The squeeze on retailers’ profits is tighter than ever. And while some retailers are struggling to eke out value, the best are pulling away from the rest (Exhibit 1). Those that are left behind have already picked the low-hanging fruit to combat the sector’s headwinds: they have tried to solve their operational problems with localized solutions, to limited effect. But if they want to protect their margins and gain a competitive edge, they’ll need to take a more radical and transformative approach.
End-to-end (e2e) excellence is a paradigm-shifting mindset that also doubles as an operations playbook. Tackling the toughest retail operations problems with a “whole business” approach, as e2e excellence calls for, may seem like a “nice to have” rather than a critical strategic imperative for retailers. But this way of operating can transform retailers’ operations and retain margins in a challenging economic environment. So why haven’t retailers adopted it? Applying the principles of e2e excellence in retail operations requires breaking down stubborn silos in operations, both functionally and metaphorically—a herculean task.
To achieve e2e excellence, retailers must convene cross-functional teams, arm these teams with timely data, tools, and technology that translate across functions, and communicate a shared mission. There’s a strong business case for doing so: when implementing individual solutions across functions, retailers typically achieve 5 to 10 percent cost savings, based on our research. An e2e transformation, meanwhile, yields 10 to 15 percent cost savings and also improves the customer experience, thanks to streamlined operations.
In this article, we outline three types of e2e transformations within the retail value chain and identify a set of actions that retailers can implement to help make this strategic imperative a reality.
Three problems, three e2e transformations
On the journey to enterprise-wide e2e excellence, retailers can begin attacking their toughest problems by applying e2e principles in discrete areas. The three transformation examples below—which address in-stock rates, network optimization, and returns—are multifaceted issues for which no single solution exists. They also affect multiple points across the retail value chain, from vendors to customers, making them ideal e2e transformation candidates.
Improving in-stock rates
During the height of global supply disruptions fueled by the COVID-19 pandemic, out-of-stock products became a perpetual headache for customers, retailers, and suppliers alike. Fluctuations in global supply led to sharp yo-yo patterns in inventory: general-merchandise stores in the United States, for example, saw a dip in inventory of nearly 15 percent and a glut of inventory that grew by 50 percent—all within a year. Four years later, out-of-stock products continue to plague store shelves. However, the root causes are more varied than ever and cut across functions. Retailers cannot solely blame the global supply chain; nor can they expect store teams alone to solve out-of-stock issues.
One retailer sought to tackle this problem by building out a detailed root cause tree that traced out-of-stock products from vendors to store shelves (table). The retailer conducted an analysis across the value chain using detailed data at the store SKU level to identify drivers of every out-of-stock item.
There can be dozens of first- and second-order causes for out-of-stock items, which make the problem a complicated one for retailers to solve.
| Inventory condition | Level 1 root cause | Level 2 root cause |
| Positive inventory indicated in store | 1 Product not in store | Inventory is inaccurate |
| 2 Product in back room, not on shelf | Shelf not adequately restocked | |
| 3 Product in back room, not on shelf | Intraday replenishment can’t meet demand due to space or planogram issue | |
| Store inventory is 0, but distribution center (DC) has inventory on hand | 4 Store order placed but not delivered from DC | DC-to-store fill issue |
| 5 Store order not placed | Multiple contributors, including forecasting inaccuracy and bias | |
| DC inventory is 0, but outstanding order with vendors | 6 Vendor/manufacturer out of stock | Upstream vendor issue or DC-to-vendor collaboration issue (eg, planning timeline and large order swings) |
| 7 Inbound vendor on time, in full (OTIF) issues | Vendor execution or DC-to-vendor collaboration issue (eg, delivery scheduling, inbound unloading) | |
| DC inventory is 0, with no outstanding order placed with vendors | 8 Insufficient DC order placed | Forecast inaccuracy or replenishment plan for nonpromotional items |
| 9 Insufficient DC order placed | Forecast inaccuracy or replenishment plan for promotional items | |
| 10 Insufficient DC order placed | Forecast inaccuracy or replenishment plan for new or reset items |
Each function played a critical role in improving the retailer’s in-stock rates. Merchandising worked closely with supply chain teams to optimize buying plan timelines, supply chain worked closely with store teams to improve outbound pick accuracy and delivery timelines, and store teams worked closely with IT and e-commerce to use on-shelf monitoring systems to alert the store teams to restock shelves at appropriate times during the day.
