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Next-level fulfilment strategies and their
impact on demand planning and forecasting
Danie Schoeman

© 2016 Danie Schoeman & Company.
Global retail e-commerce keeps on
clicking …
$1.077
$1.316
$1.592
$1.888
$2.197
$2.489
25.9%
22.2%
20.9% 18.6% 16.4%
13.3%
5.1% 5.9% 6.7% 7.4% 8.2% 8.8%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
$-
$0.500
$1.000
$1.500
$2.000
$2.500
2013 2014 2015 2016 2017 2018
Retail e-commerce sales worldwide,
2013-2018 (US$ trillions)
eMarketer: Retail Sales Worldwide Will Top 22 Trillion This Year, Dec 2014

… and clicking. Both sides of the globe
6.5% 7.2% 7.8% 8.5% 9.1% 9.8%
12.4%
15.9%
19.6%
23.8%
28.6%
33.6%
2014 2015e 2016e 2017e 2018e 2019e
Share of retail sales made online
expected for US and China
US China
306 349 394 443 494 548473
672
911
1208
1568
1973
2014 2015e 2016e 2017e 2018e 2019e
Projected size of e-commerce markets
for US and China (In US$ billions)
US China
By 2017, China's e-commerce market is expected to exceed US$
1 Trillion and more of what people buy will be bought online.
eMarketer, 2015; Alibaba Group 2015 Annual Report

The consumer’s newfound power
Web (search, comparison
shopping, etc.)
Social (social network,
reviews, community, etc.)
Digital content (video,
editorial, etc.)
Company website
Mobile (apps, mobile Web)
In-store device (kiosk,
associate device, etc.)
Tablet (apps, Web)
Call centre
Branch / outlet /store
External
digital
touchpoints
Branded
digital
touchpoints
Traditional
touchpoints
Depth
Forrester report: Welcome To The Era Of Agile Commerce, 2014

Highly influenced by digital factors
17%
20%
23%
30%
29%
29%
29%
35%
37%
31%
35%
39%
49%
52%
55%
55%
59%
62%
Food/Beverage
Misc. Supplies
Health/Wellness
Apparel
Baby/Toddler
Entertainment
Automotive
Home Furnishings
Electronics
Digital and mobile influence by category
Digital influence Mobile influence
Deloitte: Navigating the new digital divide - Capitalizing on digital influence in retail
The influence of digital devices on the shopping journey are
shaping how customers shop and make buying decisions.

Touch points of the ever connected
consumer on her shopping journey
The consumer’s shopping journey is not linear anymore.
Web SocialCompany website Mobile Call centreBranch/store
Purchase
Forrester report: Welcome To The Era Of Agile Commerce, 2014
Trust
Evangelize
Friend
Discover
Search
Research
Compare
Decide
Use
Get help
Share
Personalize

Touch points that matter for the
consumer on her shopping journey
Touch points that matter are different for different categories.
Web SocialCompany website Mobile Call centreBranch/store
Purchase
Forrester report: Welcome To The Era Of Agile Commerce, 2014, Deloitte: Navigating The New Digital Divide, 2015
Trust
Evangelize
Friend
Discover
Search
Research
Compare
Decide
Use
Get help
Share
Personalize
Apparel
Electronics
Baby/toddler
Furniture/
Home
furnishings/
Home
improvement
Food/beverage

The anything, anywhere,
anytime challenge

Challenges abound
17%
22%
30%
32%
17%
42%
25%
45%
37%
35%
7%
19%
23%
29%
32%
32%
32%
39%
39%
48%
Not enough visibility into our supply chain within our “four
walls” (store-store, store-DC, store-direct, etc.)
Not enough visibility into the supply chain outside our “four
walls”
Information gleaned from our processes and systems comes too
late to enable corrective action
We do not have the ability to determine optimal (lowest cost)
locations for cross-channel order fulfilment
Our supply chain is not designed for the current / projected
volume of direct-to-consumer shipments
Direct to consumer shipments are not fast enough
We don't have good visibility into how demand flows through
our selling channels
Our stores were not designed for current / projected volume of
omni-channel order fulfilment
Marketing promotions cause unintended consequences on
supply chain
The volume of returns is increasing as a result of consumer
omni-channel purchases
Top operational challenges around supply chain execution
Leaders Followers
RSR Research: Retail Supply Chain Execution: New Requirements To Meet New Demand Benchmark Report 2015

