Transformation of traditional retailer

in the era of New Retail

Deloitte China, October 2017 1

Table of Content

Executive Summary 3
New Retail, New Mindset 4
New Retail, New Challenge 7
New trend and action plan 11
Conclusion 25
Contact Info 26

Transformation of traditional retailer in the era of New Retail 2

Executive Summary
Omni Channel is becoming the new trend in retail. Supply chain need be
transformed to cover end to end service from forecast to distribution

As the retail sector continue to evolve, ultimately optimize consumer experience and
consumer‘s choice of shopping channel has help the company win the competition.
become just as important as their choice of
The Chinese retail market is known for its
products. Nowadays, consumers tend to select
channel diversity, market volatility, quick
shopping channel that provides optimized
evolution, and increasing demand on fast
customer experience. Because of the changing
delivery and personalized products. Moreover,
habit, traditional retailers must figure out new
imbalanced inventory level, high logistics cost,
solutions to transform their sales channel into
fierce market competition and data complexity
the new era of retail, and promote Omni
have largely increased the level of difficulties
channel. These actions play a vital role on
for new retail transformation.
occupying consumer shopping channels and
increasing sales conversion rate. In this white paper, we provide in-depth
insights on how traditional brand retailers and
But traditional retailers are still facing lots of
manufacturers should transform to take lead in
challenges. Efficiency improvement of supply
the era of New Retail, identify the main
chain management has been identified by
challenges of supply chain management and
most of the traditional retailers as their top
elaborate the optimized operation model.
priority for new retail transformation.
To help COO better understand the new
In the new era of retail, supply chain should
journey of supply chain transformation, we
set “customer connectivity" and "operation &
conducted comprehensive analysis on current
services improvement“ as the new centers,
Chinese retail market trend, and share our
and deepen integration between Inventory and
opinions from the views of strategy, planning,
Consumer/Context. Thus, the future of supply
inventory, logistics and data analysis. We hope
chain management shall be driven by data;
to help the manufacturers and retailers
retailers should break the current distribution
winning the new retail battle.
barriers and provide cross channel services to
both internal and external customers that can

Transformation of traditional retailer in the era of New Retail 3

Section I – New Retail, New Mindset

4
 Customer Oriented In the era of New Retail, consumer has more choices of what to buy and
where to buy. So the choice of shopping channel has become as important as
consumer’s choice on products; Brand retailers should set their strategy to
focus on consumer interactions and optimization of customer experience

Traditional Strategy New Retail Strategy

Company centered: Company defines product & channel
Traditional retail strategy is mainly “sell” products to customers regard
their preference. Companies tend to focus on product quality and cost
as well as channel dominance (market share) in effort to cover a
broader client base and achieve more sales
Customer centered: Company provides product and experiences
In the era of new retail, consumer has less experience of asymmetric
information and shopping obstacle. So new retail strategy should focus
on consumer engagement, such as user base, customer stickiness,
traffic, interaction and experience to improve sales conversion rate

Company
Product Channel Customer Compare/ Compare/
Centered strategy strategy select select
Centered products channel

Goal
What is the What to Where to How to cover Goal
company’s produce sell broader market
advantage What is Decide on Decide on Drive sales from
needed products channel for consumer
purchase interaction
Source: Deloitte Analysis
Transformation of traditional retailer in the era of New Retail 5
 Break Channel Barrier In the era of New Retail, shopping channel boundaries are no longer necessary
and getting vaguer; traditional brand retailers need to change their mindset
and transform traditional sales channel management into a seamless Omni-
channel service model
Traditionally, sales channels are managed separately by different business As the boundaries of online and offline channels become vaguer in New Retail;
units with independent sales resource, supply chain model, KPI metrics and Manufacturers should focus on studying consumers and their shopping
operation team. patterns to increase consumer interaction through providing end to end
Most of the companies still hold traditional channel management mindset services during the shopping journey.
when promoting Omni channel retail, which only focus on the final purchase So the operating model that separates online and offline channel can no
point and recognize sales revenues to either online or offline. Traditional KPI longer improve consumers’ shopping experience. Instead, integration of
constraint and incentive setting has become the main challenges when internal processes, resources and systems across channels to support Omni
companies are seeking Omni Channel transformation. channel operation has become critical for brand manufacturers.

