the internet for more than four hours.

Those are some expensive mistakes that flew under the radar until they blew up in remarkable fashion, much like many of the million dollar business problems facing retail and supply chain businesses today. Creeping return rates, employee turnover, manual data entry errors, fraudulent invoices and incorrect payments can all compound, and suddenly seemingly small problems can cause big losses over years.

We’ve stated previously that “small problems” in documentation errors can add up to an average of $120 to $150 per purchase order. Over 100,000 purchase orders per year, that’s $12 to $15 million lost in small numbers here and there.

Sure, that looks like a lot of money, but that’s the wrong way to look at it. Those millions of dollars in losses are small, small potatoes in the context of what is lost “big picture” by not having the right tools in place.

What this looks like to me, really, is a $125 million business problem. That’s a Mars Orbiter lost, often year after year by major organizations that are looking at their business problems in the wrong way.

Chasing after documentation errors is important, but it’s chump change. It’s far more expensive to continue trying to get by with outdated technology and legacy systems that allow these errors, rather than to make the investment in what you really need to not just survive, but thrive and compete in the modern retail landscape.

Consumers are demanding more, and in order to deliver on customer expectations, retail and supply chain operations are becoming more complex. Beyond the infinite number of sales channels that exist, there’s a huge variety of fulfillment options as well: drop shipping, ship to store, ship from store, buy online pickup in store (BOPIS or BOPUS) and dozens of other ways to get products into consumers’ hands.

Without tools and automation helping you solve these million dollar business problems, you can’t get that productivity and dependability that you need to thrive and grow with the ever-changing retail landscape and the supply chain that fuels it.

The right retail technology, system automation and data analytics can enable a recalibration of your retail and supply chain operations to increase capacity 20 percent or more. These improvement can be achieved even without having to invest in more distributions centers or warehouse space. The inventory management and forecasting made possible through modern retail business solutions could allow for building more stores in the most strategic places, without necessarily having to spend more on product. The right tools can help you not only put the products in the right place to sell quickly, but to scale and grow.

Million dollar business problems

Every business is different, and so the insidious, under-the-radar or “low priority” issues vary. When I think of some of the problems that cause some of the biggest losses, many of them have the same types of themes, though. This is by no means a comprehensive list, but here are some of the overarching concepts of issues impacting the bottom lines of modern retail organizations.

1. ComplexityToday’s consumers want more than an omnichannel experience now. It’s the expectation that your organization is not only on all the channels where they want to shop, but also that all of those channels are connected and consistent. Consumers also have ideas about how they want to receive the item – ship to store, buy online pickup in store, delivered to the home, Walmart is even now delivering groceries directly to your refrigerator and Amazon wants to deliver directly into your home.

Your customers might not quite be ready for in-home delivery, but having the right variety of sales channels and delivery options is vital for connecting with consumers. More sales channels and delivery options means more complexity across your organization, potentially leading to visibility issues, communication errors, costly mistakes and inefficiencies. It’s OK to have a complex system (it’s practically a requirement now), as long as the right technology, processes and people are in place to accommodate it all. Operationalization and automation of processes can help keep complex systems moving forward.

2. Capacity – The ability and agility to respond to the changing retail landscape is more important than ever. Far too many great product launches, memorable promotions and viral sensations have been dampened by a brand or retailer’s inability to fulfill of their orders and carry out all of their promises.

It doesn’t have to be some grand, unexpected spike in popularity, either; it could be something as predictable as the yearly holiday shopping season order volume spike. It never fails, though, there’s always some retailer, brand or manufacturer that makes headlines because they received so many orders, so fast that they weren’t able to make deliveries on time. Such poor experiences are not the path to consumer loyalty and repeat purchases, especially once customers start complaining on social media and word gets around.

3. Conditioning – Over decades of a mostly unchanged industry, retailers and brands had become accustomed to dictating much of the terms of their sales. Consumers didn’t have a choice but to buy that one option, from that specific retailer, because it was the only one in your town. Even when e-commerce hit the scene, traditional retailers were slow to adapt – until marketplaces like eBay and Amazon started making major inroads. Now shoppers can buy whatever from wherever and have it delivered whenever. Once-confident and comfortable retailers and brands are now having a hard time doing it all and being able to keep up with the changes on their own.

Delivering on consumer expectations is now a team sport – it has to be for retailers to possibly deliver on what consumers expect. How else can inventory visibility, supply chain reliability and direct-to-consumer order completion be accomplished at an ever-increasing rate? Retailers without their own online fulfillment centers need vendors to handle drop shipping. Third-party logistics providers help get more products into consumers’ hands faster. Manufacturers, vendors, distributors, 3PLs and retailers that work together have a better chance of satisfying customers and winning future purchases. Retailers and brands that try to make it on their own without working closely with trading partners are missing out on the sales that only teamwork can accomplish.

4. Compliance – Consumers want what they want, when they want it, but so do retailers and brands. Walmart has recently started enforcing on-time delivery standards that will result in fines for vendors when they deliver too late and too early. Amazon Marketplace sellers have to adhere to strict fulfillment and shipping requirements in general, but the rules are even more stringent for products to qualify for Amazon Prime. 