Challenges abound
17%
22%
30%
32%
17%
42%
25%
45%
37%
35%
7%
19%
23%
29%
32%
32%
32%
39%
39%
48%
Not enough visibility into our supply chain within our “four
walls” (store-store, store-DC, store-direct, etc.)
Not enough visibility into the supply chain outside our “four
walls”
Information gleaned from our processes and systems comes too
late to enable corrective action
We do not have the ability to determine optimal (lowest cost)
locations for cross-channel order fulfilment
Our supply chain is not designed for the current / projected
volume of direct-to-consumer shipments
Direct to consumer shipments are not fast enough
We don't have good visibility into how demand flows through
our selling channels
Our stores were not designed for current / projected volume of
omni-channel order fulfilment
Marketing promotions cause unintended consequences on
supply chain
The volume of returns is increasing as a result of consumer
omni-channel purchases
Top operational challenges around supply chain execution
Leaders Followers
Omni-channel order
fulfilment and returns
Direct-to-consumer
speed and volume
Supply chain visibility

Are you ready?
33%
26%
29%
10%
2%
No capability
Inconsistent
Competent
Efficient
High performing
How prepared do you think your
organization is to handle omni-
channel retailing?
Nearly one third of the retailers participating in the study said they are not
prepared to handle omni-channel retailing.
2015 19th Annual Third-Party Logistics Study.

SKU proliferation
Much larger SKU
assortments
23%
Some SKU
expansion
37%
Little or no
change in SKU
assortments
30%
Smaller SKU
assortments
10%
Chart TitleImpact of e-commerce and mobile consumers
on SKUs, % of respondents saying their supply
chain is supporting…
30%
10%
23%
37%
SCMWorld Chief Supply Chain Officer Report 2014

65%
53%
77%
75%
42%
55%
61%
74%
Too many inventory
transfers between stores
Too many out of stocks in
stores
Too much inventory in
stores
Inaccurate inventory
levels in stores
Agreed or Strongly agreed: "We
have..."
Leaders Followers
With an aching, persistent pain
Inventory accuracy and levels continue to be a stumbling block.

Changes in channels and networks …
Building
direct-to-
customer
fulfilment
capabilities
45%
Relying on e-commerce
retailers for customer
fulfilment
17%
Seeing little or
no change to
existing
channels for
customer
fulfilment
38%
Chart Title
45%
17%
38%
Impact of e-commerce and mobile consumers
on customer fulfilment, % of respondents
saying their supply chain is…
Customer demand volatility is the most significant factor
impacting channel and network design decisions.
Larger, more
centralised
distribution
centres
33%
Smaller, more local
distribution
centres
21%
The same
type of
distribution
centres
46%
Chart Title
33%
21%
46%
Impact of e-commerce and mobile consumers
on DCs, % of respondents saying their supply
chain is building…

…but not all networks are created equal
59%
58%
48%
49%
46%
45%
41%
44%
35%
33%
24%
18%
17%
25%
20%
22%
22%
26%
19%
27%
22%
24%
23%
25%
27%
31%
32%
33%
33%
37%
38%
45%
52%
Automotive
Chemicals
Retail
Healthcare & Pharma
CPG
Food & Beverage
Industrial
Hi-Tech
Media & Telco
Logistics & Distribution
Fabric & Apparel
Chart Title
Larger Smaller Same
DC building plans by sector (% of respondents)

3PLs - part of the solution
Shared
DCs
36%
DCs by
channel
16%
Outsourced
15%
Mix
33%
How do you manage fulfilment by channel?
3.6%
9.2%
9.9%
9.9%
10.2%
13.5%
19.1%
20.1%
26.3%
26.3%
26.6%
31.3%
38.2%
Picking & waving logic
Long-term DC leases
Expedited delivery
Return management
Pick/Pack efficiency
Efficiency
Technology
Order management
Inventory control
Inventory accuracy
Inventory visibility
System integration
Order flexibility
What is your largest issue in fulfilling orders
across multiple channels? (select top 3)
Retailers & shippers use a mix of solutions including 3PLs to manage
fulfilment, but fulfilling orders across multiple channels creates certain
issues.
2015 19th Annual Third-Party Logistics Study.

Providing the necessary infrastructure
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
$1 billion in-store
sales
$1 billion e-
commerce sales
Logistics Space (square meters)
As e-commerce volumes grow due to omni-channel, so will the need for
more logistics space further up the distribution chain.
E-commerce users
require 3x the
logistics space, or
more, as compared
with brick-and-mortar
LEGACY Supply Chain Services: Keeping Up with the Retail Consumer - The Impact of E-Commerce on Retail Supply Chains.