Traditional channel management Omni channel management in new era

Stage of
Receive Return& Stage of Receive Return&
Consumption Demand Research Compare Purchase Demand Research Compare Purchase
product refund Consumption product refund

Online sale Online sale

Offline sale Offline sale

Source: Deloitte Analysis

Transformation of traditional retailer in the era of New Retail 6
Section II – New Retail, New Challenge

7
 Challenges Traditional brand manufacturers and retailers are facing lots of challenges
during the New Retail transformation. Supply chain management has been
identified by most companies as their top priority for strategic development

The Omni channel transformation revolves around “Customer, Product and
Context”. “Customer” includes studying user base, digital marketing, and
relationship management. “Context” covers shopping context, brick and
mortar retail and digital customer experience design. “Product” examines
when, where and what product to provide; supply chain transformation aims
to provide solutions on “product”, with integration and interaction to
“customer” and “context”.
According to the CFFA retail development survey, retailers are unsatisfied
with current supply chain management setup, and consider this issue as the
top challenge. Thus Omni channel transformation will create a great impact
on future supply chain development.
To ensure a successfully transform into an Omni channel, retailers need to
set supply chain as top priority to achieve lower cost and better service, and
commit funding on capital investment, talent resources, and enhance S&OP.

Major challenges for traditional retailer in New Retail Next step for traditional retailer
30%
Digitalized sales and services 280
25%
Optimization of supply chain 276
20%
Business innovation 256
15% Strengthen product
mgmt and purchase
254
10% Incentives and change
in org structure 234
5%
Store expansion 187
0 Increase cross boarder
151
purchase
Supply chain mgmt Increased competition Increased logistics cost
Taxation Innovation in business model Lack of capital APP development 117
Lack of talent Increased selling cost Lack of consumer loyalty
M&A and capital mgmt 114

Source: CFFA retail development trend research, Deloitte analysis

Transformation of traditional retailer in the era of New Retail 8
 Supply Chain To promote new retail supply chain transformation, retailers should get rid of
the traditional mindset of competing on product, but to win consumers by
Transformation providing premium shopping experience

Customer Interaction Customer Interaction

• Sell products through channel and distributors, limited
interaction with customers
Supply Chain Model
• Upstream/Downstream partners, and end customers in supply
chain are connected by good flow
• Communication barriers and asymmetric information between
upstream and downstream sectors in supply chain
• Direct interaction and connection with customers under different
context
Supply chain model
• Vague boundaries across upstream/downstream supply chain
• Supply chain provide direct consumer service
• E2E supply chain operation is driven by digitalization, from
consumer, products, to orders

Traditional supply chain value New retail supply chain value

Product Flow

Product
Data system logistics context consumer
& Service

R&D Purchase Manufacturing Distribution Payment Service

Information Flow

Source: Deloitte Analysis

Transformation of traditional retailer in the era of New Retail 9
 To-Be Supply Chain The To-be new retail supply chain operation model should be customers
oriented, data driven, and provide cross channel services and experiences for
Operation Model both internal and external users

Best practice model New Retail Traditional Model To-Be Supply Chain Model

Generate - Single supply chain model is unable to - Provide personalized services and products based on
sales provide differentiated services customer’s expectation
A conversion - Separated supply chain operation - Segment supply chain based on target customers and service
from user model based on production and product requirement. Improve capability and allocate resources to
interaction characteristics achieve seamless support under different shopping context

- Separated sales channels with own KPI - Encourage cross channel collaboration and resource sharing
A B Cross indicators, function, and resources through process and performance incentive
Customer Cross such as HR and inventories also kept - Data sharing, cross channel visualization between upstream and
B channel downstream business partners
Experience Channel independently
integration - Standardized business process; provide variety of shopping
- Lack of incentive for cross channel
collaboration options to customer

D C - Position supply chain as a business service function

- Supply chain is defined as internal
Service Personalized - Emphasis on service level and flexibility
Digitalization supporting function
Upgrade C & responsive
- Lack of flexibility to respond
- Perform end to end supply chain operation to suit customer’s
service service need with high transactions, small batch, customized
customer’s demand and request
and personalized order

- Enable data collection and digitalization through the entire

- Limited control on customer data
shopping journey
- Lack of system integration and
Digitized - Capture data throughout supply chain network to support high
transparency of data
D retail level transparency
- Lack of reliable data source and
- Predictive supply chain analysis and optimization through big
journey scientific approach to business decision
data
making
- Setup supply chain governance model based on data analysis
Source: Deloitte Analysis
Transformation of traditional retailer in the era of New Retail 10
Section III - New Trends and Action Plan

11
 Omni-channel retail Manufacturers and Retailers are challenged by the retail market macro trend
development trend as well as the competition from different Omni channel players; which
altogether will have a significant impact on supply chain management

Diversification of retail channels with the trend of

integration across different business models

Consumers expect highly responsive and

Efficiency
customized products and services

Future
Intensification of conflict between demand and Omni-
inventory supply reduces Omni-channel profitability Channel
supply chain
Present Future
Service level Logistics sector is moving towards service
specialization and shared economic model

Data and analytics drive supply chain

transformation and operation enhancement

Source: Deloitte Analysis

Transformation of traditional retailer in the era of New Retail 12
 Trend #1: Customer’s shopping requirement is becoming more and more diversified.
Rise of companies with Retailers are moving in a common direction that integrate multiple business
multiple channel and model to provide seamless consumer experience across channels
business model

