BUILDING THE SHOPPING 2020 SUPPLY CHAIN

BUILDING THE SHOPPING 2020 SUPPLY CHAIN Final Report Expert group Supply Chain

January 2014

© Shopping 2020

Preface Shopping 2020: Supply Chain

Shopping 2020: the battle of supply chains!

Online retail is growing faster than many of us expected. Consumers are ready and should be buying over 30% of their purchases online by 2020. Are retailers and manufacturers prepared for this? Are they ready to pick individual items in these quantities and prepare the corresponding shipments for the consumer? Some companies already act on the rapidly changing behavior of consumers. A good example is Amazon®. By using a clever business model, they can offer lower prices than retail giant Walmart. This will fuel their attractiveness for investors and will enable them to build state of the art supply chain capabilities. By now, in Germany alone, Amazon® already has 800.000 m2 of distribution space. Google® has started Google Express®, a 1 hour delivery service for Google Shopping®. What will be your answer to this?

Shopping 2020 will become the battle of supply chains. 2020 still looks far ahead but those who don’t take action now will be out of business tomorrow.

If there is one conclusion we can draw from our research and vibrant discussions, it is the necessity to start moving now, in order to be ready on time for 2020! Are you prepared?

The expert group Supply Chain (see next page) has compiled their expertise and insights in this report. It contains over 25 recommendations on how to build competitive supply chain competences over the next 6 years. The number of recommendations might look quite high, but condensing them would lead to a loss of practical insights. Reference cases have also been included to bring the recommendations alive.

For us, taking part in this expert group and the Shopping 2020 program brought us an incredible amount of new insights and a clear view of how supply chains are impacted by them. I hope that reading the report will have a similar effect on you and that it will motivate you to continue discussions and initiatives to prepare our country, your company and its supply chain partners for 2020. We kindly thank the expert group members and interviewees for sharing their vision, experience and insights from which this report has been constituted. It has been a pleasure working with you!

Frits van den Bos Frits van den Bos Innovation manager GS1 Netherlands Host Shopping 2020 expert group Supply Chain + 31 (0)6 50654722 frits.vandenbos@gs1.nl

Axel Groothuis Axel Groothuis Partner Eurogroup Consulting Chairman Shopping 2020 expert group Supply Chain +31 (0)6 51243288 a.groothuis@eurogroupconsulting.nl © Shopping 2020

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Expert group Supply Chain Shopping 2020: Supply Chain

Henk-Jan Groeneveld

Kees Jan Roodbergen

Theo Heemskerk

Jacco Timmerman

Jos Visee

Hans Elshout

Benjamin Grugeon

Bart Lammers

Erwin Grondman

Rowell Versleijen

Robin Tichler

Pieter Aarts

Rens Tap

Martijn Arkesteijn

Ferry den Hoed

Erik Velthoven

Maarten van Welsem

Jerry Tracey

Interviews

Frank Balder

Frits van den Bos

Axel Groothuis

For more details: see appendix

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Contents Shopping 2020: Supply Chain

▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪

Management summary Research approach Future trends Supply chain trends Business models Scenarios 2020 Building the future supply chain Conclusions Appendices

– Expert group and interviewees – Program information Shopping 2020

– Reference cases

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MANAGEMENT SUMMARY Building the shopping 2020 supply chain

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Management summary (1) Shopping 2020: Supply Chain Introduction: the battle of the supply chains Shopping 2020 will become the battle of the supply chains. 2020 still looks far ahead but those who don’t take action now will be out of business tomorrow. The expert group Supply Chain has researched trends and scenarios and comes up with concrete recommendations for supply chain partners Research questions: the future supply chains The research approach (scope: all sales channels) is aimed to answer the following questions: ▪ What is the impact of current trends and future developments on the supply chain?

▪ What capabilities are required in supply chain dimensions like sourcing, planning, inventory and returns?

▪ Which actions can companies take to respond to those developments?

Approach: pragmatic and expert based Both overall and supply chain trends are described, including current best practices. Several possible scenarios are detailed. By making use of four concrete business models, and taking into account all trends, supply chain models are developed.

Concrete recommendations per supply chain dimension are then presented to (further) develop these capabilities.

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Management summary (2) Shopping 2020: Supply Chain Future trends lead the way The future trends are grouped into four areas: 1.

2.

3.

4.

Consumer. The consumer requires 24x7 transparency in the supply chain. There is 24x7 connection and the consumer requires increased responsiveness to his needs.

New technologies. Modern technology (Mobile, Big Data, Digitization) raises consumer expectations in terms of products, availability, information and services. Furthermore, it is conceivable that disruptive change will arrive with new technologies such as 3D printing and ‘the internet of things’ Sustainability. Supply chain partners need to collaborate to achieve sustainability.

New legislation. EU legislation moves towards strengthening consumer rights, which raises extra challenges for the supply chain.

Supply Chain trends in six dimensions Supply chain trends are grouped into six dimensions: 1.

2.

3.

4.

5.

6.

Sourcing. Shorter product life cycles require responsiveness to minimize stock risks. Also assortments and customization will grow further.

Supply Chain Control. Borders between retail and product brands dissolve. Margins will become smaller, leading to elimination of all non value-add activities.

Handling and Transport. Delivery times will diminish further. Congestion requires bundling of transport.

Inventory & Planning. (Online) shelf availability will be increasingly important. Stock visibility across the supply chain will become a key requirement.

Information. There is a growing amount of information to share across the supply chain, leading to high data volumes to be handled and making further standardization a necessity.

Returns and leftovers. The number of returns increases and mass customization and fashionability lead to difficulties in reselling returned items.

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Management summary (3) Shopping 2020: Supply Chain New business models arise In the current and future (online) market new commercial business models emerge.

We distinguish between four basic models which are used in related supply chain models: 1.

2.

3.

4.

Marketplace (e.g. Ebay, Kieskeurig); Generic reseller (e.g. Amazon, V&D); Specialist reseller (e.g. Camerashop, Run2Day); Brand direct-to-consumer (e.g. Apple)

Supply Chain models show complexity The set up of a supply chain is largely dependent on the business model.

The four basic business models have been translated into their matching supply chain models and the 3D printing supply chain model has been added.

Scenarios 2020 take uncertainties into account Future scenarios show the importance of supply chain flexibility and transparency. Extreme outcomes of current uncertainties may significantly impact the 2020 supply chains. Examples of this are: • • •

When a large orchestrator will dominate the market, the only way to survive may be to join; When one hour delivery becomes the norm, storage of products near consumers becomes necessary; When 3D printing will explode, it means disruptive change in many physical supply chains.

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Management summary (4) Shopping 2020: Supply Chain Building the future supply chain. Will you be ready in time?

Actionable recommendations for all dimensions. Key examples: • Sourcing: Differentiate in sourcing locations and consider vertical integration to improve responsiveness; • Inventory and Planning: Acknowledge complexity in planning and professionalize. Collaborate to improve forecasting and use online opportunities to demand sensing. Introduce an ‘inventory captain’ role to optimize stock availability across channels; • Handling and transport. Determine stock locations based on delivery times to consumer. Organize stock flexibility and efficiency across bulk and consumer units (merge online and offline). Offer different delivery options and centralize personal preferences.

• Returns and Leftovers: Implement clear return policy and charge reasonable cost. Speed up the return process and prevent returns using product information, standardization and consumer interaction. Consider specialized partners for return and repair handling.

• Supply Chain Control: Focus the supply chain control on integral profitability and measure profitability across channels.

• Information: Build information exchange with partners on cross industry standards. Manage data quality.

Prepare for the internet of things!

Two additional topics for recommendations are 3D printing and ‘small retailers’: • 3D printing: Facilitate consumers in production and implement raw materials transport to consumers; • ‘Small retailers’: Participate in buying groups and shared services to create buying power. Collaborate to reach and service the consumer.

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Management summary (5) Shopping 2020: Supply Chain Conclusions: Winning the battle!

In order to win the ‘battle of the supply chains’ in 2020, it is essential to develop key supply chain capabilities around ‘Flexibility’, ‘Collaboration’ and ‘Information’. These are the key elements: 1. Flexibility: Think about your specific role in the new competitive landscape. Focus on distinguishing added value you can bring. Create flexibility in sourcing and stock in order to have all stock available to all channels.

2. Information: Invest in standardization and information exchange by building an information exchange with partners on cross industry standards. Supply chain visibility (stock and tracking & tracing) and operational excellence in data quality will become key.

3. Collaboration: Seek flexible partnerships and ‘dare to share’ information with your partners. Create transparency. As a ‘small retailer’: work together in buying groups and consumer marketing.

And: in order to win in 2020: start now!

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RESEARCH APPROACH Expert Group Supply Chain

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Building the Shopping 2020 supply chain Research approach: Objectives and scope Objective and research questions: Supply chain requirements are changing as a result of the online ambitions of the Netherlands, macro developments and changing consumer habits. To identify these changes and potential responses, the following research questions were formulated: 1.

What is the impact of current trends and future developments on the supply chain?

2.

What capabilities are required in supply chain dimensions like sourcing, planning, inventory and returns?

3.

Which actions can companies take to respond to these developments?

Scope: • Channels: the starting point is sales via all channels, with a focus on the growth of digital channels (web shops, mobile commerce, et cetera) taking into account that the distinction between online and offline is becoming blurred for the consumer.

• Target Groups: All companies whose products are sold online (B2B2C).

• Industries: Only physical products (food & non-food), no travel and finance.

• Regions: International developments and cross border e-commerce are considered, the research is primarily focused on the Dutch consumer and Dutch companies.

• Supply Chain scope: From finished product to end consumer • Including customization / assembly • Excluding “the last mile” delivery (= expert group Delivery) • Excluding warehouse operations (WMS, picking technology et cetera) For more information regarding the Shopping 2020 program: see appendix © Shopping 2020

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From trends to concrete recommendations Research approach: Methodology

Methodology

Supply chain models

• Interviews • Expert Group meetings • In depth topic discussions • Best practices research • USA visit

Supply chain dimensions

Current trends and possible future developments impact the supply chain models. This impact shows some crucial supply chain capabilities to remain competitive in 2020. Concrete recommendations per supply chain dimension are given to develop these capabilities. © Shopping 2020

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FUTURE TRENDS Trends that impact the future supply chain

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New requirements are changing the supply chain landscape Future trends: Overview CONSUMER

SUSTAINABILITY

REQUIRES 7x24 TRANSPARENCY

REQUIRES COOPERATION

• • • •

• People require sustainability • E-commerce effects on the planet increase • Profits leave little room for large investments

Social media 24/7 connected In control and informed Responsible individual

Growth e-commerce

NEW TECHNOLOGIES

NEW LEGISLATION

LEAD TO NEW REQUIREMENTS AND OPPORTUNITIES

IMPACTS THE E-COMMERCE SUPPLY CHAIN

• Mobile, location based, touch points • Big data • Digitalization (products and services) • 3D printing • AutoID: RFID, barcoding • Internet of things

• Privacy • Consumer rights • Safety • Sustainability • Cross border e-commerce • City distribution © Shopping 2020

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The consumer requires ‘7x24 transparency’ in the supply chain Future trends: Consumer ▪ Social media – Consumers are using social media to get informed and to express their ▪

▪

▪

opinions – Via social media companies receive direct feedback on their activities 24/7 connected – Connected always and everywhere is the new standard for consumers In control and informed – The amount of available information will make consumers increasingly informed and bring them more and more into control; customer loyalty is declining / becoming more rational Responsible individual – Consumers would like to know origin and characteristics of products – Social responsible organizations have a higher appeal for consumers

Increased connectivity and social media use of Dutch consumer…

Towards 24/7 connectivity…

> 60% …of Dutch people between 16-

74 years are using social media (20111)

> 60M …hours spent on social media in the Netherlands (20122)

> 73% …of Dutch people between 1825 years use mobile phones daily for social networking (20111)

The modern critical consumer requires transparency throughout all links in the supply chain, 7 days week 24 hours per day. To meet this requirement, companies have to register, check and share a growing amount of information.

Moreover, the consumer gets more and more into control, which requires an increased responsiveness to his latest needs and desired changes.

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cbs.nl comscoredatamine.com

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New technologies lead to new requirements and opportunities Future trends: Technology ▪ Mobile, location based – The number of touch points will keep on growing; in the end touch points will be

▪

▪

▪ ▪ ▪

everywhere – Consumers are recognized ‘everywhere’ via mobile or via biometrics technology and their location is ‘always’ known Big data – Due to an abundance of information consumers only respond to relevant information and offerings – The growing use of smaller (mobile) devices increases the need for relevance in information presented Digitization (products and services) – Products and services (as books and movies did) turn into digital appearances – The role of physical stores diminishes and changes AutoID: RFID, bar coding – Physical tagging allows continuous identification, tracking and tracing of products Internet of things: see next slide 3D printing: see next slide

Technology drives number of touch points, online sales & 3D market > 8M

…Dutch people possess a smartphone (20121) connected to the internet.

24%

…Expected retail sales via the internet in 20202

$2.2B

…the worldwide market for 3D printer & serivces (20123)

Modern technology raises new consumer expectations in terms of products, availability, information and services.

Supply chain partners need to collaborate to provide crucial, rich and varied product information in an efficient way.

Further digitization of products & services and 3D printing will finally mean a disruptive change to many supply chain structures.

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http://www.gfk-retailreports.nl/#telecom Source: Forrester Research; team analysis Source: Economist

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Internet of things and 3D printing may cause a disruptive change Future trends: Technology

Internet of things Products are communicating 24/7 with the world via the internet‌

3D Printing Consumers are able to print products themselves based on designs and raw materials‌

Products are always connected to the internet. This means that consumers have access to all relevant information regarding these products. Information about products automatically comes to consumers and supports them in all kind of activities.

Consumers become producers, who are only dependent on third parties for raw materials.

Companies become less dependent on pre-made, expensive molds for production and on spare parts.

Supply chain impact As a result, consumers and companies are continuously informed about products, their location and status throughout the entire supply chain.

Supply chain impact The supply chain for 3D printing is more flexible with less inventory, less returns and forecasting of raw materials on a centralized level.

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Supply chain partners need to collaborate to achieve sustainability Future trends: Sustainability ▪ People require sustainability – Consumers and legislation increasingly require insight into product

▪ ▪

origin and are not satisfied with current information on product labels – Companies being the last link of a supply chain currently bear the overall supply chain responsibility towards consumers E-commerce effects on the planet increase – E-commerce leads to an increase in parcels, returns, packaging material and possibly truck / car kilometers Profits leave little room for large investments – Efforts in sustainability may result in a negative effect on profitability in the short run, but must be considered as a long term investment.