Evolving supply chains
of companies had re-
structured their distribution
network in the last year.
of the cases the distribution
re-structuring had involved
relocating distribution centres
to a lower cost country.
More Fewer
National DCs 49.5% 50.5%
Regional DCs 58.5% 41.5%
Global DCs 52.8% 47.2%
of respondents cited the
main reasons for the
distribution re-structuring
were predominantly related
to cost.
indicated that they were
establishing more regional
(multi-country) distribution
hubs.
75% 20%
50%
58%
How has the structure of your
distribution network changed?
Supply chains are evolving to become more product- and/or
channel-specific enabling them to adapt to different customer
and product service level requirements.
Transport Intelligence Global Distribution Strategies Survey 2008

73%
76%
82%
65%
94%
97%
Increase flexibility by holding
more work-in-process
inventory, rather than
finished goods
Source more from emerging,
lower-cost markets as existing
markets get more expensive
Source/replenish closer to the
point of demand
Agreed or Strongly Agreed: “Our
supply chain currently needs to…
Leaders Followers
…but the endless search for lowest-cost
sources continues
Retail leaders show more concern about keeping what’s been working for them i.e. sourcing
from emerging lower-cost markets while simultaneously having a more agile supply chain via
more localized sourcing and replenishment closer to the point of demand.

Emergence of direct-to-store delivery aka
DC bypass
DC bypass strategies
• Direct shipment to
customer
• More regionalized
distribution
• Velocity based networks
using cross-docking
CEIBS Port of Barcelona Logistics Chair: Direct-to-store distribution impact on European Ports, 2008
Offshoring logistics
• Cargo consolidation from
China and other Asian
sourcing countries
• Value added logistics
activities
• Multi-country distribution

Direct-to-store – how it works
Traditional centralized European
distribution
Direct-to-store distribution
Deconsolidation
centres or
Regional DC
Multiple
inbound
flows
Suppliers
Continental DC
Consolidation
platform
Suppliers
CEIBS Port of Barcelona Logistics Chair: Direct-to-store distribution impact on European Ports, 2008

DC bypass at UPS
Shanghai,
China
Los Angeles,
CA
New York, NY
Cologne,
Germany
Guadalajara, Mexico
Laredo, Texas
Direct-to-Store Illustration
Freight deconsolidation into
individual shipments at
destination port or gateway
for direct-to-store delivery.
UPS, Supply Chain Digest, When Does “DC Bypass” Make Sense?, 2008

DC bypass for air/sea freight at Bakers
Footwear Group
Overseas
Goods
In-Transit
Allocations Domestic
Factory CFS Facility Carriers
3PL
Warehouse
Corporate
Office
Retail Stores
ARC - Bypassing the Distribution Center, 2013
Accept receiver and
examine store needs
Allocations
Delivers to stores
Inventory &
sales needs
Cartons delivered
and received into
the system
PLD is transmitted
to small package
carrier
Destination labels are
printed and applied
based on allocations
Labelling is shifted to the factory

DC bypass for sea freight Bakers Footwear
Group
Factories CFS Facility
Ocean
Vessel
3PL
Warehouse
Corporate
Office
Retail Stores
Overseas Floating
Warehouse
Last Minute
Allocations
Domestic
ARC - Bypassing the Distribution Center, 2013
Serialised labels
printed and applied
to cartons
Container arrives and
a receiver message is
sent to corporate
Cartons delivered
and received into
the system
Cartons are
scanned into the
container
Visibility to the
container through
web based tracking
Cartons are scanned
and destination
labels are printed
and applied
PLD is transmitted
to small package
carrier
Accept
receiver and
examine
store needs
Last minute
allocations
Delivers to stores
Inventory &
sales needs

Requirements for direct-to-store
• Products need to be allocated earlier than in a
traditional environment
• Sensing of products demand must be accurate
and reliable
• Volume and scale to ensure full-container load
(FCL) shipments
• Reliability of transit times and cargo visibility
from origin to destination
• Visibility across the supply chain
• Products need to be packaged “customer or store
ready” and labelled as close as possible to origin
www.inboundlogistics.com: Optimize 'Obnoxious Freight' With DC Bypass, 2006; How to Develop a Direct-to-Store Delivery Model, 2010