Organization Internal challenges of Omni-channel

Adv. Retail Strategy Deloitte Insights
Types transformation from CEO perspectives
- Consumer - Build eco-system to Retailers are applying Percentage represents the CEO's agreement rate
Ecommerce


data enlarge consumer differentiated strategies
- IT base
- Ecommerce giants Unable to fulfill consumer
55%
- Platform - Expand to offline demand cross channels
resources - Enhance fulfilment expand to offline
capability channel, and establish
platform and eco sys. Unable to keep up to
technology innovation 43%
- Offline - Expand to online
Brick&Mortar

- Brick and mortar stores

store channel
Channel

networks - Launch own brand

expand to online Unable to integrate isolated
channel online and offline channels 42%
- Supply products
system - O2O initiatives - Brand retailers expand
Unable to reform business model
their direct channels to 39%
to adapt to market trend
reach broader market
- Brand value - Outlet digitalization
-
Retailers

- Product Start-ups compete Unable to control increasing cost of

- Customized products 36%
Brand

- B2C supply chain

through flexible and Reverse logistics for online orders
efficient business
model Unable to maintain sales
growth of offline outlets 35%
 Common characteristics in
- Innovation - Digitalization different strategy: data
Unable to control the
driven and customer 35%
Start-up

- Cost - Optimization of supply execution cost of online orders

- Reputation chain & inventory oriented
- Premium service  Omni-channel is the future Store clerks lack
corresponding skills 15%
of retail

Source: Deloitte Analysis，JDA retail and consumption industry CEO survey

Transformation of traditional retailer in the era of New Retail 13
 Initiative #1: Brand manufacturers and retailers need to consider segmenting supply chain
Omni-channel supply chain by customer and setting differentiated service level targets. Supply chain shall
Strategy be positioned as a key wining lever to “directly connect and serve customers”

Omni-channel supply chain strategy roadmap Brand manufacturers and retailers need to maintain high service level.
consider reallocating resources based on
Supply chain strategy should always aim to
customer demand when implementing Omni-
Segment by product Segment by customer and services drive profitability. Value chain and supply
Channel strategy, future supply chain setup
network design has to align with business
should be “customer oriented” instead of
Customer strategy to maximize investment return on
“inventory oriented”.
High
Classification omnichannel.
Volatility The key of Omni-channel is to connect with
The return on supply chain investment should
consumers directly, company's business
be evaluated from overall corporate level. To
decisions should be based on customer’s
ensure benefit is correctly captured, proper
demand. If retailer’s Omni channel strategy
fund is allocated and quick win is achieved.
Low was focused on “expand sales channel to
Volatility Service Level Cost to liquidize inventory”, then retailers may not be
Less Large Expectation Serve able to maintain a profitable and sustainable Misconception：
Demand Demand development.
Consider Omni channel strategy as the
Thus, in the era of new retail, retailers should same as digitalization and e-commerce
set "connect with and serve customer” as strategy, underestimate the importance
Supply chain strategy their first priority. The future state of supply of offline channel upgrade
Service Sales Value Operation Supply Resource chain competitiveness is evaluated base on
Level Channel System Model Network Allocation operational capacity and customer service The “wholesale gene” of traditional
level. company would be the major barrier to
promote Omni channel. Retailers tend to
The top priority of setting supply chain strategy is to re-examine Supply chain must be flexible and responsive focus on investing in system & facility,
the target consumer and expectation toward different shopping to meet fast moving market trend. Retailers but neglect the importance of changing
should be able to make fast adjustment on wholesale business model and KPI
context
product design, category portfolio, sourcing, system
inventory management and sales channel to

Source: Deloitte Analysis

Transformation of traditional retailer in the era of New Retail 14
 Trend #2: Growing expectation from customers requires brand retailers to respond to
High expectation of service market volatility effectively. In the meantime, customized and personalized
products/services will be the vital competitive lever in the future