However, current profits in general are limited, which leaves little room for investments

Returns and non-deliveries impact the environment1 28%

…of parcels are not delivered upon the first time.

25%

…of 88 million orders was sent back by Dutch customers in 2012

75%

…of carton packages are used for transport, of which 90% for e-commerce

Although the net effect is hard to determine, e-commerce causes some negative effects on sustainability through increase in parcels, returns, packaging material and inefficient transport. Retailers, partners and consumers need to collaborate to achieve more sustainable supply chain solutions and arrange proper consumer information like product origin and ingredients. © Shopping 2020

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Sources: Selektvracht, J.Visser & J. Francke, 2013, Vereniging Golfkarton)

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New legislation impacts the e-commerce supply chain Future trends: Legislation ▪ Consumer rights

– EU legislation moves towards strengthening of consumer rights, e.g. 14 days withdrawal right

▪

and increased price transparency Especially sellers of fashionable and return intensive products will suffer from these rules

– Privacy – An increasing amount of customer specific information will be captured online, which needs to be safeguarded

▪ Sustainability

– Legislation for provision of green supply chains is expected when retailers, service providers

EU legislation impacts supply chain by giving more rights to consumers

and consumers together do not reduce the environmental cost of delivery, returns and packaging.

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– Common rules for simplifying cross-border trade will be introduced by legal bodies such as

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▪ Cross border e-commerce

the EU; for trade outside Europe this will be much harder to achieve

▪ City distribution (urbanization/infrastructure)

– Barriers for 24/7 deliveries in city centers may grow

2%

…days withdrawal right will be the new standard …days instead of 30 days will be the time suppliers have to refund after withdrawal …of global revenue is the maximum fine for noncompliance with privacy legislation

EU legislation moves towards strengthening consumer rights, which raises extra challenges for the supply chain. Strong governmental influence is expected when suppliers and consumers do not reduce the environmental impact of deliveries, returns and packaging.

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Until 2020 online shopping is expected to double or triple in size Future trends: Growth of e-commerce Online penetration Cross border as a % of total

2020

VOC 2.0 – “Attract shoppers from outside of Europe”

24.4% 15.1%

2020

BEST IN EUROPE – “Boost cross border sales within Europe”

22.5% 8.1% 2020

WORLD CLASS HOME MARKET – “Accelerate domestic growth”

21.6% 4.1%

2020 14.3%

“Do nothing”

6.1% 2012 Current state

8.8% 6.1%

NL Europe World1 Total

NL Europe World1 Total

NL Europe World1 Total

NL Europe World1 Total

NL Europe World1 Total

28.2 2.5 0.0 30.7

28.2 1.1 0.0 29.3

28.2 2.5 2.5 33.2

▪

▪

18.3 1.1 0.0 19.4

▪

9.8 0.6 0.0 10.4

▪

Source: Forrester Research and McKinsey / GFK for Shopping2020

The percentage online spending as part of total consumer spending is expected to grow to 28% in 2017 and 36% in 2020 For non-food physical goods the online market share per segment differs between 22% and 51% in 2020 Cross border e-commerce will be 15% of total e-commerce at maximum Triple size e-commerce will mean a significant increase in complexity in producer and retail supply chains

The potential growth to € 28.2 Billion online turnover in the Netherlands and to € 33.2 Billion including cross-border ecommerce will mean a significant increase in supply chain complexity. Winners are expected to be those who are able to create a ‘total retail experience’ in both online and offline channels.

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SUPPLY CHAIN TRENDS Current supply chain trends driving the future supply chain

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Future trends drive supply chain complexity and information need Supply chain trends: Overview SOURCING

SUPPLY CHAIN CONTROL

HANDLING & TRANSPORT

• Product life cycles shorten • Assortments and customization grow • Offshore production cost advantages diminish

• Vertical integration; borders between retail and product brands dissolve • Smaller margins require tight control and efficiency

• Growth of expectations about delivery speed and options • Congestion requires bundling • Growth of ecommerce increases inefficiencies in stock handling

Supply chain dimensions

Sourcing

Supply chain control

Inventory & planning

Handling

Transport

Returns

‘Leftovers’

Information INVENTORY & PLANNING

INFORMATION

RETURNS & LEFTOVERS

• (Online) shelf availability increasingly important • Inventory risk is moved upward in the supply chain • # orders increase, order sizes 

• Growing importance of track & trace and product (meta) data • Sales and stock information across channels required • Growing use of data pools

• Number of returns increases due to e-commerce • Customization and fashionability lead to difficulties in reselling returned items

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Shorter product life cycles require responsiveness Supply chain trends: Sourcing Trends ▪ Product life cycles shorten: – Products become more fashionable, which leads to an increase in assortment changes per year – Developments in technology result in new innovative products that replace each other rapidly ▪ Assortments and customization grow – Due to the ‘one-stop-shopping’ promise and demanding consumers, assortments are growing steadily – Customization and exclusivity have become new standards, resulting in a growing number of variants and semi-finished products ▪ Offshore production cost advantages diminish – As a result of an increase in wages in the Far East Consequences ▪ Need for responsiveness in sourcing and production to minimize stock risk (risk of sell out or leftovers) Bottlenecks ▪ Long time to market for new products based on existing contracts with sourcing partners ▪ Long production, transport and control cycle times overseas

© Shopping 2020

Insatiable demand leads to shorter product life-cycles “Most of us have a sense that low prices in Dubuque, US, have something to do with low wages in Dhaka, Bangladesh, but that’s just one aspect of the pressure that we as consumers exert on global supply chains. Our insatiable demand for variety and novelty has led to ever-shorter product life cycles. In consumer electronics, the average product is replaced in just eight months.”

James Surowiecki, quoted in the Economist, May 2013.

Need for responsiveness in production to minimize stock risk “Instead of buying lots of inventory with long lead times, brands wait as long as possible before ordering.” That way, they can ramp up production if a product takes off or shut it down if the product bombs... ” Richard Locke, a political scientist at M.I.T. who is an expert on global supply chains and the author of the new book “The Promise and Limits of Private Power,”, quoted in the Economist, May 2013.

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(Online) shelf availability is key while stock risk is increasingly high Supply chain trends: Inventory & planning Trends ▪ (Online) shelf availability increasingly important – As competition is just one click away, even in physical stores, shelf availability is key, both online and offline.

High square meter prices and demand for long tail assortments are complicating factors, while online offers new opportunities to increase availability.

– This also requires stock transparency and correct inventory information (all locations and in transit) ▪ Inventory risk is moved upward in the supply chain – As retailers can no longer bear the increased inventory risk, they require product brands to work via different stock ownership models ▪ Increase in number of orders while order sizes become smaller at product brands – To minimize stock risk in a wholesale model, retailers order more often smaller quantities at product brands – Direct e-commerce orders lead to smaller (or even individual consumer) orders at product brands Bol.com increases assortment & revenue while avoiding inventory risk Consequences In its continuous search for a quick and controlled ▪ (Online) shelf availability and stock visibility across expansion of its assortment, Bol.com has introduced a platform called Bolplaza. On this platform, companies the supply chain are key with online sales ambitions can offer their products, requirements while stock risk is growing with Bol.com merely facilitating (bundling of offer, classification of information and guarantee of quality).

As such, Bol.com increases its revenue without bearing inventory risk.

Bottlenecks ▪ Different stock models and sales channels complicate planning and integral visibility

For more information: see appendix © Shopping 2020

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Demanding consumer challenges micro distribution Supply chain trends: Handling & transport Trends ▪ Ongoing growth of consumer expectations – Regarding delivery speed, delivery options (up to 1 hour delivery pilots in e.g. Silicon Valley), pick up locations and track and trace information ▪ Congestion requires bundling of transport for economic and ecological reasons ▪ Growth of e-commerce increases inefficiencies in stock handling Consequences ▪ Handling online orders and micro distribution challenges existing patterns ▪ Service providers play an important role for many companies in fulfilling online orders and matching consumer expectations.

A fixed delivery date and next day delivery are deal makers

Bottlenecks ▪ E-commerce consumer units and bulk hard to combine – Store replenishment and e-commerce orders differ in size and frequency and require different handling and value added services – Packaging for consumer orders differs from bulk packaging – Existing mechanization in DC can in most cases not cope with consumer order units and quantities in an efficient way – Separating e-commerce stock from regular stock implies inefficiencies in stock optimization ▪ Distribution to all (European) countries via same partner

…of respondents1 are more likely to buy online with next day delivery

31%

…of respondents1 are more likely to buy online with a fixed delivery-date

>35%

1

© Shopping 2020

24%

…increase in deliveries within 24 hours

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Return handling becomes substantial part of business Supply chain trends: Returns & leftovers Trends ▪ Number of returns increases due to e-commerce – Consumer is allowed to return online purchases within 14 days without reason – Shopping behavior of online consumers lead to many returns – Companies offer gentle return policies to compete ▪ (Mass) customization and fashionability leading to difficulties in reselling returned items Consequences ▪ Returns become important factor in financial bottom line ▪ Speed of getting returned items back in available stock becomes increasingly important Bottlenecks ▪ Lacking standardization in sizes and colors causes unnecessary returns ▪ Many companies are not yet equipped for efficient return handling of e-commerce orders ▪ Outsourcing of return handling may increase throughput time ▪ Returned items in store not belonging to assortment of that particular store ▪ Tracing returns back to original source is currently difficult

How returns drive sales: the story of Zalando That ecommerce increases the number of returns becomes clear when looking at Zalando, the etailer in shoes and fashion.

Zalando has a return rate that amounts to 50% of deliveries. The free-return-policy within 100 days of Zalando is part of its service and reduces the barrier to buy for consumers. As such, it is an important part of Zalando’s strategy.

Cheap and effective return handling is very important for consumers1 100%

75% 50% 25% 0%

Important Very Important 1

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Supply chain control across multiple channels is required Supply chain trends: Supply chain control Trends • Vertical integration: borders between retail and product brands dissolve – Retailers start with private label products – Product brands start to sell directly to consumers via own stores, web shops and market places – B2B, B2C, B2B2C and C2C business models are converging ▪ Margins have become smaller which requires tight and integrated supply chain control and elimination of non-value adding activities Consequences ▪ Companies have to redefine their role in the supply chain and often have to perform extra / other activities ▪ New performance indicators are required to optimize integral profitability ▪ Collaboration between supply chain partners is needed to maximize profit through the entire chain Bottlenecks ▪ Lack of mutual trust between supply chain partners ▪ Existing performance measures are often conflicting and short term oriented; this results in inefficiencies between supply chain partners but also within organizations (between departments like buying, logistics, sales and marketing).

© Shopping 2020

“Omnichannel retail requires cooperation between retailers , even for vertical retailers.”

Ferry den Hoed

We as Etam Groep have decided to stay close to our consumer where and when she is willing to purchase. This means that we want to cooperate with marketplaces but as a matter of supply chain control , we own and control stock levels in a consignment model “ Ferry den Hoed, COO at Etam Groep

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Growing amount of information to share across supply chain Supply chain trends: Information Trends • Growing importance of track and trace – Consumers expect information about status of deliveries and about origin of products • Increase in product (meta) data – Product data as presented on web (like pictures, descriptions etc.)

– Track and trace data (per serial number) – Pricing, logistical data – Customer reviews ▪ Sales and stock information across channels required ▪ Growing use of data pools like GS1 ▪ Data increasingly important to manage supply chain – Internet of things / Big data Consequences ▪ Supply chain partners are facing high volumes of data to collect, manage, use and share ▪ Need for standardization is inevitable

The amount of global digital information is growing

The forecasted amount of global digital information which will be created in 2020 is doubling the expected storage capacity.

This will require efficient and effective storage of (only) relevant information Source: IDC, Graph in the Economist 2012.

Bottlenecks ▪ Limited ability and willingness to share data ▪ Lack of standardization in supply chains, especially in non-food

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Philips: Close cooperation in the extended supply chain Supply chain trends: Information

To maximize product availability in retail outlets, Philips CL improved its collaboration with retailers in the areas of product distribution, sales forecasting and replenishment. The result: excellent product availability. The driver behind this success is an improved integral information exchange. Through a regular information exchange regarding the product availability per outlet, Philips has been able to set up an automatic replenishment system. The improved and integral inventory management not only leads to higher customer satisfaction but also to reduced stocks.

Philips Jos Visee

Close cooperation is the key to success “The key to success is close cooperation between retailer and supplier combined with well-defined agreements regarding the management of the extended supply chain. Regarding data, both the standardization of data and the ability to manage large amounts of data is crucial. When it comes to the broader implications: the improved cooperation between parties in E2E value chain results in the increase of sales and customer satisfaction. The more intense and improved cooperation, as well as the chosen solution for automatic replenishment is applicable for all sales channels, including online & bricks-clicks�

Jos Visee, IT Business Partner O2C at Philips

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Current initiatives illustrate supply chain trends Supply chain trends: Reference cases

Coolblue – Customer centric

Hunkemöller – Click and collect

Tesco UK – Supply Chain Analytics

Carnegie Mellon – In store robots

• • • • •

For Coolblue the customer comes first Customer service is the competitive advantage of Coolblue Delivery and return options underline this Coolblue offers customers many flexible options aiming at convenience Besides this, options for delivery and returns are clearly explained

• Hunkemöller customers have a free store pick-up for their orders • Consumers are able to online reserve products in a store • Until seven days after reservation products can be fit and picked-up

• Tesco UK saves cost significantly by use of so called Supply Chain Analytics • Extensive analysis of supply chain data is done • Tesco identifies opportunities to: • Reduce waste • Optimize promotions • Match inventory with fluctuations in demand • Carnegie Mellon Campus Bookstore is currently performing a pilot with robot-driven • • •

inventory management in the store The robot monitors shelves and assesses inventory levels and signals misplaced products This information is presented to store personnel on their tablets Inventory levels and other relevant information are also presented to consumers (via apps)

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Current initiatives illustrate supply chain trends Supply chain trends: Reference cases

Miele – Drop shipments for etailers

Bol.com – Pop-up

• Miele would like to preserve its quality brand in a changing online environment • New distribution contracts with severe requirements on product information and brand communication came in place

• Delivery to and service for consumers is done by Miele via drop shipments • Bol.com has opened a physical store in underground station of Rotterdam • Pictures of products are shown at a wall and can be scanned via QR-codes • Scanning means ordering and afterwards products can be paid for and picked-up in the

• Dell – Demand shaping

• Dell gathers and shares valuable customer data with suppliers to increase accuracy of • •

Home Depot – CrossDocking

store An extra shopping moment is created in this way

forecast, but at the same time to influence demand Two information loops, internally and externally, make sure Dell is aware of articles to be produced When products cannot be delivered in time Dell responds with promotion of products, which are available

• Home Depot is the largest DIY retailer in the world. Since 1979 only focus on expansion • • •

and revenue. At start of 21st century this did not work out anymore In 2007 a reorganization of the supply chain started: replenishment of stores via Rapid Deployment Centres (RDC’s) In RDC’s central ordering of products with cross-docking to stores at last moment is done Store replenishment has improved and empty shelves have disappeared

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BUSINESS MODELS Business models defining a basis for the future supply chain

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New business models arise, four main models emerge Business Models: Main characteristics

Own product brand?

