Supply Chain Management in China for Omnichannel Retail
November 8, 2023
Over the years, numerous retail enterprises have been transitioning towards online stores and shopping, with the pandemic acting as a catalyst for this transformation within the realm of supply chain management in China. For the end user, this meant new choices and new experiences, real multiple channels to buy merchandise. For businesses supplying these end users, omnichannel retail has become a hot topic. The CPG team asked Michael De Clercq, founder and CEO of the group, to answer a few questions on this topic.
How should one optimize the supply chain to address omnichannel retail?
Omnichannel retail is a commercial strategy designed to provide customers with a seamless experience across all platforms, whether it is brick-and-mortar retail, a webshop or an online marketplace. Such a seamless experience requires the retailer to deliver the product promptly and efficiently no matter how the customer buys it. To do this effectively one must have an excellent and preferably highly automated warehousing and distribution system that can process deliveries no matter what the source of the demand (3PL – third party logistics company).
Are there any risks or new trends to consider?
There are numerous risks for a retailer to adopt an omnichannel strategy, including:
– Upfront investment of both hardware and software
– Implementation of a tracking system that starts at the point of manufacturing
– Insufficient focus on product quality
– Reputational risk with client base if insufficient inventory
– Inventory risk: Warehousing is expensive, but not having enough stock is worse
– Reliance on a 3PL third party fulfillment is expensive, but necessary for omnichannel retailers
Amazon presents both an opportunity and a risk. Success on that platform often means a lot of sales and can also mean a lot of Amazon support. For example, they can pay to promote your Amazon listing on other platforms like Google, etc.
However, with that success and sales power comes exposure, and that can be a risk.
– More exposure to competitors: Successful omnichannel sales means some may want to copy the product and try to undersell.
– “Black hat” tactics have been used to undermine competitors, such as giving bad reviews, or buying a lot of stock at critical times – then returning it, etc.
– Inventory: Strong sales means securing a lot of inventory.
– Lack of control: Amazon can also delist your product, copy it, etc.
The significance of branding is on the rise in the context of supply chain management in China due to the proliferation of affordable Chinese competitors in the online marketplace. Branding is becoming more important again, because of all the cheap Chinese competition online. A lower price is no longer always the winning factor. “Value perception” is. Branding is an opportunity to emphasize quality, reliability, sustainability, women/minority owned companies, Fair trade, giving back, made in the USA – anything that sets one apart from Chinese suppliers.
Competition from dropship companies is also increasing. Such companies don’t hold any stock in the USA. They sell products and ship directly from China manufacturers. It is a different business model, usually with much smaller margins but also much less overhead and risk. The main downside to this option is slow delivery and difficult returns.
Any tips as to how retailers can best forecast demand and allocate inventory to meet customer’s omnichannel expectations?
Forecasting can be challenging because demand is generated by appropriate forms of multi-channel marketing and sometimes by tapping into influencers. Ways to forecast demand depend on the product considered. For fashion-driven consumer goods, forecasting is supported by data analysis of similar products and focus-testing a product in a specific region and timeframe. Platforms like Amazon and Shopify can help with the forecasting and analysis based on past sales and trends. It is useful and worthwhile to study their tools in depth.
Retailers must ensure that robust (and sometimes expensive) omnichannel marketing strategies are used only when sufficient inventory is on hand. Inventory must be secured in advance (sometimes 6 months earlier than before) because the supply chain has been severely disrupted since 2020. Importers might want to consider avoiding shipping through/to the West coast if possible.
Examples of how to align supply chain planning/inventory management in China with omnichannel retail (case study):
A seasonal product with a unique design such as pool inflatables supplied by one of our clients, Loteli (https://loteli.com) is a good example:
– The product has a unique, but proven design
– The retailer has a good understanding of demand
– The product is manufactured in China to secure the lowest possible first cost
– Quality is assured by robust and clearly detailed product specification criteria and an established system of controls
– Packaging is designed to address efficient product fulfillment systems; brick-and-mortar retail display needs and current environmental concerns. Boxes serve the dual purpose of retail display and shipping box all in one.
– Orders are placed for delivery well in advance of the season
– The product is placed with brick-and-mortar retailers (Including Urban Outfitters), and it is available in a webshop as well as through multiple online marketplaces (mostly Amazon)
– Marketing plan and calendar is managed in coordination with a PR company, an Amazon PPC manager, an influencer management system, etc. a few months before the season starts
– Right before the season starts, the product is supplied to influencers such as Gucci, J.Crew etc. and any resulting published material is marketed through platforms such as Pinterest, Instagram and Tiktok with the appropriate marketing spend for maximum viewership.
Supply chain planning for omnichannel retail is a delicate balance of management, putting the right systems in place and staying ahead of trends to mitigate risks and delays. To learn more about how CPG can help, contact us.