Constant promotions leads to Expectation of high service quality and Demand for personalization and
volatility in demand time efficiency for order delivery customization will remain strong
China’s e-commerce promotions and shopping Order delivery is one of the important factors Personalization and customization has already been a
festivals are turning to routine business nowadays. throughout shopping experience. Customers are raising new trend for retail industry. This new trend will
The sales volume during consumer moments can more and more expectation on order delivery service in greatly transform supply chain’s organization and
increase up to tens of times of regular day. terms of convenience, timeliness, and flexibility. operational model into a much more flexible and
Manufacturers and retailers are experiencing Manufacturers and retailers are developing Omni- reliable order fulfilment system.
greater inventory and higher order volume than channel to integrate resources from online & offline to More and more retailers are building up their capability
ever before, that leads to significate pressure from offer better delivery service, such as ship from store, on personalization and customization. These
warehousing and logistics perspective. ship to store and store pickup. differentiated products/services could influence and
lead customer’s lifestyle and shopping preference, thus
enhance interaction and improve sales conversion.
Order delivery is crucial determinants in Personalization-led lifestyle
Volatility in market demand
consumer satisfaction
2016 sales fluctuation of anonymous brand on TMALL
Importance from
expression
11.11 Order delivery Package Return Omni-channel Consumption
100 scenario
Outlet return
90
80 delivery
In time
70 Freight
produ
Cross channel Package
60 data
ction
inventory search Return efficiency
50
6.18 12.12 Tracking Time efficiency PROC
40 Return convenience
design

New Year 9.9 30

Designated day order
Omni-Channel delivery Supply chain
Gift experience

0
0 40 50 60 70 80 90 100

Importance from deduction

Source: Deloitte Analysis
Transformation of traditional retailer in the era of New Retail 15
 Initiative #2.1: To adapt to the highly volatile market demand, brand retailers should continue
Planning and Coordination focusing on supply chain planning with improvement on cross function
coordination, forecasting accuracy and supply chain flexibility

Supply chain management based on planning, achieves a In the era of new retail, planning is tions, allows data sharing and direct
still the core aspects in supply chain operation changes at each business
balance between cost and service level operation. It requires demand- level.
supply balance not only from time
Manufacturing and logistics supports
and geographic perspective, but also
are equally important on building up
Product Demand Capability Supply from channel perspective, i.e.
planning planning planning chain Inventory supply chain flexibility and fast
Service planning to support cross channel
responsiveness. They can help to
Level Inventory
flexibility & Cost-to- sales.
Supply decrease minimum lot size, shorten
planning planning IBP Serve As technology is becoming more and lead time, and add more order
more mature, accuracy of planning fulfillment nodes.
and forecast is made possible by big
Integration of supply chain and
data, artificial intelligence and
business is another trend in new
machine learning.
retail, such as category/assortment
Some leading retailers break the planning, smart store inventory
Product & Category Supply Chain channel barriers between up-stream replenishment based on sell through
Integrated Planning
Management flexibility and down-stream systems to gain data. These require planning team
Market data Forecast Store data Product data Periodic 产量灵活性 产品组合 计划灵活性 real time visibility of inventory and have business sense and market
Planning
灵活性
orders so that to improve forecast knowledge.
Beginning of Month
End of
Month
Portfolio
Store Cluster Assortment Assortment
Space Planning Shelf/display Store layout Annual Review Quarterly
Optimizer Generator planning
planning
Planning Planning
New Product & End-of-Life Product Plans

accuracy and planning efficiency.

Adjusted / Finalized Ops and Financial Plans

Finance Close

The most difficult part for brand

Strategic Plan
Analysis

Ops & Exec Financial Enterprise

驱动/使能因素
Reviews Review Forecast

Product life cycle

Product/Category
Product Portfolio
Annual Budget Financial View of
Financial Plans,
View Gap Comparison;
of Plans, Challenge
Gap Comparison;
of Assumptions
of Assumptions
Challenge
Financial
Forecast
More importantly, companies should retailers is to break the original
build up supply chain flexibility to governance model by channel.
Preliminary Ops, Capacity, and Inventory Plan
Knowledge Base Consensus Enterprise Forecast

资源 生产 计划 服务分类
Assortment Layout Display Min-Max
设备 人力 产能 周期 批量 切换 预测 冗余 调整 产品 客户 地域

respond quickly and accurately in Companies need to establish cross-

Supply Sync

- Localized product portfolio - Cross functional business and - Shorten supply lead time the consumer moments such as channel planning functions and
- Store layout and display process coordination - Volume flexibility “Double Eleven”. processes to execute planning work
- Fulfill Omni-channel retail - Consistent operational plans - Product mix flexibility in an effective and efficient way,
demand and financial plan All levels of the program are Supply chain flexibility should rely
- and also enforce disciplines of
- Adequate data, technical and effective and flexible on a comprehensive Integrated
system support planning.
Business Plan (IBP) that can help to
coordinate various business func-
Source: Deloitte Analysis
Transformation of traditional retailer in the era of New Retail 16
 Initiative #2.2: Cross-channel order fulfilment requires integration between order and
Omni-Channel Order inventory management system; supply chain and logistics needs capabilities to
Fulfilment support retail model of “high order volume and small order size”