Own stock?

(Legal) owner of Wide or deep customer? assortment?

Customer motivation for choosing this model

No No Multiple brands

No

Both possible

• The convenience of ‘one place fits all’ • Looking for unique things

1

Marketplace (E.g. Ebay, Kieskeurig)

2

Generic reseller (E.g. Amazon, V&D)

No Yes Multiple brands

Yes

Wide

• Reliability of a trusted party

3

Specialist reseller (E.g. Camerashop, Run2Day)

No Yes Multiple brands

Yes

Deep

• Need for specialist advice • Looking for a product that is unique or difficult to obtain

Yes Single brand

Yes

Deep

4

Brand direct-toconsumer (E.g. Apple)

• Love for the brand • Certainty of finding a specific product or service

Yes

In the current and future (online) market a lot of new commercial business models emerge. Many companies are already selling via different sales channel partners and as such via different and combined business models. Moreover they may focus on multiple product – market combinations in different models. The expert group Shopping 2020 Business Models distinguishes between 4 basic models with different main characteristics, which are used in related supply chain models. © Shopping 2020

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Emerging business models impact supply chain Business models: Supply chain characteristics

1

2

3

4

General characteristics

Information characteristics

Control and collaboration characteristics

Marketplace

• Focus on completeness and ‘unmanaged’ long tail (many categories and product variants) • Stock availability and delivery options achieved through different partners

• Coordination of information quality • Main focus on commercial across many partners/sources collaboration, sometimes extended • Increasing relevance of stock with logistics collaboration information across partners • Plug and play solutions for partners • Consumer feedback used to important maintain quality standards

Generic reseller

• Focus on completeness of product categories • Demand/stock management and coordination of supply is key to ensure immediate availability

• Coordination of information quality • Focus on collaboration with supply across own sources and partners chain partners • Reliable stock information is important

Specialist reseller

• Focus on depth of assortment in • Rich product information is key small number of product categories • Reliable stock and lead time • Demand/stock management is key information is important to handle mix of fast movers and long tail

Brand direct-toconsumer

• Focus on completeness of own assortment (including new introductions, customization and long tail) • All aspects of retailing become relevant

• Collaboration can be intensified because of limited number of partners and long-running relationships

• High consumer expectations • Focus in collaboration on service regarding rich product information, providers and horizontal knowledge, configuration and collaboration experience • Dependent on type of product collaboration with consumers is possible © Shopping 2020

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Emerging business models have their specific supply chain models Business models: Translation into supply chain models

▪ ▪ ▪ ▪

The set up of a company’s supply chain is largely dependent on the business model. It determines assortments and volumes to offer, what information needs to be exchanged and what partnerships are needed to fulfill consumer needs.

We have translated the four basic business models into their accompanying supply chains. Generic and specialist resellers have been combined into one supply chain model.

The next slide is a visualization of these supply chain models. It clearly shows the increased complexity companies have to deal with, especially when they act in multiple business models which may change over time.

The visualization only shows ‘happy flows’ of physical goods. When returns, information and money flows are added, the increased complexity becomes even more clear.

© Shopping 2020

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Supply chain models in an omni-channel world Business models: Overview supply chain models Pick up points

Logistics packaging (collies, crates, pallets, shrinks) Individual items

Manufacturer

Pick up at pick up point

Online store replenishment Brand direct

E-fullfilment center Pick up in store product brand(s) Product brand Eur. DC / Reg. DC

Private label (R)Etail /

From store to door/pick in store

Store replenishment Home Mono brand stores

Manufacturer

Cross dock Wholesale Consignment/VMI

Between stores Store replenishment

Concession / shop in shop

Retail chain stores

Pick up at pick up point Online store replenishment

Home delivery from small retailer

Pick up in store E-fullfilment center (r)etailer(s)

Pick up at pick up point

Concession Wholesale

From store to door/pick in store

Retail Distribution center

Reseller

Market place

Direct delivery from product brand

Specialist store

Home delivery from online retailer Home delivery from market place DC

Market place DC

Š Shopping 2020

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C2C

SCENARIOS 2020 Scenarios revealing possible future supply chain developments

Š Shopping 2020

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Future scenarios are based on trends & uncertainties Scenarios 2020: Scenario planning method Many of the trends listed in this document may already be known. These trends may continue to grow in strength, sometimes faster than generally expected like mobile usage. These ‘known trends’ have to be taken into account when creating a future vision. However, there are also uncertainties of which the outcome will significantly influence the future supply chain. Scenario planning is a strategic planning method that organizations can use to make flexible long-term plans by limiting the number of possible futures considering uncertainties. Scenarios help people to create a common view on the course of a company, industry or area.

A scenario is comprised of two main uncertainties that will influence future supply chains significantly. Each uncertainty has two possible ‘extreme’ (but not unrealistic) outcomes. Scenarios are portraits of plausible future worlds. Per scenario, the major supply chain consequences have been derived. Via this methodology it has been ensured that main uncertainties and its effects have been taken into account in building the future supply chain.

The following main uncertainties in building the future supply chain have been defined by the Shopping 2020 expert group(s):

Cross border (e)Commerce

Supply chain coordination

Digitization of products

Delivery times

© Shopping 2020

Number of stores

Scenario A

Scenario B

Scenario C

Scenario D

Source: Wikipedia & Prof. Kitty Koelemeijer

Environmental orientation

Fashionability

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Each uncertainty has two possible ‘extreme’ outcomes Scenarios 2020: Uncertainties and their extreme outcomes Markets merely local

Dominant orchestrator/ convergence of roles

3D printing explodes

Cross border (e)Commerce

Supply chain coordination

Digitization of products

Global markets

Fragmented supply chain

3D printing remains niche

1 hour delivery standard

Number of stores decreases significantly

Environmentally responsible

Fast fashion

Delivery times

Number of stores

Environmental orientation

Fashionability

Delivery times long

Number of stores stabilizes

Consumption focused

Strong seasonal patterns

Š Shopping 2020

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‘Extreme’ outcomes will significantly impact supply chain (1) Scenarios 2020: Uncertainties and their extreme outcomes

Cross border (e)Commerce

Will cross border commerce grow significantly towards 2020 or will free trade within Europe being downsized?

Competing in an international marketplace is not possible without a proper international supply chain that can meet consumers requirements, international integration standards and international competition Extreme outcomes: either back to fragmented local markets caused by high borders (i.e. rules and regulations, politics) or acceleration towards a fully global marketplace in which foreign large players will dominate the Dutch market.

Supply chain coordination

Will large foreign players like Google and Amazon dominate the entire market in sales and fulfillment in 2020?

Powerful international players like Amazon and Google may be able to become ‘the single starting point’ for online shopping and integrate offerings from ‘all’ other retailers into their platforms and fulfillment services like 1 hour delivery.

With increasing collaboration the need for exchanging information also increases. If not, fragmented supply chains keep their individual characteristics, which need to be managed and will require standardization by non-commercial parties.

Extreme outcomes: either dominant orchestrators or fragmented supply chains

Digitization of products

Will 3D printing develop very quickly and already play a significant role for consumer products in 2020?

The impact on supply chain may be significant if 3D-printing will be applied broadly. Need for raw materials and product designs will increase, need for stock of final products will decrease and complete supply structures will change.

Extreme outcomes: either 3D-printing ‘explodes’ or it remains a niche.

Delivery times

Will 1 hour delivery become the new standard for e-commerce orders?

The current trend of shortening delivery times may go further and make 1 hour delivery the new standard. Such high requirements on delivery times put a high demand on stock flexibility, stock locations and integration of services.

Extreme outcomes: either very short delivery times (1 hour delivery as a standard) or more differentiated and longer delivery times, as it is now. © Shopping 2020

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‘Extreme’ outcomes will significantly impact supply chain (2) Scenarios 2020: Uncertainties and their extreme outcomes

Number of stores

Will the amount of physical stores further decrease and are shopping streets really different in 2020?

Physical stores still represent local stock points and offline ordering. With a very limited number of stores stock flexibility and related delivery times become an integral challenge for supply chains and may require other stock locations near the consumer, while e-commerce will grow even faster.

Extreme outcomes: either the number of stores stabilizes or decreases significantly

Environmental orientation

Will companies and consumers strive for ultimate environmental friendliness, or will consumptive behavior win?

It is questionable to what extent care for our planet will dominate shopping behavior and whether consumers are really willing to pay for this.

Extreme outcomes: Environmental friendliness really becomes the new standard or consumptive behavior will come back in its extremes

Fashionability

Will “fashionability” dominate in many product segments and collections disappear for continuous assortment changes?

The main question is whether this current trend will row further and is also going to dominate many of the consumer products segments, or whether it will stay “as is” with it’s main impact within fashion.

Extreme outcomes: extreme fashionability leading to “fast fashion” in many product segments, or supply chain cost will raise so high that many segments return to “old school” (seasonal, yearly) collection patterns.

“Change is the law of life. And those who look only to the past or present are certain to miss the future.”

John F. Kennedy

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Imagine global orchestrators will dominate the market (1) Scenarios 2020: Scenario planning results Dominant orchestrator / convergence of roles Bolhalla

Amazonization

Markets merely local

Global markets

Local heroes

Global network economy

Fragmented supply chain Š Shopping 2020

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Imagine global orchestrators will dominate the market (2) Scenarios 2020: Scenario details Dominant orchestrator / convergence of roles Bolhalla

Amazonization

A few big local players act as dominant selling platforms for all local supplies

A few big global players act as the dominant selling platforms for all global and local supplies

Supply chain impact • Product portfolio management with local competition • Local hubs with inventory needed to meet delivery requirements • Need for integration and (local) standardization of product and stock data and transactional data • Vertical integration may prosper • Local players can leverage on local and location based marketing and create new opportunities by joining

Supply chain impact • Product portfolio management with international competition • Local hubs with inventory needed to meet delivery requirements • Need for integration and international standardization of product and stock data and transactional data • Vertical integration may prosper • Local players can leverage on global and location based marketing and create new opportunities by joining

Markets merely local

Global markets

Local heroes

Global network economy

Fragmented, mainly local supply chains and sales channels form the market with limited synergies

Fragmented, mainly global supply chains and sales channels form the market with limited synergies

Supply chain impact • Need to participate in many local initiatives to reach their online consumers • Demand and inventory have to be managed across multiple local channels • Information sharing might be based on multiple different requirements and local ways of working

Supply chain impact • Need to participate in many international initiatives to reach their local and foreign online consumers • Demand and inventory have to be managed across multiple local channels and with stock locations across multiple countries • Information sharing might be based on multiple different requirements and local ways of working, requiring extreme flexibility in information sharing and partnerships

Fragmented supply chain © Shopping 2020

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Imagine 3D printing and 1 hour delivery become the new standard (1) Scenarios 2020: Scenario planning results 3D printing explodes Printing at producer

Print in store/at home

Delivery times long

1 hour delivery standard

Long tail / Make-To-Order at producer

Long tail / Assemble in store

3D Printing remains niche Š Shopping 2020

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Imagine 3D printing and 1 hour delivery become the new standard (2) Scenarios 2020: Scenario details 3D printing explodes Printing at producer

Printing in store / at home

3D printing remains costly and consumers accept longer delivery times. Printing customized products at producers will suffice.

3D printing is cost efficient and available for everyone. Short delivery times are key.

Consumers ‘produce’ either in store or at home

Supply chain impact • Production planning and management of raw materials/semifinished goods is key in Make-To-Order environments • Consumers will customize their own designs, which requires flexible production processes and smart facilitation of customizing without losing efficiencies in production • Retailers remain stock locations for standard printed products and may become advisor in design/customization

Supply chain impact • Availability of raw materials in stores and at home becomes crucial • Certified product designs may be required for safety reasons • Producers will focus on product design and supply of raw material • Retailers will become print locations with design inspiration and printers for more complex products and parts

Delivery times long

1 hour delivery standard

Long tail / Make-To-Order at producer

Long tail / Assemble in store

3D printing remains niche and consumers accept longer delivery times. Customization needs are fulfilled via a long tail or make to order.

3D printing remains niche but consumers require short delivery times as well as a large or customized assortment to select from

Supply chain impact • Production planning and management of raw materials/semifinished goods is key in Make-To-Order environments • Making long tail available in efficient way will probably lead to many direct sales or drop shipments by producer

Supply chain impact • Complex stock management to ensure broad availability of long tail • Modularity for assembling at store becomes key • Increasing role for reseller in final production/assembling steps as well as in client advice • Inventory risk as a result of long tail availability in store may not be bearable for retailers

3D Printing remains niche © Shopping 2020

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Imagine 1 hour delivery in a world with very few stores (1) Scenarios 2020: Scenario planning results Number of stores decreases significantly Drop shipments

City hubs

Delivery times long

1 hour delivery standard

Showrooms full of experience

Pick (up) in store

Number of stores stabilizes Š Shopping 2020

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Imagine 1 hour delivery in a world with very few stores (2) Scenarios 2020: Scenario details Drop shipments

Number of stores decreases significantly City hubs

Less retail implies a power shift to producers.

It also implies that demand for ‘the long tail’ should be met by producers delivering directly to consumers

Stock is needed close to where consumers live to ensure fast delivery

Supply chain impact • Regional DC’s of producers will suffice, economies of scale become relevant • Producers have to organize for small e-commerce orders and micro distribution instead of large bulk picking • Horizontal collaboration may be required • Limited number of experience centers and extensive online product information will facilitate shopping process

Supply chain impact • Multiple stock locations scattered around the country at 1 hour distance from consumers • Increased importance of stock and supply chain visibility • Horizontal collaboration to facilitate storage, handling and transport in an efficient way • Limited number of experience centers and extensive online product information will facilitate shopping process

Delivery times long

1 hour delivery standard

Showrooms full of experience

Pick (up) in store

Retail uses square meters to offer an experience and a broad and deep assortment, which is offered partly via physical stock and partly via screens

Store play an important role in delivering to consumers, as they act both as sales and as distribution point.