Is a direct-to-store delivery model right
for you?
• Time sensitive products
– Perishable products such food, flowers, etc.
– Trendy items that are fast old-fashioned such as clothes, electronics, etc.
– Promotional products for trade shows, concert events, products launch etc. and collectibles
• Seasonal products
– Heating or air conditioning units
– Snow shovels, fertilizer, and lawn mowers, etc.
– Seasonal sports products
– Items for short, high-volume periods such as Christmas decoration items, back-to-school
products, Valentine’s day, etc.
• High unit value products
– Jewellery, routers or other products that require security
• Obnoxious freight
– High unit volume products that do not palletize efficiently or aren’t compatible with standard
storage layouts such as furniture, outdoor equipment, automotive replacement parts, and
outdoor toys
– Heavy products such as major appliances
– Easily damaged items such as glass
www.inboundlogistics.com: Optimize 'Obnoxious Freight' With DC Bypass, 2006; How to Develop a Direct-to-Store Delivery Model, 2010

of online shoppers
in China say they
are going direct to
brand sites.
The gap between retailer and brand is
closing
3%
8%
12%
17%
23%
24%
29%
30%
41%
44%
Other
Better experience
Customization / personalization
Better service
Good stock availability
Better warranty / guarantee
Love of brand / loyalty
That’s all I needed - one brand
Full range or more choices
Lower price
Reasons consumers buy directly from
a brand or manufacturer
35%
56%
52%
of consumers globally have
already bought products
directly from brands or
manufacturers.
of online shoppers
in the USA say they
are going direct to
brand sites.
Consumers are shopping directly from manufacturers and many no longer
distinguish between retailers and their favourite brands.
PwC: Demystifying the online shopper 10 myths of multichannel retailing, 2013

Giving brand owners and manufacturers a
new point of view
5%
9%
22%
23%
41%
We compete with retailers’ private-label offerings
We battle for shelf space with other brands
We share consumer data and insights to enable better
planning, though we act on those insights separately
We continue to work with retail partners but we are
also committed to expanding our competing direct-to-
consumer strategies
We work together to serve consumers through a
variety of marketing, sales and service programmes
How do you view your relationship with retailers as it relates to consumer
engagement? (% respondents)
41%
of respondents say they expect to sell products directly
to consumers over the next 12 months - up from the
24% who say they currently offer direct-to-consumer
sales.
Economist Intelligence Unit: New directions: Consumer goods companies hone a cross-channel approach to consumer marketing, 2012

To go for direct-to-consumer
5%
10%
21%
25%
40%
Other
Through third-party, direct-
to-consumer sites (eg,
Alice.com, Amazon)
Directly to consumers (eg,
through your website or
social media sites)
Through wholesale
distributors
Through retail partners
How do you see percentages of your
total sales shifting over the next 3
years through the following channels?
(Average % respondents)
21%
4%
22%
25%
29%
Don't know
Other
We have increased the % of
spending on trade promotion
to complement DTC…
We have shifted some trade
promotion budget to DTC
programmes
Our % of trade promotion
spending has not changed
What has been the impact of your
direct-to-consumer programmes on
trade promotion? (% respondents)
Economist Intelligence Unit: New directions: Consumer goods companies hone a cross-channel approach to consumer marketing, 2012

Amazon user? Be careful what
you wish(-list) for!

When consumers “go digital”
78.4%
Amazon
36.6%
Brands
46.6%
Online retailers
is the No. 1 digital source for researching products
is the No. 1 digital shop for buying products
58.4%
Google
22.7%
Brand website
14.9%
Digital retailer site
Brandshop: 2015 Digital Consumer Preferences Survey, September 2015

31.4%
7.6%
23.8%
25.7%
14.3%
45.7%
None
Kindle Fire TV
Kindle Reader
Kindle Fire
Amazon Visa
Amazon Prime
Chart Title
They go prime
of Amazon customers are Prime members which translates to
about 40 million members and that they spend 2.4 times more
each year than other Amazon shoppers.
US Amazon Customer Affiliations,
% of respondents
46%
Consumer Intelligence Research Partners, 2015

Amazon Prime Air
Amazon.com

Anticipatory shipping
US Patent Office: Patent US8615473 B2 - Method and system for anticipatory package shipping
Expedited
service path
Non-expedited
service path
Tender to common carrier
at fulfilment centre
Tender to
common carrier
at hub
Private
carrier
Fulfilment
centre
Common
carrier

• They are the No 1
online store in the US
• They collect data while
you browse – even
mouse hover!
• Big data
• Advanced data mining
techniques
• Machine learning
algorithms
• Predictive analytics
How do they do it?