Order delivery management Order Delivery includes inventory retail model that known as “high
visibility, order capture, inventory transaction volume but small order
allocation and order delivery, size”. On the other hand, compared
covering inventory management, with warehouse, stores are closer to
order management, and logistics customers, taking advantages of
system. short lead-time and low logistics cost
. “Ship/pickup from store” requires
Order Inventory Inventory Order Shipping/ Omni channel order delivery requires
brand retailers to review their order
capture availability promising allocation tracking brand retailers to be equipped with
delivery network setup and balance
series of capabilities in supply chain,
service level and cost.
including:
Cross platform Cross channels Cross ship node Reverse logistics including return
Inventory visibility and order capture
and exchange asks for capabilities of
across different platforms. The main
Characteristics of Demand Omni-Channel order delivery networks order traceability, cross channel
challenge is to integrate different
(example) inventory adjustment, and flexible
Retail Wholesale order portals (including third party),
finance solution to provide quick
National standardize products and price
Client End consumers Stores, distributors
warehouse refund service.
information, and achieve real time
Order/day Large volume without plan Small volume with plan
inventory visibility.
Order line item Usually a few Usually a lot
Regional Based on visibility, inventory needs Major success factors:
Ave. order/client Relatively fewer Relatively more warehouse
to be salable across channels,
• Cross-channel performance
Delivery time Quick response According to timeline including inventory promising, order
Retail tracking and KPI
sourcing, order dispatch, and cross
Order accuracy% High requirement (100%) High requirement Outlets • Store operations: process
channel order settlement.
Volatile orders Extremely volatile (promotion) Relatively stable reengineering, training and
Consum- Warehouse and store’s shipping human resource
Return Relatively more Relatively fewer(planned)
ers
capability is another factor to • Business rules: pricing
Delivery model Mainly express Logistics
consider. It includes analysis over consistency, exchange policy
cost, work efficiency, and service • Information system construction
Supply chain operation needs to adapt Different levels of order delivery points have
level. The logistics system of many to achieve inventory sharing
front-end business changes different capacity and priorities to balance cost
brand retailers are not adapted to
Source: Deloitte Analysis
Transformation of traditional retailer in the era of New Retail 17
 Initiative #2.3: Brand retailers should follow and leverage the trend of customization and
Customization and Smart personalization to upgrade manufacturing system to more digitalized and
Manufacturing intelligent

Consumer demand-oriented design and manufacturing

Customization requires supply Industrial 4.0 provides an
Design Make Deliver chain transformation from design excellent opportunity for brand
to deliver. Customization and retailers to develop next
Determine consumer Push and build invent- personalization not only give generation smart manufacturing,
Trial production and production are
Conventional pain points by designer tory in channel based
product a new definition, but digital factory and lean
based on sales forecast
perception on forecast or target
also redefine product delivery in manufacturing.
- Assemble prototype for feedback a new way.
Determine consumer - Optimize prototyping Directly deliver Deloitte digital supply network
Customization Customization requires supply
pain points by analytics - Actual demand based mass products to consumer model reveals the future trend
production
chain to interact with customers
in the early stage of product of digital manufacturing:
lifecycle and provide “spot-on” • From physical to digital: use
products to end user. sensors, wearable devices
and internet of things to
Characteristics of Digitalization & intellectualization promote Customization also means collect information and
customization manufacture shortened time to market with digitalize it
Deloitte Digital Supply The Development Trend of quick prototyping, trial sale, and • From data to data: transmit
Consumer driving Network Framework Intelligent Manufacturing in China fast iteration. In order to achieve data to factory to process
this, supply chain should be
传感器和 数字扫描 ERP系统 边缘计算 移动网络/ 云系统 区块链及
可穿戴技
术
架构 无线网络 密码学
and self-learning , use
Visualization transformed in every aspects predicative analysis to
from end to end. identify sales demand
Modularization
数据算法

机器学习

Brand retailers must build up • From digital to physical:

Standardization
运营技术安全
Physics 深度学习&人工智能
Data IT安全

advanced capabilities such as leverage digital and

technology to manufacture
自然语言处理

demand driven product design,

customized product by using
视频处理及分析

Flexible production line E2E information visibility,

process standardization, new material, new process
Intelligent scheduling 机械控制 精益制造 无人控制 虚拟现实
流程自动
化
可视化/
移动化
modularized manufacturing, and and new technology
so on.
Source: Deloitte Analysis
Transformation of traditional retailer in the era of New Retail 18
 Trend #3: Inventory unbalance becomes the major brand barrier for retailers in terms of
Increasing inventory conflicts omni channel profitability and sustainability. Companies must decide how to
balance dispersed physical inventory versus consistent service level

The traditional retail management model divides the
inventory into fragmented inventory pools that allocates to
different channels and locations.
A growing number of companies have multiple warehouses
to supply inventories. The KPI responsibilities, ownership
and physical locations of warehouse have became major
issues .
Consequently, out of stock together with slow moving and
obsolete inventory is now becoming a common issue
among retailers.
Unreasonable inventory deployment decisions will not only
lead to increase of supply chain cost, but also affect the
service level.