Supply chain impact • Regional DC’s of producers will suffice, economies of scale • Producers have to organize for mix of small e-commerce orders and bulk picking for store replenishment • Stock models become complex as stock is divided among multiple channels and locations

Supply chain impact • Increased importance of stock and supply chain visibility • Track and trace and reliability become key success factors • Complex process of combining local picking and delivery from central warehouse into complete orders at store floor • Role for producers remains more traditional

Number of stores stabilizes © Shopping 2020

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Imagine fast fashion in a corporate responsible market (1) Scenarios 2020: Scenario planning results Fast fashion Shop until you drop

Sustainable fashion

Environmentally responsible

Consumption focused

Ethical & classical

Black Friday

Strong seasonal patterns Š Shopping 2020

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Imagine fast fashion in a corporate responsible market (2) Scenarios 2020: Scenario details Fast fashion Shop until you drop

Sustainable fashion

Consumers expect to be surprised every single time they revisit a store or online shop. Collections are continuously changing. Negative environmental effects like extra stock obsolescence or ‘irresponsible’ but cheap production have little weight compared to the drive to facilitate consumers in their buying appetite.

Consumers are passionate shoppers and expect to have good shopping experiences and choice of “green” products. Customer needs are analyzed in detail to be able to offer the exact right products and minimize stock obsolescence. Fun shopping means a good experience above a large product offering.

Supply chain impact • Supply chains are designed for speed, large assortments and high turnovers. Impulse buying needs to be facilitated.

• Inefficiencies are accepted as long as consumer need is fulfilled

Supply chain impact • Big data, co-creation and other concepts to fulfill consumer product needs in detail without risking stock obsolescence • “Green” as an important requirement in supply chain design

Environmentally responsible

Consumption focused Black Friday

Ethical & classical

Consumers are buying in high volumes and product offerings still follow strong (seasonal) patterns.

This results in high volume peaks around sales periods.

Consumers reward “green” and local for local product offerings. Seasonal patterns are accepted and quality goes above volume and choice.

Supply chain impact • Push and volume oriented supply chains • Economies of scale dictate supply chain designs

Supply chain impact • Local for local • Quality and “green” are important design criteria • Relatively low speed

Strong seasonal patterns © Shopping 2020

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Scenarios clearly show the importance of supply chain flexibility Scenarios 2020: Conclusion

▪

Extreme outcomes of current uncertainties (combined with ‘certain’ trends) may significantly impact supply chain: – When a large (foreign) orchestrator is able to dominate the market, the only way to survive for (local) companies is to join, which requires sharing high quality product and stock information – When one hour delivery becomes the new standard, this means creation or storage of consumer products close to consumers and a change of current logistical patterns – When 3D printing will explode this means a disruptive change of entire supply chain structures – The future number and function of physical stores will significantly influence supply chains in many aspects – A very strong growth of environmental consciousness may force big changes in supply chains, choice of sourcing locations and (product) information requirements

Future scenarios show the importance of supply chain flexibility and transparency

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BUILDING THE FUTURE SUPPLY CHAIN Recommendations to achieve crucial supply chain capabilities

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Fast change is required. Will you be ready in time?

Building the future supply chain: Examples showing the speed of change

Google Shopping Express: The service, which offers same-day delivery from Target, Walgreens, Toys R Us, American Eagle, Staples, Office Depot and a few local shops, has just opened its doors to testers in the San Francisco Bay Area. After signing up on Google's microsite, you'll be on your way to six months of unlimited free deliveries from select retailers. The service competes with similar offerings from Amazon and eBay, and, well, doesn't exactly seem like an obvious fit for Google. We're eager to see how it pans out -- hopefully, if it does turn out to be a worthwhile venture, it won't succumb to the search giant's annual "spring cleaning" ritual.

The company is only accepting "a limited number of shoppers" right now, so if you're eligible, sign up at the source link ASAP. Source: Engadget.com – Zach Honig Amazon PrimeAir: The world's largest online retailer, is testing unmanned drones to deliver goods to customers, Chief Executive Jeff Bezos says. The drones, called Octocopters, could deliver packages weighing up to 2.3kg to customers within 30 minutes of them placing the order, he said. However, he added that it could take up to five years for the service to start. "I know this looks like science fiction, but it's not," Mr Bezos told CBS television's 60 Minutes programme. "We can do half-hour delivery... and we can carry objects, we think, up to five pounds (2.3kg), which covers 86% of the items that we deliver. From a technology point of view, we'll be ready to enter commercial operations as soon as the necessary regulations are in place”.

Source: BBC News – Technology, 2 December 2013 Online department store Wehkamp.nl starts end of this year (2013) with the building of an automated distribution center in Zwolle, has Gert van de Weerdhof, CEO of RFS Holland Holding, the mother company of Wehkamp.nl, announced. The investment in the new construction amounts to more than a hundred million euro. The distribution center will have a capacity of 61 million items a year. The DC in Dedemsvaart will close. The warehouse in Maurik stays open, a spokesman of Wehkamp.nl states. The automated warehouse system, at logistics business park Hessenpoort near Zwolle, will consist of almost 480.000 picking locations for the different products. Products will be supplied through 468 automated shuttles. According to Wehkamp.nl this will be ‘the largest automated warehouse in the world’ for online retail.

Source: Logistiek.nl – Bas Dijkhuizen

36% 1 to 52% 2 of shopping purchases will be done online in 2020!

Will your supply chain be ready in time?

1 Source: McKinsey & GFK Shopping2020 survey, 2013 2 Source: GFK consumer panel “Hoe shop jij in 2020?”, 2013 © Shopping 2020

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Fast and continuous change characterizes the future supply chain Building the future supply chain: Impact on the supply chain Many of the trends listed in this document may already be known. These trends will continue to grow in strength, even faster than one may expect. These “known trends” have to be taken into account when creating a vision on the future. Combined with the possible future scenarios as derived by combining the main – supply chain relevant – uncertainties, the impact on the future supply chain can be summarized:

▪ Competitive landscape changes:

▪ ▪ ▪ ▪

– Consumer needs will fluctuate more then ever – New business models and partnerships arise – Large online players will leverage their traffic and take dominant ‘orchestrating’ positions – Foreign market entrants may be expected – The function of retail stores will change towards experience centers, showrooms and pick up points – Borders between B2B and B2C and between online and offline channels will dissolve – 3D printing will ultimately mean a disruptive change in multiple supply chains Mobile, (big) data and information play a significant role in the new way of shopping Stock risk increases and will be pushed upward in the supply chain where possible, while short delivery times require multiple stock locations near the consumer.

Consumer, sustainability and profitability requirements require efficiency in handling and (micro) distribution.

Triple size e-commerce means a significant increase in complexity in the product brand and retail supply chains

The impact on the supply chain of the current trends and possible future developments will be strengthened by the predicted growth of e-commerce. As a result, the supply chain landscape will continuously change. Dutch companies have to prepare themselves for this new rapidly changing competitive landscape. Some key capabilities become crucial to survive and compete. © Shopping 2020

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Fast and continuous change requires key supply chain capabilities (1) Building the future supply chain: Key capabilities required

Sourcing

Inventory & planning

Flexibility

Handling

Transport

Information

Returns

‘Leftovers’

Collaboration

integral revenues and cost

© Shopping 2020

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Fast and continuous change requires key supply chain capabilities (2) Building the future supply chain: Key capabilities required Think about your role ▪ In the new competitive landscape it is essential to determine and claim one or more specific roles in which a company clearly delivers added value and which will give a competitive advantage. This may be making the best product or offering the best retail experience but can also be an orchestrating or aggregating role.

Seek flexible partnerships ▪ Horizontal and vertical collaboration between supply chain partners becomes crucial. This is the only way expectations of customers can be met. Partnerships (like with Amazon or Zalando or with service providers) may continuously change over time and need to be flexible.

Create transparency across the chain ▪ Collaboration starts with trust. Trust can be achieved via transparency, in a way that all supply chain partners can earn a fair share for their real added value.

Create flexibility in sourcing and stock ▪ To cope with increased stock risk, the growth of e-commerce and new consumer needs, maximizing inventory turnover becomes vital. Flexibility in sourcing and making all stock available for all channels will be a crucial capability.

Invest in standardization and information exchange ▪ Supply chain visibility (stock, tracking and tracing) is a key success factor. Information becomes a competitive advantage. Companies must Invest in ICT and standardization to remain a valuable business partner.

Manage integral profitability ▪ Instead of measuring and rewarding short term and isolated results like purchasing discounts, companies have to measure and steer on integral profitability across the entire value chain. © Shopping 2020

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Key capabilities must be developed in all dimensions Building the future supply chain: Recommendations

Supply chain models

Supply chain dimensions

To achieve the key capabilities across the supply chain will require change in many dimensions of the supply chain. Per supply chain dimension recommendations will be given how to achieve these capabilities. Š Shopping 2020

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Sourcing (1) Building the future supply chain: Recommendations

Recommendations • Differentiate in sourcing locations • Shift focus from production orders to capacity contracts and increase control • Change production process to realize flexibility and enable customization • Consider vertical integration to improve responsiveness

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Sourcing (2) Building the future supply chain: Recommendations Differentiate in sourcing locations

▪

Production overseas is no longer attractive for all products. One of the reasons is the rising wages in these regions. However, more important is the required time to market and sometimes lacking control. Especially for fashionable products it is worth having alternative production locations nearby like in South-East Europe. Differentiation will be unavoidable to achieve the necessary flexibility.

For scarce production resources multiple suppliers may need to be contracted. Apart from flexibility advantages, local sourcing may also be beneficial for transparency and trust in terms of corporate and environmental responsibility.

Wrong supply chain decisions A lot of companies have outsourced their production activities to Asia or Eastern Europe. Recent research by Treville and Trigeorgis (2013) shows that conventional financial models can lead to wrong supply chain decisions. These models do not take into consideration advantages of local production like flexibility and direct control. Their research shows that by giving value to flexibility and direct control local production can be more profitable than outsourcing

Replenishment

Bulk

Shift focus from production orders to capacity contracts and increase control

▪

Large production orders months upfront will generate the highest buying discounts and as such appeal to buyers. However when demand is increasingly fluctuating these discounts may disappear suddenly when looking at integral profitability. On time availability of production capacity becomes the key success factor, creating the opportunity to postpone the decision which specific products will be produced at what quantity. Contracts with suppliers require flexibility to realize agility in the market and may shift from production orders to capacity contracts and service level agreements. Apart from the contractual part, it is advisable to increase control on external production via on site presence, integration of information (systems) and short and agreed communication lines.

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Sourcing (3) Building the future supply chain: Recommendations Change production process to realize flexibility and enable customization

▪

Production of smaller batches is another way to accomplish flexibility.

Although more expensive in the short run, it may result in a higher integral profitability. Another way of creating flexibility is late assembly of semi-finished products. The inventory of semi-finished products is multi-purpose until a later stage in the process, which reduces the chance of obsolete stock and increases stock flexibility. The customer order decoupling point is driven upstream. Assemble- to-order concepts may also be useful in enabling customization. In case of customization, consumers are more willing to accept longer delivery times.

Ultimate forms of flexibility are printing on demand or 3D printing by consumers or retail shops.

Nike: Customers design own shoes Customers are given the opportunity to order own products. Publicity is booming by having fans “in charge”. Another advantage is decreasing inventory and waste because of a better match between demand and supply.

For more information: see appendix

Consider vertical integration to improve responsiveness

▪ It is very difficult to respond timely to changes in demand when companies are dependent on other companies. Vertical integration backwards for retailers or forwards for producers – can provide the wished responsiveness. Companies are in control of a large part of the supply chain and can much easier translate the latest consumer trends into design and adaptive production plans. Short communication lines within the organization are essential to make this work.

Increased responsiveness and earning all margin within one company will create a higher profitability.

As long as these profits are invested in innovation, well-organized verticals have a good chance to remain sustainable competitive.

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Zara: the integrated supply chain Building the future supply chain: Reference case Sourcing The typical example of vertical integration is Zara, a company that produces where it sells, and that includes its store personnel in generating input for design teams. This front-toback integration creates short lead times for new fashion ideas.

Zara beats the industrial average of 6 months for fashionable items with its 2-month lead time. As Forbes states “The tight integration of design, planning, merchandising and production in La Coruna enables the company to be flexible and therefore able to respond quickly to any market need”. Although (labor) costs in Spain may be higher, the enormous flexibility of Zara clearly outweighs this disadvantage.

Zara

A Successful Strategy The integrated supply chain model is part of a successful strategy by Zara to buy fabrics in bulk and add details later to incorporate as many current customer preferences as possible. The products are then distributed in small batches to its stores to keep demand high and to create a sense of ‘exclusivity’.

“The system makes production costlier, but the model has also proven successful during the economic downturn of recent years, because Inditex [owner of Zara] can adapt more quickly to the ebb and flow of demand.”

The Wall Street Journal, March 2012

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Inventory & Planning (1) Building the future supply chain: Recommendations

Recommendations • Acknowledge complexity in planning and professionalize • Collaborate to improve forecasting • Use online opportunities like demand sensing to improve forecasting • Reconsider stock ownership models • Introduce ‘inventory captain’ role to optimize stock availability across (external) sales channels • Maximize online stock availability through stock visibility and digital stock © Shopping 2020

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Inventory & Planning (2) Building the future supply chain: Recommendations Acknowledge complexity in planning and professionalize

▪

Planning becomes more difficult. Assortments keep growing. At the same time product lifecycles become shorter and product portfolios need to be adjusted constantly. This will result in a continuous changing environment of products, suppliers and supplying countries.

Sales is done via multiple channels with multiple stock locations.

Demand differs per region, even within the Netherlands. Aggregation of demand in forecasting (across locations and channels and combining alternative products) will be necessary but complex and challenging. This requires good system support in forecasting and highly skilled people. Companies should be aware of the importance and complexity and organize this function in a very professional manner. Merchandisers need to be analytically skilled and Excel may no longer be the ideal forecasting tool. Education and training must be aligned with this need for analytical competences.

“Planning together with retail and manufacturer gives less inventory and more margin”

Rens Tap

“Planning the distribution for the fashion season together with retailer and manufacturer reduces the amount of no sales, the financial risk in the overall supply chain and the inventory levels, thereby increasing the total margin.

What it takes is mutual trust and cooperation.”

Rens Tap, senior consultant at Modint

Collaborate to improve forecasting

▪

Close collaboration between retailer and producer is essential on forecasting and replenishment. Both parties really must work together in this area. Sales information at the retailer is important for the producer in production planning and will dictate replenishment in combination with inventory levels at the retailer. Producers can aggregate data from many sales points (across retailers) and as such achieve more reliable demand predictions. Trust and open information sharing are crucial. In this way inventory in the total chain will be minimized as peaks and overproduction will be reduced.

