Redefining retail and the supply chain

Issue 2 2020 Editor's Choice

We are in a new decade where we are faced with a rapidly changing world around us, with the speed of change driven by the unrelenting need of consumers for new services and products. Changes in technology, economic conditions and customer expectations have had (and will continue to have) a direct impact on retail and distribution.

With a customer base that is now truly global, it has become more important for business to understand what customers’ value. The following trends will make you think differently about security as an enabler to provide a competitive advantage to business.

1. E-commerce and rising service expectation

A recent study found that the amount of time a customer is willing to wait for free delivery has dropped from 5.5 days to 4.5 days. The Alixpartners report on e-marketing released in March 2018 showed that customers would base their decisions on where to shop on the time it would take to receive the products. Price and product have essentially been replaced by speed and specialisation as differentiators.

2. Decentralised distribution network

Distribution networks developed in the previous decades were designed for large orders, longer lead times and less frequent shipments. As the industry matures businesses are moving to smaller, more frequent shipments, and increasingly add value-added services to their offerings. Consumers’ requirements for convenience and fresh produce also place a strain on distribution networks. Customers are also more knowledgeable and conscious of their impact on the environment with every aspect of the business needing to reduce waste and become more sustainable.

Businesses who want to keep a competitive advantage will need to develop smaller, localised facilities to decrease delivery times and reduce their impact on the environment. Intermingling wholesale, retail and e-commerce operations under the same roof have become common practice. It all makes for more complex operations to manage.

From a security management perspective, a decentralised distribution network with more facilities in various locations is more challenging to control effectively. The smaller location doesn’t justify the appointment of senior personnel to manage the security operations, with less security personnel on site in total to manage a more complex operation.

Frontline security managers need to implement new systems, policies and procedures to effectively lead a decentralised security structure. The management of access control and surveillance systems are also much more complex. Not only do you have a wider variety of services that require access, but the range of contracted companies you need to manage also increases.

Changes to technology fortunately provide the ability to monitor and manage multiple surveillance and access control systems from a central location. It ultimately provides for a solid business case to develop a central command centre that acts as a force multiplier for a much wider scope of security operations. Careful consideration should, however, be given to whether this function will be done internally or outsourced to a third party. In the short term, having a third party provide the service can be more cost effective and scalable, but quality of service could render the solution ineffective. A hybrid solution could provide both flexibility and quality if done correctly.

3. No-hassle returns

A ‘No Hassle’ returns policy is a critical aspect of building trust and loyalty for e-commerce customers. The shoe retailer Zappos, which is often lauded for its excellent customer service, has a 365 day return policy that would go against the grain of most loss prevention managers’ instincts. They have, however, found that customers with the highest return rates are also the ones who spend the most with the brand and generate the highest volumes.

There will be a greater emphasis on security and loss prevention personnel to provide data on the real ‘costs’ to business and show the overall impact associated with more liberal return policies. Loss prevention personnel will need to redefine what is accepted as a ‘cost’ of doing business and what the actual ‘losses’ suffered by the organisation is. Through using something like Total Retail Loss as an analytical lens, the loss prevention function will need to help the business better understand the consequences of their choices.

As an added risk in a decentralised distribution network, your customers might also need direct access for collections and returns in your distribution centre. The need for very robust and clear return policies and procedures will play a direct role in developing new income streams for the business as well as playing a critical role in building trust and loyalty with e-commerce customers. Security and loss prevention personnel might be the only company representative they ever deal with face to face. Make sure they remember it for all the right reasons.

4. Door-to-door delivery

With e-commerce comes express delivery to your home or place of work. From a service delivery point of view, express deliveries open up new markets for businesses, but also a whole host of risks. Some aspects to consider from a security and enterprise risk point of view are:

• Legislative requirements: In particular the delivery of pharmaceuticals and hazardous materials are in some way governed in most countries around the world and you need to consider the impact of not following legislative requirements.

• Corporate security risk: Express deliveries often bypass the post room with delivery personnel sometimes having free range of your facility. It’s important to have specific policies and procedures in place to deal with express deliveries and the risks associated with it.

• Reputational damage: The deliveries are often done by third parties, often carrying your organisation’s insignia and acting on your instruction. Their actions or non-actions could have a direct impact on reputational risk of your organisation.