Inventory Major issues impacting omni-channel

transformation
Wholesale warehouse
A B C
Agency Dealers Franchisee High shortage
58%
rate
Retail warehouse
D E Increasing
Self-operated
Supermarket Cost Of 58%
stores supply chain
E commerce warehouse
F G Inefficient
Self-operated Third party Order delivery 56%
platform platform service

Traditional retail channel management model Inventory is the most severe issue impacting
leads to stocking split profitability of Omni-channel

Source: Deloitte analysis, JDA retail and consumption industry CEO survey
Transformation of traditional retailer in the era of New Retail 19
 Initiative #3 Brand Retailers should plan and control procurement and inventory allocation
Inventory planning and from three dimensions(channel, geographic and time). Data visibility,
allocation analytical capability and supply chain execution are the foundation of agile
inventory deployment

Inventory planning and allocation should be considered in three dimensions: channel, Timing decision needs to consider replenishment cadence and percentage. In Omni
geography and time. channel, inventory deployment should be agile and low cost, efficient replenishment
flow design can ease seasonal fluctuation, reduce channel inventory pressure and
Channel deployment should consider the production and procurement arrangement
decrease inventory transfer.
based on the needs of the various channels. Channel inventory plan should also
consider brand retailer’s channel strategy, category strategy and pricing management. Inventory planning should be based on end to end inventory visibility. Efficiency and
service level can be improved if logistics and allocation team can obtain real time
Geographic determines product mix and inventory depths in warehouses across
sales/inventory data visibility.
locations. The purpose of regional inventory planning is to deploy close to market so
that to improve service level and control logistics cost. Retailers need to consider The level of supply chain responsiveness and execution capability has the most
forecast reliability, order volume and size, as well as safety inventory, to achieve potential to be improved, since it can largely impact the inventory cycle and safety
optimized total ownership cost and better service. stock level at each warehouse.

High responsive inventory planning and allocation

End-to-end Performance
Demand-driven Network strategy Replenishment
monitoring
Inventory visibility Inventory planning and allocation

BUSINESS LOGIC

BUSINESS PROCESS
Demand-driven
optimized
Inventory STATISTIC ANALYSIS
Supply MODEL

planning and dem

network EXECUTION
allocation and DASHBOARD

Time
Connected
Replenishment cadence
inventory across
channels

Source: Deloitte Analysis

Transformation of traditional retailer in the era of New Retail 20
 Trend #4 Logistics industry is developing in the direction of increased scale,
Intensification & sharing of intensification and refined operation. The future of supply chain management
logistics operation will revolve around operation excellence and value chain control

Logistics development trend Logistics giants share resources

In the future, we will see refined smart logistics with
high level of flexibility and intelligence. The
commercial value of logistics will be evaluated base
on its capacity to serve. Data driven logistics and
optimization will become new trend.
New Retail requires fast response to fulfill shifting
market demand and corporate strategy, and it will
shift to adapt to “high volume, small size“ and “direct
to customer”. Currently, companies in both logistics
and e-commerce industry are building their capability
to serve e-commerce and new retail business.
The future battlefield for logistics are no longer
competing on scale of logistics assets. Logistics
infrastructure will turn to a sharing economic model
that open to public.
Future logistics competition will emphasize more on
operations, focusing on customer and value chain
control. Such as Cai Niao shared their logistics network
to public to consolidate resources and provide value
added service. Similarly, JD.com opened its warehouse
and logistics infrastructure to the public.

3PL increase rapidly

Global 3rd party revenue Regional 3rd party logistics
scale (billion dollars) revenue scale (billion dollars)
• As industry leaders opening up
+8% 256 270 ecosystem and platform, they
631 662 685 704 751
176 158 188 174 provide service on data, finance,
507 management etc.
45 42 • Sharing economy is a
revolutionary opportunity to
2009 2010 2011 2012 2013 2014 2013 2014 boost more agents and solution
North America Asia Pacific providers within the industry
Europe South America
Source: Deloitte analysis，Deloitte“China logistics industry investment and development report 2015-2016”
Transformation of traditional retailer in the era of New Retail 21
 Initiative #4 Warehousing and logistics functions should focus on providing value added
Warehouse and logistics services; Implementation of appropriate logistics outsourcing strategy will help
management to reduce cost and improve efficiency