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Walmart and P&G: The future of partner-information exchange?

Building the future supply chain: Reference case Inventory & Planning

An example of two supply chain partners that work together for collecting, sharing and managing data are Walmart and P&G. The companies use common performance indicators and collaborate on forecasting and stock-replenishment within a common team. The advantages are two-fold: on the revenue side, a better customer response leads to increased sales. On the cost side inventories are lower, there is a lower risk of failure and costs of information exchange have decreased (as a result of automation).

Walmart and P&G Benjamin Grugeon

Joint forecasting and ‘open book forecasting’ the future of collaboration in retail “As a principle P&G provides the maximum of relevant information within legal boundaries to create a win/win situation. In most cases this is marketing, sales and logistics data. For example, expected market share build up, selling out data from other launches, redemption data or relevant stock data. The advantages are decrease of the bullwhip effect and prevention of out of stocks/lost sales. In my opinion "joint forecasting“ will further develop in the future and "a type of open book forecasting" will become the standard operating procedure between partners in the retail landscape.”

Benjamin Grugeon, Supply Chain Manager at Procter & Gamble

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Inventory & Planning (3) Building the future supply chain: Recommendations Use online opportunities like demand sensing to improve forecasting

▪

E-commerce offers new opportunities to improve forecasting. Via very accurate forecast techniques like demand sensing. Forecasts then respond to real-world events such as market shifts, weather changes, natural disasters, consumer buying behavior et cetera including current data from the supply chain. E-commerce and online clicking behavior can provide much suitable information within a short time frame. Feedback on e.g. product introductions or commercial promotions can be received very quickly via the online channel as well. Also social media can be used to predict demand, e.g. to derive predictions from conversations within target groups. For forecasting purposes responses in social media to a newly launched product are also important.

This will help in predicting the future success of the product and can be translated into forecasting figures.

One step further is to influence demand based on planned supply, e.g. via dynamic (online) pricing. In some cases this can even be done fully automated based on accurate stock information. Although this may look ‘ideal’ from a logistics perspective, dynamic pricing is not an irreproachable concept from a client perspective.

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The rise of social media for forecasting In line with the idea that social media can predict demand, firms have started to help companies utilize this potential. One such firms is Wisewindow. According to the Economist “WiseWindow [a marketing firm based in Irvine, California], uses social-media activity to forecast demand for products. Its clients include Paramount Pictures and Belkin, a consumerelectronics firm”. Its activities include collecting, analyzing and classifying billions of consumer comments on for example Twitter to give companies a ‘live-stream’ of consumer sentiment. The question remains though: can computers be trusted to successfully filter out things like double meanings and sarcasm? Or does it remain a human exercise after all?

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Inventory & Planning (4) Building the future supply chain: Recommendations Reconsider stock ownership models

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Striving for a decrease of stock in the supply chain in general leads to inventory being moved upwards in the chain. Products are hold in central stock high in the supply chain as long as possible and are only distributed as late as possible based on real demand. Short (e-commerce) delivery times, fashionable items and shelf availability in stores put this general concept under pressure and lead to inventory pushed forward in the supply chain. It becomes however harder and harder for retailers to bear all inventory risk. This declares the rise of more differentiated stock models and the general trend to move inventory risk upward in the supply chain. Concepts like consignment (stock managed by retailer and available in store, but owned by supplier) and shop-in-shop (stock managed and owned by supplier, but available in store) work along these lines and are particularly suitable to offer and manage a long tail assortment.

Amazon: moving stock upwards with the Vendor-flex experiment Amazon knows like no other company that a reliable promise to the customer is key. But what to do when your network includes thousands of warehouses? The ecommerce giant has come up with vendor flex: in this pilot, Amazon brings its own staff into the warehouses of its suppliers, where they basically manage their logistics and online retailing. It does so primarily for bulky items like diapers and toilet paper. According to the Wall Street Journal, October 2013, “For Amazon, co-location reduces the cost of storing bulky items like diapers and toilet paper and frees up space for the Web retailer to stock higher-margin goods in its own distribution centers.”

Source: Wall Street Journal, 2013

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Microfashion: Consignment model as example of collaboration Building the future supply chain: Reference case Inventory & Planning You believe in the consignment model for fashion. Why? Van der Zee: “We strongly believe in supply chain collaboration. When you want to increase profitability of the wholesaler and the retailer in the fashion industry, you have to collaborate with each other. The advantage of consignment, products not taken into stock by the retailer but being paid for only after being sold to customers, is twofold. The retailer lowers the needed working capital, money which can be released for other purposes. And the wholesaler will get a better position on the store floor with a higher availability and a wider assortment. “

Is the consignment model a response to vertically integrated chains like Inditex and H&M? “That is correct. They can respond very fast to demand in stores. That model is also possible for wholesalers and retailers. A prerequisite for this is digital communication between partners, based on EDI. Therefor I am glad that I have been asked to become a member of the GS1 Business Council. GS1 is the appointed party for realizing standardization and uniformity in a fragmented industry.

It is good that an institute like this exists.”

Source: GS1 Nederland, interview with Harry van der Zee, CEO MicroFashion (originally in Dutch)

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Inventory & Planning (5) Building the future supply chain: Recommendations

Introduce ‘inventory captain’ role to optimize stock availability across (external) sales channels

▪

Drivers determining inventory location

For product brands the ultimate stock optimization is across all sales channels, including multiple competing retailers. This is not an easy game for product brands, but even more important when inventory risk is moving upward in the chain to them. Keeping stock as long as possible at a central level and at the same time provide adequate stock levels in retail stores is a balancing act, specifically for fashionable products and with short e-commerce delivery times. Specialization in this field will develop further in future. For product brands which are not capable of playing this game themselves or not willing to take on this hassle, outsourcing and / or automation of these activities might be a good option. The retail channel has to collaborate in such a model and share stock data.

Auction-like principles can be used to make it work across competing retail partners.

To determine which product(group)s will be distributed to stores and which products will only be kept merely at central stock is a balancing act. What are the drivers in this? Some guidelines may help here: • Value: the more valuable products are, the more they will be kept centrally • Size/weight: the smaller products are, the more they will be kept in stores • M2 price: the more expensive store space is, the less products will be kept in store • Impulse: the more likely products are impulse purchases, the more they will be kept in stores • Turnover rate: the higher the turnover of products is, the more they will be kept in stores • Fashion: the more fashionable products are, the more they will be kept in stores • Delivery times: the shorter expected delivery times by consumers are, the closer to consumers products will be stored • Replenishment: the more often stores are replenished, the more volume of products can kept centrally • Re-distribution: the easier products can be re-distributed between stores, the more will be kept in store • Local differences: the more local differences in sales are expected, the more products are kept centrally for latter distribution to the preferred region

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The balancing act of inventory, capital, availability and control Building the future supply chain: Background

Supply chain models impact inventory risk and working capital The demanding consumer is putting pressure on the supply chain, for example because of the increasing need for diversity in assortment. This leads to shorter product lifecycles, more product variants and an increased inventory risk. To cope with these requirements, it is theoretically wise to keep inventory ‘high’ in the chain as long as possible to optimize flexibility. This is now under pressure, as consumers expect products to be delivered at home faster and faster, even on the same day. Or as we have seen in Silicon Valley, within an hour. This would mean that inventory must be available much nearer to consumers and as such downstream in the chain. Inventory risks will increase based on this. Traditionally (r)etailers bear these risks. In the current market it is getting more difficult for (r)etailers to do so. In successful supply chains product brands take on their responsibility more and more. Vertically integrated supply chains, mono brand stores and web shops of product brands are examples of this. But also multi-brand (r)etailers adapt more often logistic models like concession and consignment in which product brands have a large role in replenishment. Ultimately this would mean that (r)etailers become showrooms and market places and will be paid for services delivered. This means a reduction of inventory risk and of working capital in the total chain, with a shift to product brands. However, this asks for a ‘well-heeled sit’ at these companies…

Inventory

Shelf availability

Control burden

Working capital

Source: blog post by Axel Groothuis on Shopping 2020.nl

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Inventory & Planning (6) Building the future supply chain: Recommendations Maximize stock availability through stock visibility and digital stock

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Online ‘shelf’ availability is crucial. Consumers switch to other online shops within one click. To maximize stock turn, preferably all stock in all locations is made available for all channels anytime.

Web orders and demand from customers in any local store can then be fulfilled with central stock, stock from any other local store and sometimes even with stock directly from suppliers. Assortments at retail stores then consist of physical stock and “digital stock” via displays connected to the webshop / back office. A reliable promise to customers at time of ordering is also key. To provide for this, real time insight in the complete supply chain inventory is needed.

Processes must be in place to support delivery from local stores to other stores and consumers (mostly via post and parcel service).

The realized decrease in inventory and risk of obsolete stock may weigh out the additional delivery costs. Reduction of inventory risk at retailers is key. E-tailers who are nowadays opening physical stores, also try to limit their store inventories to what is needed for the “showroom and experience” function.

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Aktiesport integrates online and offline stock ‘If a product is not on stock in store, the system searches for a location where the item is available. It takes several factors into account. If the product is a fast mover in one store and a slow mover in another store, it will be picked from the latter store. A store entry system counts store visitors and is connected to the inventory system. In this way an e-commerce order can be assigned to a store where personnel has probably enough time to handle it. Such a new way of working is a demanding change for your organization. It requires significant changes in your ERPP system. Your sales organization and store personnel have to fully support the system and need to be motivated and committed’.

Source: Twinkle Nr 9, 2013

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Kijkshop: pilot in combining physical and digital stock Building the future supply chain: Reference case Inventory & Planning Kijkshop recently opened a pilot store in Tilburg. The store has replaced a large share of its showcases with touch screens. Rather than keeping all products and related inventory in-store, the pilot store only has fast movers on stock, the rest of the products can be picked up the next day or will be delivered at home. If the pilot is a success, Kijkshop reduces both its store floor space and inventory on a larger scale.

Kijkshop Robin Tichler

Less inventory and higher ITO “The first results of the pilot are promising. Since 6 months now we have started the new pilot store and the results are positive. With a 60% lower stock than in the average store and a 11% higher ITO we are on the right track. With a new integrated touch screen application, different assortment and a flexible city distribution model we have achieved this. The combination of physical stock and “digital” stock resulted in a 50% higher number of internet orders out of the stores being 20% of the store sales. We need to adapt the assortment because a different location of the stores also means that customers have different product requirements compared to other stores.”

Robin Tichler, Manager ICT & Logistics at Kijkshop

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Handling & Transport (1) Building the future supply chain: Recommendations

Recommendations • Determine stock locations based on delivery times to consumer • Organize stock flexibility and efficiency across bulk and consumer units • Offer different delivery options and centralize personal preferences • Facilitate detailed tracking and tracing and product identification • Optimize transport to consumers through bundling and peak shaving • Offer fully integrated distribution across Europe © Shopping 2020

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Handling & Transport (2) Building the future supply chain: Recommendations Determine stock locations based on delivery times to consumer

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Delivery times will be shortening for e-commerce. In 2020 next day and same day delivery will be common for many product groups. This asks for delivery from nearby stores or from e-commerce warehouses located relatively close to consumers, at least within the Netherlands. For fast movers (supplier managed) warehouses nearby cities may be an option to respond to these delivery requirements. They can also play a role in store replenishment (for normal sales and pick up in store). This will most probably require ‘horizontal integration’ to achieve an affordable solution.

Organize stock flexibility and efficiency across bulk and consumer units

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Given growing e-commerce volumes it becomes increasingly important to merge “online and offline” stock, either physically or making them ‘mutually available’. A physical merge has an even greater impact. Next to flexibility between types of stock also efficiency is key. Mechanization of handling of bulk stock is different from handling of single units. For the latter efficiency is even more important because of the workload generated by the number of parcels in combination with the intenseness of activities like picking, packing, shipping and identification. Fashion retailers as an example move to managing individual items for both store replenishment and online orders. Product identification on item /serial number level increases quality and insight in stock information. Single item packaging (appropriate for e-commerce deliveries) already used at suppliers increases flexibility and efficiency as well. Two-step picking for online orders opens the opportunity to “merge” stock without integrating all processes completely.

For packaging material itself also optimization is possible. In the expert group Ecology problems with packaging are addressed like oversized packaging formats, too thin packaging material, marketing oriented packaging material instead of functional packaging material and standard large packaging for small products. © Shopping 2020

Amazon’s Warehouse Spree As Bloomberg reports on Amazon’s huge investment: “The e-commerce giant has invested roughly $13.9 billion since 2010 to build 50 new warehouses, more than it had cumulatively spent on storage facilities since its 1994 founding”, the expansion in number and size of Amazon’s warehouses increases the company’s same-day delivery rate.

Bloomberg Businessweek August, 2013 See also appendix Impact on the environment

The optimal solution for package design = Sustainable development

Not sufficient packaging

Source: Vereniging Golfkarton, 2013

Too much packaging

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Handling & Transport (3) Building the future supply chain: Recommendations

Offer different delivery options and centralize personal preferences

â–Ş

Consumers require many different delivery options and delivery moments. Some may still opt for home delivery, others will choose for pick-up points located in retail stores, outside city centers or along highways (unstaffed). Acknowledgement in legislation of pick-up points as non-retail is important, which will decrease requirements for such a location. Additionally different delivery moments will be required.

Central registration of preferences per consumer may increase customer satisfaction while increasing efficiency at the same time. For retailers and producers investment in delivery options is needed to meet expectations of consumers.

>30% of consumers want to indicate very precisely when the ordered product should be delivered

Environment not yet a key-issue for consumers but increasing willingness to make realistic sacrifices and importance of track&trace1 50% 40% 30% 20% 10% 0% At-door At-door I find it delivery is bad delivery is not important to for the necessary, I be able to environment can pick it up follow my at a location purchase with close by track&trace

Important 1

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Agree

GfK: Hoe shop jij in 2020?

Enquete, 2013

Totally Agree

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Handling & Transport (4) Building the future supply chain: Recommendations

Facilitate detailed tracking and tracing and product identification

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Google Glass provides for transparency

Customer expectations and legislation will require detailed and continuous tracking and tracing of purchased items. The origin of products and ingredients or parts must be traceable as well . Based on ‘internet of things’ whole chains will be opened up with on every link of the supply chain relevant information about the product. This information will be accessible via the internet anytime. This will further increase the need for product identification at item and serial number level. Companies need to further integrate tracking and tracing and product identification in their processes.

