Last month, manufacturers, retailers, trading companies and vendors gathered at CHaINA ’11 Live, a renowned supply chain event held in Shanghai, to discuss about all the supply chain issues that they are facing in their operations. Retail in Asia caught up with one of the VIP speakers, Arnold Consengco, managing director of N. Asia, Manhattan Associates, to learn about the supply chain challenges that retailers in China are facing. He also told RIA how Manhattan Associates’s Zero Disappointment Retail approach can bring profit growth to retailers.
RIA: What are the major supply chain challenges in different parts of China? Do the challenges differ in different tiered cities?
Arnold Consengco (AC): In China, there are different challenges existing both in the more prosperous coastal tier one and tier two cities, as well as the tier three and tier four cities located inland. In coastal cities, how to manage sudden growth and capacity with a labour force that is utilised from a migrant working population is challenging. In these areas, other challenges also include how to work in a more complicated and intricate delivery network, and how to ensure brand loyalty from consumers that have more developed taste and less likely to stay with a retailer with whom they have had a bad experience. Retailers have to consider how to ensure a wider variety of products with more SKU offerings, as well as what to stock within the distribution centre versus what to select as flow through.
When retailers look at the outlying tier three and four cities, one main challenge that they will see is the competition with the local "Mom and Pop" shops. Also, delivery to the last mile with ecommerce retail is another big challenge here. However, tier three and four cities also present the largest gains because as the market matures and distribution infrastructure becomes more stable, Category Killer type of retail establishment will see a large opportunity. The biggest challenge in these lower city tiers is how to establish a distribution network with fragmented logistics partners or 3PL companies – none of which have a nationwide network.
RIA: How do these challenges affect retailers across different sectors?
AC: I believe that the biggest challenges in dealing with these different tiered cities will probably affect any sector that requires large capital expenditures to support their business, namely cold chain or fresh foods. These sectors will require a higher standard of quality and more expenditure to build out their network with consistent partners that can standardise processes. Outside of this type of environment I believe all sectors share similar challenges. I don’t believe today there are any nationwide cold chain partners that can consistently manage and operate a cold chain environment nationwide not to mention those in lower tier cities.
RIA: What are your advices for retailers who want to cope with the challenges you mentioned above?
For coastline tier one and tier two cities, improved access to information though Supply Chain Intelligence solutions will offer organisations the ability to see in real-time the status of orders, inventory allocations and positions, views and reports, and share that data with suppliers, customers and partner organisations in a highly co-ordinated and controlled way. This type of resource will become increasingly valuable as markets recover further and organisations gain sales momentum. Due to the large space distribution networks that need to be covered, providing the same service levels to these tier three and four cities becomes quite a challenge. The key point in supply chain optimisation centre is to maintain appropriate service levels to final stores/locations. This means that companies have to be very conscious about replenishment optimisation and delivery within a multi-tier supply chain network. This essentially means that safety stock optimisation at both main distribution centre and regional distribution centre have to be optimised as well as the transportation network. Furthermore, order management is critical to determine for deliveries of the priority, location and which suppliers to source from in order to ensure appropriate service levels.
RIA: How can the quality of supply chain in retail change consumer’s experience? How can it help retailers to make more profit?
AC: Supply chain in retail can work to improve the quality of a consumer’s experience in how they receive, pick up, return and even review products within a retail environment, particularly around multi-channel retailers. Retail Systems Research (RSR) has done market research that also prove that retailers that provide both a retail and ecommerce channel are proven to drive more sales and that consumers that shop both multi-channel buy more versus retail only or ecommerce only consumers. The driving force in providing this improved service is around what Manhattan calls Zero Disappointment Retail (ZDR). Zero Disappointment is not just about ensuring right produce at the right time in the right quantity, but it also includes an improved experience of convenience and encompasses the ability to buy anywhere, pick-up and return anywhere to meet the expanding needs of a multi-channel consumer. The increased sale helps to drive more profit, and also the "Save The Sale" advantages allow retailers to manage a single pool of inventory across multiple channels to maximise Exponential Execution and Blended Channel Optimisation.
RIA: Can you tell us more about this Zero Disappointment Retail approach? How does it work in the China market?
AC: China’s retail market is in very rapid development mode. The double-digit pace of China’s economy has spurred an increase in spending for the normal Chinese consumer and this is driving the requirements for retailers to drive new business through multi-channel retail. However, the logistics infrastructure and systems in place today will need to mature in order to keep up with this fast-paced growth. The ability for retailers to improve their profit margins by increasing convenience for consumers through multi-channel avenues while also taking advantage of store assets to buy, browse or return products will be a key differentiator in offering better service to the China market. Manhattan’s ZDR solutions can blend retailers’ different selling channels, engage their customers and drive up their profits. By upholding the rules that create Zero Disappointment customer experiences, supply chains can cement sales and lock-in loyalty.
RIA: Does this approach address the distribution challenges in China?
AC: I believe this does address the challenges in China as well. Many of our customers, particularly in apparel retail are trying to answer this same question and the results are the development of in-house non-integrated solutions with limited scope and scalability. As the market matures and China consumers become more brand conscious not only in tier one and two cities, the requirement for ZDR type solutions will become more obvious.
RIA: Can you share a successful case study with us?
AC: One of our clients, the Men’s Warehouse, a USD2 billion men’s apparel multi-channel retailer, had faced numerous challenges before deploying Manhattan’s solutions. These challenges included:
- Lost sales in store due to out of stocks … lack tools to find, reserve, pickup/ship/transfer from store or DC;
- Existing technology cannot scale to manage orders across divisions, channels, and fulfillment points;
- Millions of costly, manually processed store transfers;
- Lack functionality for store fulfillment (e.g., pickup);
- Higher store labour costs due to poor inbound receiving visibility and confirmation for vendor and dc shipments.
To tackle these challenges, we helped the client to deploy various solutions including:
- Order Lifecycle Management
- IBM WebSphere Commerce Integration
- Warehouse and Transportation Management
- Planning, Forecasting and Inventory Optimisation
- Extended Enterprise Management
As a result, our client has seen growth in revenue and margin, as well as lower logistics and inventory costs. The solutions have also enabled our client to offer its customers convenience, choice and variety.
Arnold Consengco is the managing director of N. Asia, Manhattan Associates. Arnold Consengco is responsible for Manhattan Associates’ sales, services and customer support operations in China, Korea and Japan markets. Arnold has over 15 years experience in supply chain with over 10 years related to the implementation and consulting of supply chain management software for global tier organisations in the Apparel, 3PL, Automotive and High Tech industries. Prior to joining Manhattan Associates, Arnold worked with leading Japanese and American companies to establish distribution strategies and networks in Japan. He developed the distribution network for the delivery and return of PC’s, spare parts in Japan for Micron Electronics and worked with companies such as DELL and The Gap in setting up their initial distribution operations in Japan thru the services of a 3PL. He has lived in Japan in Asia for over 15 years and is a fluent Japanese speaker. He is also a graduate of the University of Michigan where he majored in Economics and Japanese.
Taking Stock is Retail in Asia’s column dedicated to showcasing opinions and providing advice from experts in the retail industry.