It’s not just the retail giants, either – more and more brands are requiring more and more from their trading partners. One thing that pops up more and more are EDI capabilities. The ability to automate and instantly transmit order transaction documents and information across departments and organizations is truly what makes e-commerce and omnichannel possible..

5. Complacency – Getting too comfortable with what you have, and not looking critically to see if you can do more and better, is lethal in modern economy. Getting stuck in a rut will lead you right off a cliff. Look at all of the long-standing names in retail that are failing so spectacularly right now: Sears, Kmart, JCPenney. These stores were on top for so long, that when the e-commerce tectonic shift started rattling their foundations, they thought their brand and customer loyalty would carry them. When it became clear the internet dissolved customer loyalty and advanced price transparency, they didn’t move fast enough or smart enough to regain their footing in the new retail landscape.

New technology and advanced online options are opening up everyday, and customers are using new ways to buy products and receive orders. Similarly, new options are being developed constantly to help retailers and their supply chains move in the right direction to get products in the hands of customers. Not every options is going to necessarily be a good choice – not everyone should go out rushing to mimic Amazon’s drone delivery, for example. But retailers should keep their fingers on the pulse of what’s happening, adjust their strategies in response to what competitors are doing and most importantly, try to innovate on services or products in your own way, that appeals to your customers.

Fixing the problems

The concepts above don’t give you a lot of particulars. It doesn’t uncover the problems in your order management process that keeps resulting in late deliveries. It can’t reveal the issues in the data interfering with accurate forecasting. Or point to the source of item data issues that may be spiking your returns and refunds.

But it does give you some things to think about and ideas for potential places to look. When you find those inefficiencies and problem processes, the most effective solutions are going to be multifaceted – a combination of people, processes and technology. Some ideas and opportunities that can help solve the million dollar business problems listed above:

1. Automation and operationalization. Operationalizing and automating as many repetitive tasks as is beneficial can solve many issues. It can improve accuracy of information as it travels within the organization and to trading partners, reducing inventory mistakes and payment errors. It can speed up complex processes including payments, help trading partners take advantage of “on-time” discounts, increase capacity for order volume spikes.

2. Tearing down data silos. The sharing of information across organizations is vital for a unified retail experience and omnichannel approach, as well as accurate forecasting. Departments, teams and tools should all be able to access clean, accurate, cross-channel data in order to make the best choices. Sharing data with trading partners can also be helpful for collaboration and identifying trends that may not be seen without the full picture.

3. Cooperation within organizational culture. For a truly omnichannel strategy and unified retail expression, the people within the organization must all be on board with working together and adapting to change. When there is an understanding of how everyone’s work impacts the tasks of others, it’s easier for teammates to hold themselves accountable to each other. Additionally, retail is constantly evolving now and will be for the foreseeable future – workers should be prepared for changes of duties, team and departmental structures. When everyone is on the same page and understands what’s happening, it’s much easier to move the company towards it’s collective goal.

4. Collaboration with trading partners. There’s a lot of moving parts in truly omnichannel enterprise, across different channels through the sales funnel, from the order placement through fulfillment and delivery. It’s absolutely a must for retailers to work closely and collaborate with the partners that help them give customers what they want. And it’s not just the mechanics of order fulfillment, collaboration with information can unlock sales for all partners in the business relationship. Retailers may have some information about customer data that vendors and brands don’t know, while the suppliers and manufacturers might have insights on categories that the retailers don’t have.

5. Attitude comes from the top down. Great teams are capable of working autonomously without constant supervision, but they still look to their leaders to head them in the right direction. The managers, directors and most importantly, the executives set the tone for what’s important within the company’s culture, whether that’s new product innovation, achieving a fully omnichannel retail strategy, creating a more customer-satisfaction centric organization, and a range of other goals that depend on company culture. They also do what they can to nurture development in these priorities by fostering communication, cooperation and collaboration, top to bottom and laterally across departments and teams.

Every business is different, it’s up to you to figure out what systemic and incremental problems are adding up to big losses over time, then make adjustments to remedy the situation. Think of the issues as opportunities for growth. Plugging holes here and there won’t rocket you into insane profitability, though it can help you preserve what you have. Think beyond the small leaks to the opportunities: Retail technology tools can help you to run a tighter organization and lay a foundation for greater success in the future.

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Jim Frome

Jim Frome

Executive Vice President & Chief Operating Officer at SPS Commerce
As Chief Operating Officer at SPS Commerce, Jim Frome oversees global strategy, sales, marketing and operations. Since joining SPS in 2000, he has secured and expanded the company's leadership position in cloud-based supply chain management. With more than 24 years of experience in technology marketing and management, he has been named a "Pro to Know" by Supply & Demand Chain, written numerous white papers and is a frequent speaker at customer and industry events. Prior to Information Advantage, Mr. Frome held several marketing and product development positions in which he focused on building business partnerships and resellers for IBM's AS400 division.
Jim Frome

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