Wearable computers like Google Glass are able to support supply chain activities. It will not cause large breakthroughs in supply chain models, but will make supply chains more efficient and transparent. In warehouses orders can easily be picked hands free with Google Glass as the ‘drill instructor’ for picking locations and as the tool for scanning of picked products. Also when delivering goods to third parties Google Glass may be Environment not yet a key-issue used to capture the handing over of the goods and documents. for consumers but increasing Via a picture at location, evidence is created for this handover. willingness to make realistic Next to this Google Glass can play a role at the front of the sacrifices and importance of supply chain. Consumers can scan their groceries immediately track&trace1 when taking them out of the shelves and pay afterwards via Google Glass based on this scanning. Altogether Google Glass leads to further enhancements in supply chain transparency.

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Handling & Transport (5) Building the future supply chain: Recommendations Optimize transport to consumers through bundling and peak shaving

â–Ş

E-commerce will increase the number of (near) home deliveries within urban areas. To minimize congestion and CO2 pollution new concepts will be needed. Bundling of transport within and across companies is needed. Logistic service providers need to prove their added value in facilitating this. Advantages will be achieved as a result of collaborative planning and physical bundling. In addition, different pricing of delivery times can be used to shave peaks in trucks and work force and improve capacity optimization.

Harmonized regulations for city distribution will further support efficiencies in handling and transport.

Bundling of transport at Transmission Transmission is the largest alliance of independent transporters in the Netherlands and Belgium. Participants in Transmission bundle their cargo. This means faster and more efficient transport. Overnight, during non peak hours, small parcels are gathered with large trucks. These parcels are delivered to partners or to the central Hub. In the morning deliveries are done from this central hub.

With less CO2 pollution more kilometers are driven with more return.

Source: MVO Nederland

Offer fully integrated distribution across Europe

â–Ş

Internet increases the cross border (e-)commerce opportunities.

Fast delivery at affordable cost is an important prerequisite. Local presence and/or speedy distribution is therefor needed. Logistic service providers need to become true European partners for warehousing and transport. This means one contracting party with one set of tariffs, uniform warehouses in multiple European countries and transport across Europe. Unified legislation (tax, duties, customs, documents) is needed to lower the administrative burdens across entire Europe.

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Returns & Leftovers (1) Building the future supply chain: Recommendations

Recommendations • Implement clear return policy and charge reasonable cost • Professionalize and speed up return process • Prevent returns via product information, standardization and consumer interaction • Consider specialized partners for return and repair handling • Optimize value of returned products

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Returns & Leftovers (2) Building the future supply chain: Recommendations Implement clear return policy and charge reasonable cost

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High rates of returns in e-commerce are common. In fashion, rates of 50% are reached.

For consumers it will become clear that free return policies are only possible under certain conditions. In other situations returns can be charged for. Further restrictions may be applicable for some products like customized ones. Clear explanations about the policy must be available for consumers via all channels.

Top 3 for consumers when it comes to returns:

1

already 20% of the respondents find that companies should charge a reasonable fee)

Professionalize and speed up return process

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Consumers need the opportunity to return products via different channels (in store, via parcel service). Retailers must be able to handle all returns at all locations, including e-commerce only and long tail products in their stores. This means that in every retail store the complete assortment must be known. Due to short product lifecycles, it is highly important to reduce the throughput time of returned items back to sales points. To achieve this, a rule based logic can determine the location with the highest sales chance. When consumers register a return and hand it in at a certain pick up point or store, the barcode can already be related to the best sales location and facilitate a quick and direct transfer to that specific location. This kind of solutions evidently requires stock visibility across multiple locations.

Free Returns (although

2

Clear instructions of return process

3

Quick money transfer

Prevent returns via product information, standardization and consumer interaction

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An important way of preventing returns is providing very good product information such as clarifying visuals, all kind of product characteristics and information for use. Further standardization in e.g. sizes and colors will also reduce the risk of returns. Immediate customer contact when a consumer is registering a return online may also help to prevent unnecessary returns, e.g. in case customers do not understand how to use a product. In some industries ‘no trouble found’ rates are over 70%.

1

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GfK: Hoe shop jij in 2020?

Enquete, 2013

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Returns & Leftovers (3) Building the future supply chain: Recommendations Consider specialized partners for return and repair handling

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As return handling and repair can be considered as a task for specialists, collaboration with partners may be advisable. Especially for knowledge intensive products like mobile phones it is likely that centralized return centers across multiple sales channels benefit from synergies.

Advantages of outsourcing may consist of additional expertise in for example return policies, bundling of transport for returns with other companies and efficiency gains in processes. Alignment with other processes within the organization remains important.

Companies can leverage their channels for second-hand sales….and for leftovers?

Optimize value of returned products

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Besides an adequate return process other solutions are available which are aiming at making the best of returns. First of all returns in store offer an additional sales opportunity for other products. When a product is returned, re-use in the same or in another setting may be possible. In some cases the product needs to be repaired or refurbished first to become ‘ready-for-use’ again. Another option is facilitation of secondhand sales by consumers via channels of the company. This is not only applicable for returns, but also for used products.

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Supply chain control (1) Building the future supply chain: Recommendations

Recommendations • Focus supply chain control on integral profitability • Measure profitability across channels

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Supply chain control (2) Building the future supply chain: Recommendations Focus supply chain control on integral profitability

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There is a need for integral supply chain performance measures. This means that partners in the supply chain measure and reward based on common performance indicators. For most companies this will require a change from more traditional ‘isolated’ KPI’s (Key Performance Indicators) to KPI’s reflecting integral profitability of the entire supply chain. From supply chain partners this will ask for transparency about cost, revenues and profits.

Such an integral control framework has to address industry specific characteristics. For example control of (fresh) food chains will focus on throughput times and expiration dates while non-food chains will focus on responsiveness and efficiency.

Measure profitability across channels

▪

The Fresh food supply chain: strong platform control at DeliXL DeliXL intends to strengthen its fresh image through collaboration with local partners. The solution of DeliXL is in a common e-commerce platform for its partners. Next to sales via this platform DeliXL provides administrative and logistics support to its partners. A recommended roadmap to increase use of capacity and knowledge and to change the rules of the game: regionally-oriented supply chains.

For more information: see appendix

Environmental control at Puma

As all sales and distribution channels will mutually effect each other in an omni-channel environment, integral profitability must be judged across all channels. This will also facilitate the future omni-channel internal organization

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Puma calculated the total damage to the environment of its activities in 2011 and presented the results in an ‘Environmental Profit and Loss Account’ (EP&L). In 2012 Puma added the figures for damage of individual products to the environment. Information has been gathered in all of the supply chain of Puma and helps Puma with improvements. Besides this Puma creates transparency to consumers and Puma is willing to share its knowledge with other companies for a better world.

Source: MVO Nederland

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Information (1) Building the future supply chain: Recommendations

Recommendations • Build information exchange with partners on cross industry standards

• Manage data quality • Enable a more granular identification of your products • Prepare for the Internet of things

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Information (2) Building the future supply chain: Recommendations Build information exchange with partners on cross industry standards

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If you want to sell through additional channels and if consumers require more data about the items they buy, the use of data standards will become inevitable. A company simply can not adapt their own systems to comply with data feed requirements of any partner. As online sector borders blur, cross industry data standards are the best way forward when building or adapting IT systems. GS1 is an important reference when it comes to cross-industry standards for the exchange of product master data, orders, dispatch advices, logistics information and invoices. They also can help with unique identification keys. The combination of a GS1 pallet label with a unique ID and an electronic dispatch advise can speed up the unloading of trucks at the distribution center by 80%.

Food retail wants to speed up goods receiving process by 80% Dutch food retailers, already known for their fast supply chain processes, have started a joint initiative together with their suppliers to speed up their good receiving process by 80 %. In order to achieve this all parties involved will implement bar-coded pallet labels and electronic dispatch advices based on the cross industry GS1 standards. When a truck unloads at the distribution center only the pallet barcode needs to be read to clear in the goods received instead of today’s manually checking of the pallet’s content. These procedures will save time and money for both retailers and suppliers. A supplier with an average number of 200 shipments per week might save between € 34.000 and €147.000 a year.

Transparency in chain at Eosta Eosta - distributor of biological vegetables and fruit - gives consumers insight into the way products are grown and marketed. This increases trust in and commitment to products and suppliers. Eosta explains about quality of products, consequences of production for the environment and social consequences of production.

Source: MVO Nederland

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Information (3) Building the future supply chain: Recommendations Manage data quality

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Automatic data feeds into the IT systems of partners mean increased efficiency, but sending out wrong data will have a negative impact for all parties connected to this system. Also consumers require detailed insight into the supply chain, “24/7” and via different touch points. The smaller the screen of their device is, the more specific and targeted the information must be. Moreover wrong or unclear information may cause unnecessary costly returns. Data Quality is therefore a key issue to manage. Research in the Dutch food industry showed that in April 2014 only 30 % of the manufacturers where able to provide product data with an accuracy level of 95 % or more. Taking into account the growth in supply chain partners that e-retailers are connected with, as well as the growth of the number of product data elements that will be exchanged, Data Management will become a key competence for both (r)etailers and manufacturers.

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Intergamma requires correct product data for online retailing Intergamma (Gamma and Karwei bouwmarkten) recently started an online webshop. During the preparation phase a lot of attention was given to the collection process of product data. During a suppliers’ meeting at their head office the Operations Director of Intergamma made a clear statement: suppliers who do not intend to share product data through electronic data synchronization based on GS1 standards, would jeopardize their often long term relation with this market leader.

Source: GS1 Nederland

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Information (4) Building the future supply chain: Recommendations Enable a more granular identification of your products

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Consumer and product safety legislation and the consumer ‘s information needs will require a more granular identification of products. For example specific batch information is needed for information on product quality. Customization, efficient warranty and returns handling may even require identification of each single item (the instance of a product). GS1 offers several options to cover such needs. Create a grid of sectors, business processes to be supported and the required identification level to determine the best solution.

NGPI: new generation product identification In 2013 the 50 largest retailers and manufacturers in the world started a project to determine how to handle product identification in the next 20 to 40 years. Although the project has still to be finalized we can expect that today’s barcode will continue to be at the core of product identification. At the same time new possibilities will appear: products might get an additional batch number, expiry date or serial number.

(R)etailers might benefit from serial number use in their return processes: they can easily determine where they had originally sourced the returned product or whether the same product is returned as the one that was initially sold.

Source: GS1

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Information (5) Building the future supply chain: Recommendations Prepare for the Internet of things

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In today’s world product data is pushed to the next link in the supply chain directly or through a data pool. As the amount of data increases and certain data elements become more dynamic, a new approach is needed. The speed and reliability of tomorrow’s Internet makes it possible to pull data from each supply chain partner when needed. This means that retailers and other supply chain partners can avoid ever growing Product Data Management systems.

Manufacturers and other partners can add data via publishing on the Internet.

Once again, also this data needs to be structured according to cross industry standards in order to be interpreted correctly by partners involved.

Metro’s traceability approach and more World wide retailer Metro has used RFID to follow pallets in its supply chain process for several years. Every time a pallet passes a scanner the RFID chip reports its identification number to the reader, which posts number, time, place and why of the transaction on the internal web server of Metro. In the near future Metro will use the same technique, but with a serialized GS1 barcode to track and trace consumer items of fish in order to comply with new legislation on fish traceability. Metro will not only be able to trace the partners in the supply chain of a certain item but will also be able to request specific information from them concerning topics like production or handling methods, certification, quality etc. This way the product data flow turns from push to pull, avoiding extremely large and difficult to handle product databases at the retail side.

Source: GS1

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Two additional topics: 3D printing and small retailers Building the future supply chain: Recommendations

▪

▪ ▪

Apart from the ‘standard’ supply chain dimensions we have addressed two additional topics that deserve attention: – 3D printing may cause a disruptive change in the supply chain – Small retailers may have to reinvent their function and capabilities to respond to trends and possible future developments Around these two topics additional recommendations have been formulated The next slide is a visualization of supply chain models. 3D Printing has been added as a new additional supply chain model. It clearly shows the increased complexity companies have to deal with, especially when they act in multiple business models which may change over time.

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Supply chain models in an omni-channel world Building the future supply chain: Overview supply chain models Raw materials Logistics packaging (collies, crates, pallets, shrinks) Individual items 3d printing at home

3D printing

Pick up points

3d printing at print shop Print shop

Manufacturer

Pick up at pick up point

Online store replenishment Brand direct

E-fullfilment center Pick up in store product brand(s) Product brand Eur. DC / Reg. DC

Private label (R)Etail /

From store to door/pick in store

Store replenishment Home Mono brand stores

Manufacturer

Cross dock Wholesale Consignment/VMI

Between stores Store replenishment

Concession / shop in shop

Retail chain stores

Pick up at pick up point Online store replenishment

Home delivery from small retailer

Pick up in store E-fullfilment center (r)etailer(s)

Pick up at pick up point

Concession Wholesale

From store to door/pick in store

Retail Distribution center

Reseller

Market place

Direct delivery from product brand

Specialist store

Home delivery from online retailer Home delivery from market place DC

Market place DC

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C2C

3D printing (1) Building the future supply chain: Recommendations

Recommendations • Aggregate demand for raw materials • Facilitate consumers in production • Implement raw materials transport to consumers • Take care of leftovers in 3D production • Provide for supporting information for 3D printing

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3D printing (2) Building the future supply chain: Recommendations

Sourcing

Inventory & planning

Handling

Aggregate demand for raw materials ▪ For 3D printing it is all about raw materials. Consumers are printing their own products based on these raw materials. For suppliers/producers it is not about predicting demand for products and product groups anymore. The demand for products, which are mostly not known, needs to be translated into demand for raw materials.

Facilitate consumers in production ▪ In 3D printing retailers will become superfluous and producers will deliver raw materials to consumers. Also here new roles emerge like design (help) for consumers and quality control of 3D printing. These paths need to be explored in future.

Implement raw materials transport to consumers ▪ For 3D printing raw materials are shipped to consumers. First of all this needs to be done in handy packaging like cartridges. When manageable packaging is arranged for, products can be picked from the warehouse like other packaged goods. Also transport can be combined with transport of other products to consumers.

Transport

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3D printing (3) Building the future supply chain: Recommendations

Returns

‘Leftovers’

Take care of leftovers in 3D production ▪ Besides returns of raw materials with 3D printing returns are as a rule not applicable.

Also 3D printing may be used for repair of products by consumers. The question is however what will be done with products with failures or leftovers from 3D production.

A environmental friendly way of disposing of these products must be developed. Also government can play a role here.