Logistics evolution for New Retail
• Data sharing between
- Store and logistics
- Online platform and logistics
• Push orders
• Order review and validation
• Order release to warehouse
• Logistics infrastructure can
leverage social resources
Trunk / transit
• Companies concern more about
rationality and necessity of
inventory movement
In New Retail, the primary goal for brand retailer is
to establish an internal organization structure that
can adapt the transformed logistics operation and
Front-end
integration capability including closer cooperation between
logistics and business unit, higher logistics flexibility
and better cost effectiveness.
Intelligent Future logistics services should be more intelligent,
and forward looking. Such as the seamless
logistics
connection between logistics system and store POS
system can help logistics department gain visibility
on demand and improve service level.
Future logistics channel should also be flat, as the
B2C portion has become an irrepressible trend.
Due to the fact that investment on logistics is costly
and time consuming, brands retailers may consider a
suitable logistics outsourcing strategy to leverage
third-party service capabilities. Instead of simply
warehousing and logistics service, what brand
retailers really require is end to end supply chain
solution design and delivery capability, from order
capture to delivery.
The integration of the internal logistics operations
system with external third-party facilities and
operational services is very important for effective
3PL management. This will require effective
operating model and reliable technical support.

• Cloud-based storage provides omni-

channel order delivery service End
• Diversified local delivery services B&M store operation model Warehouse layouts designing

• Quick and frequent replenishment to

Retail stores B2B
• Reduce inventory level of retail delivery
stores
Omni-channel
• Last mile delivery Online business operation model Receipt flow Picking flow Shipping flow
• Self-pickup will drive integration of
B2C warehouse layouts
delivery
logistic service and community
commerce
Big data will help to accelerate the
transformation of large scale logistics system

Source: Deloitte Analysis

Transformation of traditional retailer in the era of New Retail 22
 Trend #5 Data has never been this important as end-to-end supply chain data collection
and integration is fundamentally critical for omni-channel retailing; The supply
Supply chain transformation
chain continuous improvement will be driven by data and analytics
driven by data and analytics
End-to-end data collection and application Data sharing and integration
Retailers are often unware of the way to apply departments. Consequently, data is under-
Data collection and analysis is the key strength of leading data though with data visibility. utilized to support decision making.
retailers (especially e-commerce platforms). Future enterprises
must obtain two strategic assets, i.e. user base and data, in the One key reason is that enterprises are short The future trend is that multi-source
future state of omni-channel retailing competition, collecting of a robust data governance mechanism: data heterogeneous data in all parts of the supply
large amounts of real-time data to support business operation. throughout the supply chain is derived from chain will be integrated into a shared data
The trends of retailers’ future data application include: different systems with various data definitions platform for comprehensive analysis. The
and structures. analysis results then will be sent or reverted
Expand data collection to the functions of the supply chain as needed
from internal to external, Apply real-time data in
Apply data in predictive Then it’s about decentralized and separated
management, such as to support decision making and performance
from operation data to analysis, not just the data application. Most traditional brands still
user and market data,
production and schedule
historical summary or optimization.
monitoring, sold products apply data for reporting purpose within their Planning
and from structured data performance assessment
tracing, etc.
to unstructured data
Delivery Support
Data Analysis

Analysis Data
Market and public-opinion
data (trend, social data) Data Analysis

Data
Center
Digital
Consumer behavior data R&D Planning Purchase Manufacture Delivery Support Analysis Data
(traffic, preference, Core
comment and consumption) Data Analysis