• Ambushes and emergency management: Ambushing delivery vehicles is no new threat, but the volume of occurrences might catch you off-guard. Make sure you’re prepared and potential hot spots or risk areas identified and communicated. Take a stand for the safety and security and ensure you build in no-go areas where the risk clearly outweighs the reward.

• Operational challenges: Ensuring pack accuracy both at distribution centres and at the store level. Although it generally would appear as purely operational challenges, security and loss prevention managers will need to be able to investigate and advise how these risks can be mitigated. You will also be challenged by criminals who constantly devise new and innovative ways to exploit weaknesses in your operations. Fraudulent claims is one area in particular that need to be managed as transactions happen in locations that are not under your control.

• Porch pirate: In 2018, 26 million packages were reported stolen by US Postal Services, FedEx and UPS in the USA alone. With online orders set to increase, companies, consumers and delivery companies will need to come up with innovative ways to deal with the issue.

5. The rise of experimental retail

Traditional bricks and mortar stores still account for 80% to 85% of all retail sales, with the predicted retail apocalypse not materialising. Retailers, however, had to adapt or die and businesses are constantly experimenting, aiming for that new first, to grow their conversion rates and customer base. In general there is greater movement towards a more holistic omni-channel offering to prospective clients and in particular devising new ways to enhance the overall retail experience.

Businesses often don’t know where the next wave of growth will come from. To adapt to the rapidly changing needs, security solution designs must be flexible enough to allow for future growth and risk. Whether it’s self-service checkouts or drone deliveries to the home and business, security managers need to be able to adapt and learn new skills to help business mitigate their risks and limit loss.

The physical trade environment will also change with traditional brick-and-mortar stores becoming smaller with less stock on hand, but more products on offer. Customers want to be immersed in the experience; they want to touch, test, taste and try before they buy. This is particularly true when it comes to electronics that often have all the characteristics that influence the motivations for crime and CRAVED by criminals (Concealable, Removable, Available, Valuable, Enjoyable and Disposable).

Whatever techniques or systems worked yesterday, might not work tomorrow.

6. Friction-free shopping

From a security and loss prevention management point of view, the business often comes up with great plans to increase its customer base, but it would seem like a bad idea when approaching it from a security and loss prevention standpoint. Self-service checkouts and customers bringing their own shopping bags are examples of ideas that create an increasingly blurry retail space.

It has become so much more difficult for security staff to distinguish the difference between a shopper and a shoplifter. Self-service checkouts in particular have created an opportunity for usually honest people to exploit the opportunity presented by the machine to take something they haven’t paid for. It is hard to distinguish the difference between self-checkout theft and an honest mistake because customer’s intent is unknown.

It could lead to disassociation with security personnel who believe that their efforts to limit loss are all in vain. The key to success here is less about choosing the right technology, but rather in the goal-oriented design of processes and procedures. Security and loss prevention managers need to be able to show both business and operational staff the return on investment (ROI) as a component of the total cost of ownership of the solution.

7. Chasing the bottom line

In an international market, it is critical for business to drive down cost in order to remain competitive. Spending cuts can have a direct impact on the security department, but can also have an indirect impact on your operations model. One example would be the introduction of night-time deliveries to stores. With the rising cost of fuel and traffic on the roads during the day, more companies are moving to night-time deliveries when there is less traffic on the roads to save on fuel cost.

While it results in significant saving on the company’s fuel bill, it creates a host of risks for security managers to deal with. Delivering and receiving procedures of stock needs to be adjusted to accommodate delivery times while the store is closed for trade. The store’s security systems need to be redesigned and configured correctly to keep the store safe during deliveries in closing hours. The delivery vehicles are also more at risk at night when there is less casual surveillance to notice and report any suspect activities. Drivers are often fatigued with a higher incident rate during the early hours of the mornings.

8. Big data

To quote Geoffrey Moore: “Without big data you are blind and deaf and in the middle of a freeway”. Companies are becoming more dependent on data as a new analytic-driven approach leads organisations to achieve a more sustainable market place advantage. Data helps guide decision makers on what’s best for the organisation and map out future actions.

In the same way, good data can generate a strategic advantage for the organisation, but bad data can have a catastrophic impact on an organisation. Gone are the days of relying on FUD (fear, uncertainty and doubt) to justify department expenditures. Security managers need to put procedures and systems in place to collect data, but also analyse and interpret data to make calculated decisions.

These eight trends are making security operations more complex and can either enable or impede company performance. On the flip side, they also represent opportunity for security managers and departments to create a competitive advantage out of innovative solutions.

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