Provide for supporting information for 3D printing ▪ For 3D printing new kinds of information will be shared. Consumers will be interested in designs, which will definitely work, next to own scans. Also information about characteristics of raw materials and which materials to be used in what situation, need to be made available to consumers. Further information can be shared about produced items (like performance, characteristics etcetera) en leftovers.

Information

Although the speed of introduction of 3D Printing in the supply chain is hard to predict, it finally will mean a disruptive change in the supply chain. Fashion, bags, toys and many spare parts can already be printed. The current use mainly focuses on the creation of prototypes, like Adidas and Nike do. 3D printers may become a standard element in every household, but one can also think of a revival of the ‘copy shops’ as 3D printing stores. © Shopping 2020

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Small retailers (1) Building the future supply chain: Recommendations

Recommendations • Participate in buying groups and shared services to create buying power • Collaborate to reach and service the consumer • Invest in information technology and shared delivery services

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Small retailers (2) Building the future supply chain: Recommendations Participate in buying groups and shared services to create buying power ▪ Certainly small retailers, but also small product brands, will face major challenges to survive in this market on their own. It is crucial to receive competitive conditions when sourcing. Bundling of power is a good way to bring this about. Via buying groups even small companies can form a power block. Moreover, small retailers can share facilities and large investments, like back office systems and services.

Collaborate to reach and service the consumer ▪ Reaching consumers via the internet currently requires major investments in online marketing. Small retailers have to ‘horizontally’ collaborate to reach consumers online via aggregated models such as high traffic market places or local initiatives like Negen Straatjes in Amsterdam. Especially when location based search is applied, this offers new opportunities for small local retailers. Small retailers often remain attractive for consumers because of their ‘niche’ specialisms (like handcrafts) and their bond with the local community. If local players are able to collaborate in stimulating and marketing these specialisms, this will increase their vitality. Vertical collaboration is necessary to offer the long tail without unbearable stock risk.

Invest in information technology and shared delivery services ▪ Sharing information (product data, stock data) and speedy delivery services is needed to meet the requirements of these large platforms (like Google Express). One has to invest in information technology to be able to play a role in the future shopping landscape. Delivery services often can be sourced from third party service providers.

Again, collaboration and bundling of buying power may become necessary to make those services available at feasible cost.

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CONCLUSIONS Winning the supply chain battle!

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Conclusions: Think ahead and start now!

Shopping 2020: Supply Chain Conclusions: Winning the battle!

In order to win the ‘battle of the supply chains’ in 2020, it is essential to develop key supply chain capabilities around ‘Flexibility’, ‘Collaboration’ and ‘Information’. These are the key elements: 1. Flexibility: Think about your specific role in the new competitive landscape. Focus on distinguishing added value you can bring. Create flexibility in sourcing and stock in order to have all stock available to all channels.

2. Information: Invest in standardization and information exchange by building an information exchange with partners on cross industry standards. Supply chain visibility (stock and tracking & tracing) and operational excellence in data quality will become key.

3. Collaboration: Seek flexible partnerships and ‘dare to share’ information with your partners. Create transparency. As a ‘small retailer’: work together in buying groups and consumer marketing.

And: in order to win in 2020: start now!

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APPENDICES • Details Expert Group members and interviewees • Shopping 2020 general information

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EXPERT GROUP AND INTERVIEWEES Supply Chain

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Expert group Supply Chain Shopping 2020: Supply Chain

▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪

Name Henk-Jan Groeneveld Kees Jan Roodbergen Theo Heemskerk Jacco Timmerman Erwin Grondman Robin Tichler Pieter Aarts Rens Tap Martijn Arkesteijn Jos Visee Hans Elshout Benjamin Grugeon Bart Lammers Rowell Versleijen Ferry den Hoed Erik Velthoven Maarten van Welsem Jerry Tracey Frank Balder Frits van den Bos Axel Groothuis

Company Bugaboo Rijksuniversiteit Groningen V&D BCC elektro-speciaalzaken Telegraaf Media Groep Kijkshop.nl Intergamma Modint AkzoNobel Decorative Coatings Philips S&H Productfulfilment Procter & Gamble Technische Unie Plus Retail Etam Groep Casio Benelux Eurogroup Consulting Nederland GS1 Nederland Eurogroup Consulting Nederland GS1 Nederland Eurogroup Consulting Nederland © Shopping 2020

Position Global Supply Chain Director Professor of Quantitative Logistics Director Logistics Senior Manager Logistics Manager Operations Manager ICT & Logistics Head of Supply Chain Projects Senior Consultant Information Manager IT Business Partner O2C Director Commercial Supply Chain Manager BNL Manager Supply Chain Management Director Logistics COO Sales Manager Senior Manager Sector Manager DIY & Garden Partner Manager Innovation Partner 97

Interviewees Shopping 2020: Supply Chain

▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪

Name Alex Jonker Eric Koch Sandra Verhoef Jasper Zeelenberg Steven Witteveen Eelco Schuller Arjan van der Heijden Maarten Tibosch Melbert Visscher Bart Sanders

Company HEMA Ahold Wehkamp.nl Retailisation FashionUnited Indicia Coolblue Just Brands LEGO CB CB

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Position Director Supply Chain and E-commerce VP Global Supply Chain e-Commerce Supply Chain Manager Director Co-founder / partner Manager Logistics Operational Manager Senior VP Value Chain Innovation Chief Commercial Officer Business Development Fashion

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PROGRAM INFORMATION Shopping 2020

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About the Shopping 2020 research program How do consumers shop in 2020?

Shopping 2020 is a research program whose goal it is to answer the following central question: “How do consumers shop online in 2020 and which actions need to be undertaken on an national, sector and company level upon that Dutch B2C selling companies can act on this successfully, nationally, within Europe and globally.”

The motive for this research program is that the current retail, finance and travel landscape is changing rapidly and despite the current economic crisis, companies have to reposition themselves in order to survive beyond 2020: • • • • • •

Changing consumer behavior (from single- to omni-channel); Disintermediation of the value chain (producers sell direct); Rise of new media (Google glasses, voice/virtual recognition) Product digitalization (gaming, 3D printing); Internationalization and global hyper competition (Amazon, Wallmart); etcetera…

Many of the developments are universal and reach across multiple Industries and sectors. © Shopping 2020

Source: www.zazzle.nl

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19 key themes were defined to create a Shopping2020 Vision & Actionplan In each expert group experts from the scientific, political and business community are participating

Future Trends Shopper Behaviour

Cross border (e)Commerce

Technological

Future Touchpoints

Ecology

Customer Journey

Political / Legal

Key Themes

Orientation

Selection

Shopping2020 Vision

Transaction

Delivery

Action Plan Shopping2020

Customer Care

Customer Data Value Management

Travel Action plan

Retail Action plan

Finance Action plan

…

Action plan

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Business Models

Omnichannel Organization

Security & Fraud

The New Shopping Street

Smarter shopping

Supply Chain

Online Entrepreneur-ship

…

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In total more than 460 experts are working for half a year on Shopping2020

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The Shopping2020 has been made possible by a large community Of Founding Partners, Hosts, Industry Organizations, Knowledge, Network & Media Partners Commissie van Aanbeveling

Ed Nijpels (voorzitter) Bernard Wientjes (VNO-NCW) Arie van Bellen (Directeur ECP) Martijn van Dam (kamerlid PvdA) Jan Kees de Jager (vml. Min. Fin.)

Cor Molenaar (Erasmus Universiteit) Kitty Koelemeijer (Universiteit Nyenrode) Walther Ploos van Amstel (VU) Erik Fledderus (Directeur TNO) Heleen van Oord (Directeur DQ&A)

Giovanni Colauto (CEO Bijenkorf) Harry Bruijniks (CEO Euretco) Ronald van Zetten (CEO Hema) Joost Romeijn (CEO Sundio Group) Paul Nijhof (vml. CEO Wehkamp) Annemarie van Gaal (CEO van Gaal)

Herna Verhagen (CEO PostNL) Nick Jue (CEO ING NL) Michiel Buitelaar (COO Sanoma Media) Danny van der Eijk (Chairman Achmea) Harry van Dorenmalen (CEO IBM Europe)

Program Board Program mgt: Jorij Abraham Mar/Com: Inge Demoed Research: Eveline Poerink Congres: Marin Wiellersen

Support Team

Travel

Dymfke Kuijpers

Key Themes Axel Groothuis

…

Founding Partners:

…

…

…

…

Expertgroep Orientation …

Expertgroep Technologisch

Expertgroep Business models

Expertgroep Online ondernemen

Customer Journey Arjen Bonsing

Expertgroep Cross Border (e)Commerce

Expertgroep Shopper Behaviour

Future Trends

Retail

…

Expertgroep Selection …

Kennis partners:

…

Expertgroep Omnichannel Organisatie

Expertgroep Veiligheid / Fraude

Expertgroep Transaction …

…

Expertgroep De Nieuwe Winkelstraat

Expertgroep Customer Care

Expertgroep Delivery

Wetenschappelijke partners:

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Expertgroep Supply Chain …

…

…

Expertgroep Politiek / Juridisch

Expertgroep Ecologisch

Expertgroep Future Touchpoints …

…

Finance

…

Netwerk partners:

Smarter Shopping

Expertgroep Customer data value management …

Media partners:

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More information can be found at www.shopping2020.nl Here you can find all (intermediate) reports of all expert groups

Visiting address: Horaplantsoen 20 6717 LT Ede

Postal address: Postbus 7001 6710 CB EDE Phone: +31 318 64 85 75 Email: info@shopping2020.nl

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REFERENCE CASES Supply Chain

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Bol.com – Bolplaza – Restriction of inventory Summary

Shopping 2020 – Supply Chain – Example • • • •

Bol.com would like to expand its assortment How can Bol.com expand quickly and in a controlled way?

Bol.com offers a platform for companies with online sales ambitions Bol.com performs role of agent and doesn’t bear any inventory risks

Situation and challenge/ issue / goals / vision?

• Bol.com would like to expand in assortment and in choice within the assortment without bearing too many risks

Quantitative figures • Expansion of assortment is on going and network of partners has been connected Requirements for success • Strong brand with consumers

Solution / Example • Bol.com only plays role of aggregator of supply and of market place (Bolplaza) • Moreover Bol.com takes care of the bundling and classification of information for consumers and for guarantee of quality • Bol.com has an agent model, in which compensation consists of a percentage of sales via Bolplaza • No inventory is held by Bol.com and delivery of products is not executed by Bol.com Advantages • Bol.com uses its reputation to expand quickly to other product groups without taking too much risk Applicability Shopping2020 • Etailer doesn’t need to take risks to be successful • Strong etail brands can function as market places without taking care of e-fulfilment, but leaving this to partners Acknowledgement • Bol.com; Bolplaza

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Coolblue – ‘Customer centric’ Summary

Shopping 2020 – Supply Chain – Example • • • • •

For Coolblue the customer comes first Customer service is the competitive advantage of Coolblue Delivery options and returns are confirming this Coolblue offers customers many flexible options aiming at convenience Besides this options for delivery and returns are clearly explained

Situation and challenge/ issue / goals / vision?

• Coolblue is customer centric in its way of working • The question is what this means for delivery options and the return process?

Solution / Example

• A clear description is available for delivery options and return process • Delivery options: free delivery, at appointment, ‘delivery today’, pick-up in stores and pick-up

Quantitative figures • >200 webshops, 5 physical stores • 14 days return window • Free returns • When returning money back within 5 days • NPS (Net Promoter Score): 62 Requirements for success • Customer centric organization • Focus on simplicity • Transparency about options, requirements and restrictions

points

• Coolblue offers customers many possibilities to contact Coolblue about returns and to return products • In addition, Coolblue is transparent regarding returns and restrictions are clearly indicated

Advantages

• Guarantee of customer experience during complete process from buying to returning • All activities are focusing on customer loyalty • Less attention and time needed for disputes with customers Applicability Shopping2020 • Maximum customer experience in terms of delivery options • Importance of transparency and customer focus in returns • Decrease of costs by simplicity in return process Acknowledgement • www.Coolblue.nl © Shopping 2020

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Hunkemöller – Click and collect Summary

Shopping 2020 – Supply Chain – Example • • • •

Hunkemöller customers have a free store pick-up for their orders Consumers are able to reserve products in a store online Until seven days after reservation products can be fitted and picked-up Requirement is that stores do have products on stock

Situation and challenge/ issue / goals / vision?

• Multichannel strategy of Hunkemöller is all about convenience for customers Solution / Example • Consumer chooses a store and is able to reserve a product when on stock • Online purchases can be delivered at home, but can also be put aside in a store for seven days • Consumers are allowed to fit clothing in the store and decide afterwards about the purchase

Quantitative figures • Number of stores: 400 • Revenue : 200 million Euro • Start service: March 2013 • App downloaded 80.000 times Requirements for success • Products need to be in stock to avoid disappointments • Integration of different systems and advanced website/webshop for correct handling of reservations

Advantages • More traffic to stores • Online and offline channels strengthen each other • Higher service level to consumers: consumer has a choice Applicability Shopping2020 • Companies can use reservations to generate traffic to stores and are able to reinforce success of different channels Acknowledgement • http://www.hunkemoller.nl/nl_nl/klantenservice/clickandcollect.html • http://twinklemagazine.nl/nieuws/2012/09/hunkemoller-komt-met-internationale-site-en-reserveeroptie/

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Tesco UK – Supply Chain Analytics Summary

Shopping 2020 – Supply Chain – Example • Tesco UK saves significantly by use of so called Supply Chain Analytics • Extensive analysis of supply chain data is done • Identification of opportunities: • To reduce waste • To optimize promotions • To match inventory with fluctuations in demand

Situation and challenge/ issue / goals / vision?

• Since 2006 Tesco UK is using Supply Chain Analytics intensively to reduce costs • Goal is to build forecast models based on sales in combination with other factors like weather • Also analyses of discounts and promotions have led to optimization of the supply chain Solution / Example • Reorganization of own data infrastructure • Specific team to create forecast models • (Supply chain) actions defined to realize future savings Advantages • Improved matching of supply and demand (decrease of surplus and fewer stock-outs) • Improved workflow for planning and monitoring discounts and promotions • Significant financial savings

Quantitative figures • 3146 stores • 16 million Tesco Clubcardmembers • 1500 pick-up points • 150 drive-thrus Requirements for success • Data structure in place • Know-how available regarding data modelling • Sufficient customer-/sales information available

Applicability Shopping2020 • Enormous potential of supply chain savings when data structure is in place, customer information is available and models work for type of business Acknowledgement • www.tescoplc.com • http://www.information-age.com/technology/information-management/123456972/tesco-saves-millions-with-supply-chain-analytics

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Carnegie Mellon – In store robots Summary

Shopping 2020 – Supply Chain – Example • Carnegie Mellon Campus Bookstore is currently performing a pilot with robot-driven • • •

inventory management in the store The robot monitors shelves and assesses inventory levels and signals misplaced products This information is presented to store personnel on their tablets Inventory levels and other relevant information are also presented to consumers (via apps)

Situation and challenge/ issue / goals / vision?