Supply chain and Analysis Data

Manu- R&D
operation data Data Data Data Data Data Data facturing
(inventory and
order) Report Report Report Report Report Report
Purchase
Data integration with transparent
End-to-end data visibility based on system integration Separated but repetitive data processing and
data flow and traceable analysis
and enterprise architecture analysis due to data and report with split parts
process
Source: Deloitte analysis, Deloitte’s China Logistics Investment Promotion Report 2015-2016
Transformation of traditional retailer in the era of New Retail 23
 Brand retailers need be equipped with appropriate enterprise architecture,
Initiative #5 system integration, IT service capability and data governance to drive supply
System architecture and chain transformation through effective data analytics
supply chain analytics
Brand retailers’ IT strategy shall be aligned Fourthly, companies shall focus more on the
with business and supply chain strategies in rapid iteration of their IT capabilities and
Omni-channel analytics framework support of omni-channel transformation to service responsiveness. While China’s e-
achieve the strategic target of connecting with commerce giants achieve the disruptive
customer and strengthening control on data innovation in business models based on their
Commercial
source. technology strengths, brand retailers shall also
value develop IT responsiveness to meet the fast-
Firstly, brand retailers need to build an
changing business needs.
enterprise application architecture customized
Customer to the omni-channel retailing, including the Finally, data analysis capability and a
analysis
Data Data front, middle and back-end systems covering governance model of data-based scientific
mining users, transactions, orders and inventory. decision-making are required. Companies shall
analytics Data conduct data analysis on the following six
visibility
Secondly, brands must have the capability of
principles:
system integration. As the system integration
with upstream and downstream partners is a 1. Define definite business targets
Membership
data critical competitiveness, brands shall consider 2. Understand data
Transaction Promotion how to build data sharing mechanism through 3. Start with simple matters
data data mutual trust. Companies will see their 4. Leverage existing experience and
Data integration operations more smooth and stable due to data knowledge
Non-
transaction
Loyalty transparency and visibility. Thus, data will 5. Take actions based on analysis results
data
data promote the further cooperation between 6. Persist in testing and conclusion for
enterprises and their partners. improvement
Thirdly, a comprehensive data governance
Key success factor
model is also needed to meet the requirement
Wifi Mobile Social media on internal control, financial management and
To promote the digital transformation
Data source data security. With diversified order sources, of business, brands need to establish a
shared channel inventories and complex customized roadmap based on their
capabilities and development stages,
Store Website Service transaction paths, enterprises shall develop the
data traffic center capability to reconcile cross-system data, and identify relevant targets,
monitor and address data differences or errors strategies, processes and talents.
intra/inter-systems.
Source: Deloitte analysis
Transformation of traditional retailer in the era of New Retail 24
Conclusion
Deloitte Supply Chain Management provides one-stop-shopping consulting services throughout the omni-
channel value chain, to prepare clients for future changes
Omni-channel transformation of traditional supply chain
Supply chain strategy—Brand retailers should consider customer segmentation and
segment-specific service target, and align their supply chain strategies to omni-channel
business strategies, to transform the role of supply chain from being supportive to capturing
market share.
Forecast and coordination plan—Improvement of tools and technologies helps to make
accurate demand forecast. Brands, however, should focus on the improvement of cross-
functional coordination.
Order delivery management—Brands need to match inventory with orders for efficient
fulfilment, and design reasonable order delivery networks for sound logistics systems.
Inventory planning and arrangement—Omni-channel inventory planning and
arrangement are conducted from three dimensions including channel, geography and time,
based on end-to-end data visibility and data analysis skills; brand retailers should pay
attention to other components of the supply chain beyond their own networks to optimize
inventory arrangement for end-to-end supply chain.
Products and manufacturing—Promotion of digital and intelligent manufacturing will drive
manufacturers to produce more personalized and customized products with intelligent means.
brand retailers are more likely to win in the omni-channel age based on smart manufacturing.
Logistics and warehousing—Brands should develop proper logistics and warehouse
management outsourcing strategy and establish partnerships with appropriate third-party
logistics service providers. Meanwhile, the warehouse systems should also be rebuilt to align
with the supply chain strategy.
IT architecture and data analytics—brand retailers need appropriate corporate structures,
upstream-downstream integrated system, as well as IT capability for comprehensive data
governance and prompt response. Depending on real-time and reliable data, data
analytics can improve the efficiency of the supply chain.
Transformation of traditional retailer in the era of New Retail
Omni-channel supply chain transformation services provided by Deloitte
Omni-channel customer insights, omni-channel strategic transformation support, supply
chain strategic diagnosis and planning, and omni-channel customer experience design and
delivery
Demand forecast, sale and operation planning, production planning and scheduling, OTB
planning for stores, and planning system design and implementation
Order visualization and tracking, order to delivery (OTD) optimization, omni-channel order
transaction and tax solutions consultation, order management system design and
implementation, and third-party data integration service
Supply network planning and optimization, retail category/assortment management. Store
space and shelf optimization, regional product mix design, replenishment and distribution
optimization, inventory diagnosis and optimization, and distribution management system
design and implementation
Product life cycle management, implementation of Industry 4.0, digitalized and smart
manufacturing strategy planning and solutions, Lean Six Sigma , operational efficiency
improvement, and quality visualization and tracking
Logistics strategy planning and implementation, omni-channel warehousing planning and
implementation, logistics and purchasing, and 3PL management and outsourcing
management consultation
IT strategic planning for omni-channel transformation, supply chain IT diagnosis, supply
chain structure planning of enterprises, supply chain information system implementation,
system and data integration, data analysis and presentation, and supply chain analytics
25
Contacts

Tianbing Zhang Geliang Gong John Song Jessie Zhang

tbzhang@deloitte.com.cn ggong@deloitte.com johnsong@deloitte.c jessiezhang@deloit
.cn om.cn te.com.cn
Partner
Leader of Consumer Partner Partner Director
Products and Retail Deputy Leader of Leader of Leader of New
Sector; Supply Chain & Transportation and Retail
Leader of Supply Chain & Manufacturing Logistics Industry Transformation
Manufacturing Operations Operations

Hao Liu Sheryl Yang Samuel Jin

haoliu@deloitte.com.cn sheryang@deloitte.c sajin@deloitte.com.c
om.cn n
Director
Leader of Industry 4.0 Associate Director Associate Director
Transformation Consumer Products Leader of Omni-
and Retail Industry channel
Transformation

Transformation of traditional retailer in the era of New Retail 26

27