By pinpointing the specific ways in which each function can affect in-stock rates, the retailer was able to identify processes that needed improvement. In our experience, a one-percentage-point improvement in presubstitution in-stock rates can boost sales by 20 to 35 basis points. Improving in-stock rates has also been shown to increase customer satisfaction and loyalty, since it frees up employees to focus their time on customer-facing tasks rather than hunting down products in a stock room. This may also improve employee morale.
Improving network design
Retailers typically evaluate the design of their network of stores and distribution centers on a quarterly or annual basis to decide where to invest in capacity or rightsize unnecessary leases. The standard approach is to gather high-level inputs from across the retail organization, such as top-line sales growth forecasts and planned store openings and closures. But the modeling software that many retailers use is often limited, since it can only process inputs related to supply chain optimization for a single channel—for example, only brick-and-mortar or only e-commerce. Our experience shows that when retailers consider networking optimization inputs across all channels, they can unlock more value.
One retailer went beyond the traditional approach by applying the e2e principles to network optimization. It convened a cross-functional team consisting of supply chain, merchandising, and finance leaders. The team gathered inputs from the relevant functions: the merchandising function offered data about product segmentation to inform the optimal mix of product in each distribution center, while the finance department provided granular growth forecasts to help identify where physical capacity may be needed. Store teams provided detailed labor estimates, which enabled a better understanding of new-store and distribution center costs.
Feeding all these inputs into a customizable tool (to create modeling software that was more advanced than off-the-shelf options) yielded more sophisticated outputs. The retailer also used advanced analytics and digital twins to model the optimal future state of the network. This provided the retailer with about 20 “what if” scenarios to consider across multiple channels. (Some of the scenarios addressed hypotheticals such as, “What if shoes and apparel orders were both fulfilled in this distribution center?” or “What if we added a distribution center to this new region?”) The e2e transformation ultimately reduced online orders’ click-to-deliver time by a full day—and cut end-to-end supply chain operating costs by 10 percent.
Reining in returns
Returns are one of the most pressing—and most expensive—problems that e-commerce and fashion retailers face. In 2023, US consumers returned 14.5 percent of total retail sales,1 amounting to a staggering $743 billion in merchandise. (The return rate was even higher for online sales, at 17.6 percent.)
Retailers that implement localized solutions to reduce returns often end up with incremental improvements or, worse, ballooning costs elsewhere in the organization. For example, one retailer shortened its returns window by 15 days to allow for more inventory turns. While customers did return their items within fewer days postpurchase, the retailer also fielded a surge of customer complaints about the new policy. The rise in call center volume created higher costs; declining customer satisfaction scores, meanwhile, translated to declining revenues. Eventually, the retailer reverted to the old policy.
Localized actions like these fail to account for unintended consequences across the value chain and are compounded by the number of handoffs between functions, of which there are many (Exhibit 2). For any given retail process, more handoffs between functions creates more opportunities for things to go wrong.
Let’s examine how another retailer tackled returns using an e2e approach. First, the retailer assembled a cross-functional team of leaders from areas such as merchandising and reverse logistics to assess the current state of returns. This team interviewed stakeholders and annotated handoffs between functions to create a reverse-logistics process map.
By mapping the returns process, the team identified five system information flows, seven handoffs between functions, and 20 process breakage points that led to an influx of returns and a buildup of returned goods in the distribution center. The team developed a solution for each breakage point, prioritizing quick wins, such as automating approvals of customer returns. As a result, the retailer increased the speed of inventory disposition—which several functions already understood and were measured against—by three times. This approach also helped fuel future sales by unlocking 60 percent of capital otherwise tied up in dead inventory.
The e2e approach not only improved KPIs in the short term but also informed operational decisions to preserve those gains over the long term. During the retailer’s next wave of vendor negotiations, the merchandising teams added new language to their returns clauses, guided by their returns process mapping exercise, to recoup value from returned items while optimizing for customer experience. The customer experience teams began piloting changes to the returns window to test customer response. The retailer also designed an automated alert system to replace the manual handoffs that occurred between teams.