• To provide consumers with product information, inventory information and location information in physical store • To present inventory levels and misplaced items to store personnel

Quantitative figures • Pilot phase

Requirements for success • Available technology • Adjustment of processes to technology

Solution / Example • In store robots based on Kinect sensor, image processing and machine learning algorithms, 2D and 3D views on products and a shelve plan/map of the store Advantages • Inventory management decoupled from human discipline • Integration of offline and online shopping for consumer • Cost reduction by less FTE Applicability Shopping2020 • Use of robot technology in supply chain • Integration of offline and online business based on real-time data Acknowledgement • http://www.engadget.com/2012/06/30/carnegie-mellon-andyvision-bot-takes-retail-inventory/?a_dgi=aolshare_twitter&a_dgi=aolshare_twitter • Pilot Carnegie University en Intel © Shopping 2020

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Miele–Drop shipments for etailers Summary

Shopping 2020 – Supply Chain – Example • Miele would like to preserve its quality brand in a changing online environment • New distribution contracts with severe requirements on product information and brand communication

• Delivery to and service for consumers by Miele via drop shipments

Situation and challenge/ issue / goals / vision?

• The question is how Miele can guarantee ‘end-to-end’ consumer experience when consumers buy at etailers?

Solution / Example • Miele has a schedule of requirements for websites and brand advertisements for etailers • Online orders are delivered by Miele (drop shipment) Advantages • Perseverance of quality and completeness of product information • Miele itself guarantees consumer experience and desired quality level • Consumer experiences service suiting the brand • Miele gets to know consumers better (directly) • Decrease of stock in chain • Fewer returns because of professional installation • Increased control of product life cycle management

Quantitative figures • Miele piloted this way of working in the Netherlands

Requirements for success • Strong product brand with ability to impose requirements on etailers • Professional fulfilment operation by supplier • Clear distribution contracts with agreements about customer ownership/customer data • Information integration with etailers

Applicability Shopping2020 • Producers/suppliers may take over supply chain control of (r)etailers to better guarantee quality • Shortening of the supply chain by use of drop shipments Acknowledgement • Magnus, Mtec, 2013

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Bol.com – Pop-up Summary

Shopping 2020 – Supply Chain – Example • Bol.com has opened a physical store in underground station of Rotterdam • Pictures of products are shown at a wall and can be scanned via QR-codes • Scanning means ordering and afterwards products can be paid for and picked-up in •

Quantitative figures • First pop-up shop Bol.com

the store An extra shopping moment is created in this way

Situation and challenge/ issue / goals / vision?

• Bol.com would like to create an extra shopping moment for consumers • A normally ‘lost’ moment is used for shopping

Requirements for success • Ease of use • Availability of products

Solution / Example • A physical store with a limited number of products, related to the location • Ordering these products can be done in a pleasant way with use of the latest technology Advantages • Use of presence of consumers • Creation of special shopping experience by use of technology • Limited space and capacity needed Applicability Shopping2020 • Pop-up store principle can be used for different products in different settings (dependent on searched image) • Creation of additional shopping moments for consumers Acknowledgement • http://www.hyped.nl/nieuws/bolcom-opent-popup-store-op-rotterdam-centraal.html#.UgDz_1OPVJO

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Tesco Homeplus – Pop-up Summary

Shopping 2020 – Supply Chain – Example • Tesco has a limited number of stores in South-Korea labeled Homeplus • A creative concept is required to grow under difficult market circumstances • Tesco Homeplus has started virtual shops in underground stations to facilitate consumers in mobile shopping at ‘lost’ moments

Situation and challenge/ issue / goals / vision?

• Koreans have a busy life, travel a lot and don’t have much time available for shopping • The challenge for Tesco is to become number 1 retailer of South-Korea under these circumstances Solution / Example • Virtual shops: walls in underground stations with posters with fresh food shelves of super markets with QR-codes to facilitate ordering by consumers • Delivery at same day as order (reliable delivery concept)

Advantages • Strong knowledge of target group and local culture and relevant application of mobile platform to create sales moment and to build customer loyalty

Quantitative figures • Revenue 2012/13: £5,311 billion • 520 stores • 6 million customers a week • 76% rise in newly registered users • 130% rise in online sales • App > 1 million downloads • Several nominations and prizes for concept

Requirements for success • Thorough knowledge of target group and local culture • Reliable delivery concept

Applicability Shopping2020 • This format is strongly situational, but next to food it may be used in other industries nationally and internationally • Important attention points are the correct combination of online and offline tools and a matching delivery concept for customer experience reasons Acknowledgement • http://bit.ly/jD13QA ; http://bit.ly/112d6d9 ; http://bit.ly/1586VJw

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Dell – Demand shaping Summary

Shopping 2020 – Supply Chain – Example • Dell gathers and shares valuable customer data with suppliers to increase accuracy of • •

forecast, but at the same time to influence demand Two information loops, internally and externally, make sure Dell is aware of articles to be produced When products cannot be delivered in time Dell responds with promotion of products, which are available

Situation and challenge/ issue / goals / vision?

• Dell is constantly searching for to ways to reduce waste, time and costs Solution / Example • Dell gathers large amounts of customer data and shares this data with purchasing and sales departments, but also externally with suppliers • To be able to successfully forecast demand two information loops are in place, one between customers and sales and one between sales, purchasing and suppliers • In case of demand for products which are not available, Dell launches marketing actions for products which are available or which can be delivered quickly by suppliers, to shift attention and consequently demand for these products Advantages • Based on data, Dell has good insights, into future production and is able to produce fast • Information of suppliers is used by sales team to define promotions for products • Dell does not have surplus stock or high inventory levels, but products are in perception of customer always available and are delivered quickly

Quantitative figures • Correct forecast ofsales: 75% • 95,000 employees • Revenue 61 billion dollar • Profit 3 billion dollar Requirements for success • Well-defined agreements with suppliers and willingness to share valuable information • Advanced systems and software to process vast amounts of data • Flexible suppliers, which are able to constantly meet with changing demands

Applicability Shopping2020 • By use of sales information, companies can provide for a decrease in surplus stock and a decrease of inventory levels, by improved forecasting of demand Acknowledgement • http://www.reliableplant.com/Read/7129/dell-supply-chain • http://www.fastcompany.com/51967/living-dell-time

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Amazon– Demand shaping Summary

Shopping 2020 – Supply Chain – Example • Amazon not only is interested in following demand of consumers, but also in steering • •

this demand To enable this, Amazon uses information based on online transactions in the past This offers Amazon the opportunity to generate demand for products preferred by Amazon

Situation and challenge/ issue / goals / vision?

• Amazon would like to steer demand of consumers. In this way sales can be boosted and supply chain efficiency can be increased • Examples: offer extra product in same line (extra book), offer accompanying product with main product (paper with printer), offer available products, decrease prices to smoothen capacity load in time, increase prices of products to avoid inventory shortage Solution / Example • Amazon has a lot of information about needs of consumers based on online purchase behaviour in the past • This information is used to steer demand of consumers in a ‘logical’ way Advantages • In general consumers are positive about service with relevant proposals for purchases • Amazon is able to sell products, which they would like to sell

Quantitative figures • Amazon is largest etailer in the world

Requirements for success • Sufficient relevant data to generate valuable information • Adequate ICT support for demand shaping

Applicability Shopping2020 • Demand shaping is online and offline applicable for influencing demand. As a rule online information gives the opportunity to respond faster Acknowledgement • http://www.dcvelocity.com/articles/20110718demand_shaping/ • http://emcien.com/demand-sensing-and-demand-shaping/Amazon © Shopping 2020

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Home Depot – Cross-Docking Summary

Shopping 2020 – Supply Chain – Example • Home Depot is the largest DIY retailer in the world. Since 1979 only focus on •

• •

expansion and revenue. At start of 21st century this did not work out anymore In 2007 start of reorganization of supply chain: replenishment of stores via Rapid Deployment Centres (RDC’s) In RDC’s central ordering of products with cross-docking to stores at last moment Store replenishment has improved and empty shelves have disappeared

Situation and challenge/ issue / goals / vision?

• Home Depot has had a focus on number of stores and sales at the expense of customer service and operations

• Supply chain was inefficient with empty shelves in stores and high costs • Revenues and value of the company decreased in the beginning of the 21st century; change was needed

Quantitative figures • 2300 stores • Revenue 75 billion • 5% of all sales online • About 150 million online visitors per year Requirements for success • Strategic locations for RDC’s • Good information exchange between different parts of operations

Solution / Example

• • • •

Home Depot decided to centralize ordering at supplier at Rapid Deployment Centres (RDC’s) Home Depot built 24 RDC’s, with replenishment of 100 stores per RDC RDC’s are only used for cross-docking and products may stay in the centres for only 24 hours For e-commerce additional DC’s are built

Advantages

• 75% van products are ordered centrally, large advantages at bulk purchasing • Improved store replenishment because only at the last moment it is decided where to ship goods to

• Decrease of empty shelves and inventory costs Applicability Shopping2020 • Centralization of inventory leads to cost reduction and support of hubs to facilitate distribution Acknowledgement • http://logisticsviewpoints.com/2012/11/05/home-depot-drops-the-e-off-of-e-commerce/ • http://www.dcvelocity.com/articles/20090801verticalfocus/ © Shopping 2020

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Nike – Mass customization Summary

Shopping 2020 – Supply Chain – Example • • • •

Nike offers customers opportunity to design and to order own products Focus is mainly online, but also some physical stores are available Publicity is booming by having fans ‘in charge’ Supply chain advantages are decrease of inventory because of better match between demand and supply

Situation and challenge/ issue / goals / vision?

• Nike started in 1999 with the concept of ‘self-design’, but the real breakthrough only came in 2005 after an ‘upgrade’ of the site • Nike has created real brand ambassadors by letting customers make their own designs and has generated supply chain advantages at the same time Solution / Example • Mass customization where customers accept longer delivery times and higher costs because of unique proposition • Co-creation: Self-design of products by customers in a pleasant online shopping environment • Addition to this concept by physical stores and mobile applications Advantages • Improvement in matching of demand and supply and herewith decrease in inventory • Fewer inefficiencies of mass production: less loss (of time) because of bad forecasts • Satisfied customers despite longer delivery times and higher costs

Quantitative figures • Revenue >$100 million per year • >20% of total ‘store revenue’ • >2 million facebook fans • >3 million website visitors a month Requirements for success • In fashion industry only a strong brand -with fans- is capable of implementing mass customization • Transparency in delivery times and costs • Professional logistics and fulfilment operation

Applicability Shopping2020 • Mass customization within fashion is applicable in case of a strong brand. In addition it is a method of creating supply chain advantages (amongst others decrease of costs) Acknowledgement • Huffington post, “NikeID Makes $100M+: Co-Creation Isn't Just a Trend”, juli 2010 (http://huff.to/b40wpb) • Crossroad innovation, “NIKE ID – THE FIRST EXAMPLE OF MASS CUSTOMIZATION DRIVING REVENUE?”, september 2010 (http://bit.ly/mob5VS)

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Amazon – Close to customer Summary

Shopping 2020 – Supply Chain – Example • Amazon was not yet present in Europe • How is Amazon able to enter Europe and to serve customers adequately?

• Amazon chooses for local presence and local distribution power to be able to deliver fast to customers

Situation and challenge/ issue / goals / vision?

• The question is how Amazon can optimally serve consumers in the European market?

Solution / Example • Amazon chooses for strong physical presence in Western Europe • It has about twenty distribution centres in Europe with amongst them centres in Germany, England and Italy • In this way Amazon is always close to consumers and is able to realize short delivery times to customers Advantages • By local presence Amazon is capable of getting ‘market sense’ and fast delivery

Quantitative figures • Amazon is largest etailer in the world • About 20 distribution centres around Europe (Emerce, 2011) • In 2012 the company opened up 20 new distribution centres. The worldwide total is now 89.

Revenue in 2012: 51,73 billion dollar compared to 42 billion dollar in 2011 Requirements for success • Financial possibilities to invest in infrastructure • Marketing power to engage consumers in new countries

Applicability Shopping2020 • For players, entering the Dutch market, local proximity/presence is important • Local presence for ‘market sense’ and speed of delivery Acknowledgement • Emerce, Amazon vergroot Europese distributiekracht, juli, 2011 • http://www.analist.nl/berichten/2013/01/30/11909/Koers+Amazon+schoot+omhoog+naar+publicatie+cijfers+2012 © Shopping 2020

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Deli XL – Local for local Summary

Shopping 2020 – Supply Chain – Example • Deli XL would like to strengthen fresh image • How can Deli XL use its infrastructure to provide local players with a platform?

• Via ‘Vers 24/7’ Deli XL offers local players the opportunity for profiling

Situation and challenge/ issue / goals / vision?

• Deli XL would like to strengthen its position in fresh food • Moreover Deli XL has a positive attitude towards local players Solution / Example • Deli XL takes care of a platform for local players and of a professional presentation of the offering • The administrative and logistics support is done by Deli XL • Via internet bundling of the supply takes place with e-fulfilment by Deli XL

Quantitative figures • About 40 partners • More than 1.000 local products

Requirements for success • Good integration of information with partners • Standardization of product data • No competition between supplier of platform and partners: Deli XL has supporting role for local partners

Advantages • For Deli XL it means a use of capacity and knowledge • Local players do have better opportunities for profiling and are able to use experience of Deli XL Applicability Shopping2020 • Set-up of regionally oriented supply chain means a new way of competition • Cooperation in the supply chain between large and small parties is possible when they are not each others competitors Acknowledgement • Artikel: Nieuwe website Vers 24/7: ruim 1.000 lokale producten

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BUILDING THE SHOPPING 2020 SUPPLY CHAIN For more information please contact: Eurogroup Consulting Gooimeer 5-39 1411 DD Naarden 035-6996069 www.eurogroupconsulting.nl Axel Groothuis +31 (0)6-51243288 a.groothuis@eurogroupconsulting.nl

GS1 Nederland Amsterdamseweg 206 1182 HL Amstelveen 020-5113888 www.gs1.nl Frits van den Bos +31(0)6-50654722 frits.vandenbos@gs1.nl Š Shopping 2020