Amazon in talks to lease
Boeing jets to launch its
own air-cargo business
The online retail giant is looking to
expand its delivery operations to
avoid the bottlenecks caused by
overwhelmed carriers such as UPS.
Amazon.com is negotiating to lease 20
Boeing 767 jets for its own air-delivery
service, cargo-industry executives have
told The Seattle Times.
The online retail giant wants to build out
its own cargo operations to avoid delays
from carriers such as United Parcel
Service, which have which have struggled
to keep up with the rapid growth of e-
commerce.
Own air-delivery service?
A Boeing 767 arrives at Boeing Field ferrying parcels for
UPS. Amazon is considering venturing into the same
territory as UPS and FedEx, acquiring similar freighters
for its own air cargo service.
(Dean Rutz / The Seattle Times)
http://www.seattletimes.com/business/amazon/amazon-in-talks-to-lease-20-jets-to-launch-air-cargo-business/

Could be a game-changer
as Amazon is awarded
sea freight forwarder
licence by US FMC
Amazon has continued its much anticipated
foray into the freight and logistics sector –
yesterday the US Federal Maritime
Commission (FMC) awarded one of its
Chinese subsidiaries an Ocean
Transportation Intermediaries (OTI) licence
that allows it to operate as a sea freight
forwarder.
Registered in 2004 by Amazon founder Jeff Bezos
as Beijing Century Joyo Courier Service Ltd, the
Sea freight forwarder!
© Frank Gartner
http://theloadstar.co.uk/game-changer-amazon-awarded-sea-freight-forwarder-licence-us-fmc/

What’s next Jeff?
Use the what?
Mendhak - flickr

A small comparison
Total Online Sales
In 2014, Alibaba Singles Day sales were about 3.5 times more
than the total Cyber Monday Sales in the US.
parcelhero.com

• Alibaba smashed its Singles Day record
with US$14.3bn of sales - a 60% increase
on 2014
• 2014 record beaten in 14 hours - sales had
already hit US$10bn
• 71% of Alibaba’s Singles Day sales came
from mobile devices
• More than US$1.4bn bought within the
first eight minutes
• US$5bn bought within the first 90
minutes
• 100m orders placed within the first hour -
packages were already starting to arrive at
shoppers’ homes within that hour
• 120,000 orders placed every minute
• 40,000 merchants, and more than 30,000
brands from 25 countries took part
• 6m products were on offer from
international brands such as P&G ,
Unilever, Burberry, Estee Lauder, Zara,
Huggies, Macy’s, Costco, Apple, and Nike
• 180,000 brick-and-mortar stores took
part across 330 cities
A new record
Econsultancy; Fortune Magazine, 2015; Photos - Reuters

• Cainiao, Alibaba's Logistics Arm
• Operates a proprietary logistics
information platform that links a
network of logistics providers,
warehouses and distribution centers,
which allow participants to
confidentially share information on
orders, delivery status and user
feedback
• Ensures high-quality delivery services
to sellers and buyers on a large scale
• Information flow and related data
analysis help logistics companies to
achieve higher efficiency and quality
service for both merchants and
consumers
• Big data
• Advanced data analysis techniques
How do they do it?
TheStreet; Alizilla.com, 2015

• Next-day delivery of goods
ordered from Alibaba’s online
marketplaces in 50 cities
• A network of delivery vehicles,
warehouses and distribution
centres owned by thousands of
independent delivery companies
and 15 strategic logistics partners
• These partners operate 1,800
distribution centres and more
than 97,000 delivery stations
• Employs more than 1.5 million
delivery personnel, located in
more than 600 cities in 31
provinces
• A network of more than 20,000
self-pick up spots which provide
last-mile delivery and other
services to consumers
Cainiao - “network of networks”
Alizilla.com, 2015; Photo - Reuters

Final thoughts
• Next level fulfilment strategies are designed so that e-
commerce and omni-channel retailers can enable
customers to engage with the brand, rather than with the
channel – all customers need to have full access to the
retailer’s offer through all channels during the shopping
journey
• This requires a total overhaul of all operations
• Supply chains were traditionally designed around stores -
these now need to be re-engineered around customers
• Speed and agility are key for future success
• There is the potential for collaboration of non-competitors
around e.g. the sharing of delivery networks and collection
points.

What are the three things you hope to
achieve?
“Demosthenes, the greatest
of Athenian orators, was
asked what the three tests of
a great speech were. “Action,
action and action‟ was his
reply.”
James C. Humes

Danie Schoeman
+27 82 940 6028
danie@danieschoeman.com
www.danieschoeman.com
There’s more to talk about, so let’s have
coffee …

Disclaimer
This document has been prepared by Danie Schoeman and Company
to provide background information on the subjects mentioned herein,
the forecasts, opinions and expectations are entirely those of Danie
Schoeman and Company. This presentation was prepared with the
utmost due care and consideration for accuracy and factual
information; the forecasts, opinions and expectations are deemed to
be fair and reasonable. However there can be no assurance that
future results or events will be consistent with any such forecasts,
opinions and expectations. Therefore the authors will not incur any
liability for any loss arising from any use of this presentation or its
contents or otherwise arising in connection herewith. Neither will the
sources of information or any other related parties be held responsible
for any form of action that is taken as a result of the proliferation of
this document.

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