What end-to-end excellence requires
As these transformation case studies demonstrate, e2e excellence is both an operating model and mindset shift that enables retailers to better serve customers, improve operations, and drive top- and bottom-line growth. Retailers that pursue e2e excellence can find the “in-betweens” of value—or value that becomes obscured or lost due to inefficient handoffs between teams or opaque processes. The value in a retail business does not come from the sum of its parts alone; it comes when the functions work together.
To make e2e excellence a reality, retailers should take the following actions:
Align on an organization-wide goal
The first step toward e2e excellence is for company leadership to agree upon one shared goal that everyone should meet and be measured against. This goal should be endorsed by the CEO and COO, whose buy-in will help remove roadblocks, enforce decision making, and create a solution-focused mindset that will trickle down to the rest of the organization.
To identify this goal, a retailer should conduct a holistic assessment of its operations to understand where opportunities lie and to identify the areas where the complexities and costs are highest. Once the e2e opportunities are identified, leaders should align on the answers to two additional questions. First, should the organization go all-in on tackling a specific cross-functional problem, or undertake an end-to-end transformation that addresses multiple problems in parallel?
One example of a shared goal that a retailer might identify is product shelf availability. From the customer’s point of view, the only metric that matters is whether an item is available on a store shelf when they want to buy it. To that end, a retailer might set a company-wide “on-shelf availability” target, rather than separate targets that apply to the distribution centers or the stores.
Empower leaders to reach across the organization
Second, and often more difficult than deciding which problems to tackle, is the question of how to organize and empower the e2e team. The team should be made up of leaders who wield influence across functions, are deeply knowledgeable in their respective functions, and demonstrate a can-do attitude. Without this kind of leadership, business silos and department hierarchies will win out, diminishing the effectiveness of an e2e transformation. Scheduling a regular cadence of war rooms or weekly stand-ups can help keep leaders working together. Additionally, these leadership teams may deploy SWAT-style task forces, which have deep expertise on a given issue and can efficiently implement new processes.
Since e2e transformations are implemented concurrently with daily operations, retail leaders should free up capacity for their teams to handle both e2e transformation priorities and daily tasks. In the successful transformation cases we’ve seen, retail leaders allow their teams to spend half of their time working on e2e projects and the other half dedicated to daily tasks. This allows employees to keep up with what’s going on in their functions (something separate transformation teams lack) while collaborating on the broader transformation project. If this does not happen, the long-term e2e transformation may become deprioritized against more time-sensitive tasks.
Prioritize data transparency
Data transparency allows retailers to identify a problem’s root causes, quantify impact, and prioritize solutions. But making data transparent and accessible across an organization is also one of retailers’ most difficult tasks, especially if major functions take a myopic view of the business and design narrow metrics of success. For example, merchants may measure the fill rate to distribution centers for their subset of vendors but may neglect to consider total fill rates across distribution centers for other vendors. This kind of tunnel vision can lead to a slew of problems, such as stock imbalances or cost inefficiencies.
To establish data transparency, retailers should create universally defined, cross-functional metrics that all functions can use and be held accountable to. (An example of one of these metrics is inventory days on hand, which both supply chain and merchandising functions would need to understand.) One way to accomplish this is to “marry the data” between retail functions, which typically requires integration across multiple systems. In the in-stock example, retailers must marry the distribution center inventory count with the perpetual inventory count measured in stores, a highly variable number, in order for the distribution centers to accurately replenish the stores. Retailers must also understand data handoffs and potential drops or translation issues that occur between systems and teams.
Deploy advanced technology solutions
Advanced technology tools can drive integration among business units and help ensure that new processes have staying power. In the case of improving in-stock rates (a prime candidate for an e2e transformation), advanced analytics can take signals from perpetual inventory, points of sale, and online ordering to predict when an item will go out of stock and alert the stores to take action. Generative AI, meanwhile, can field call center complaints to identify network delivery issues, while machine learning algorithms can improve end-to-end forecasting for complex promotions.
An end-to-end transformation changes how retailers address margin opportunities and collaborate across functional silos—thereby not only improving business operations but also creating an environment that attracts top talent. A combination of common, clear goals; the right team; and a whole-business mindset can help retailers untangle long-standing operational issues—and lay the foundation for success in the years ahead.
