Omnichannel Fulfillment: Lynchpin in Retail

Introduction

As Supply chains are reeling under increasing pressure from competition, omnichannel consumer expectations and the likes of Amazon (employing disruptive technologies), companies are trying to realign and focus on the immediate challenges. One of the prime forces that all Retailers have talked about at the 2014 NRF is the planning of the omnichannel strategy and its successful execution. This Blog digs deeper into the omnichannel fulfillment aspect of that strategy.

The State of the Omni Channel in Retail

• More than three-quarters of the Retailers STILL DON’T share inventory across all selling channels. Retailers are creating   flexible, channel-agnostic Inventory strategies and fulfillment Process(es) to satisfy their 2014 Goals.¹
• By 2015, 3 in 4 retailers will leverage the store as a delivery hub up from 1 in 3 retailers currently. This just speaks of the amount of new process and strategy that goes behind this shift in paradigm².
• With the TOP-most action item for retailers being ‘expanding multiple channel initiatives’ over the next 18 months, the Forecast for 2014 –’16 top challenges for Retailers (keeping aside the omnichannel marketing /unified consumer experience) are the retiring of legacy systems, faster fulfillment and optimizing stores as the major channel³
• The price in lost revenue paid for not being omnichannel-ready has been estimated at about 6.5 percent – meaning $65 Million left on the table for a $1 Billion retailer⁴

Key Success Factors in an Omni Channel Retail

Research by IBM⁵ reveals that the five most important omnichannel capabilities are:

1. Price consistency across shopping channels
2. Ability to ship items that are out of stock in the store directly to home
3. Option to track the status of an order
4. Consistent product assortment across channels
5. Ability to return online purchases in the store.

While the key success factors are just touching the very high level, it becomes important to understand the extent of “seamlessness” in omnichannel shopping experience is envisioned by the leaders.

1. A consumer Buys it online and picks it up in the store
2. The consumer then tries it on in the store and get it delivered at home if the color they want is out of stock in the local store.
3. The consumer then places an order on a mobile device and be assured that the item is not only available but also be able to choose how much to pay for shipping and know exactly when it will be delivered.
4. Order online, have it delivered at home and return to the store if it doesn’t fit.

All of these steps above are just a part of the overall retailer- omnichannel strategy but needs to be empowered via Omni-channel marketing and fulfillment strategies.

Trends/best practices prevalent

OMS cornerstone in omnichannel

Looking at the benchmarking research report on ‘Omni-Channel Fulfillment and the Future of Retail Supply Chain’ it is very clear that back then (March 2011) it was the deep-seated nature of the supply chain issues impacting fulfillment. Inventory and order management systems (OMS) arent’ integrated across channels and the supply chains were never designed for omnichannel fulfillment⁶.

This is fast changing now. During 2011 – 2014, many OMS vendors have geared up their functionality to provide the functionality and we are increasingly seeing retailers use the seamlessness to their advantage. Today’s OMS powerhouses are equipping the e-tailers with functionality to not only be seamless but also have ways to rid them of late-season-distress due to too much inventory toward the end of the season, avoid out-of-stocks during mid-season-promos, avoid Peak-season by optimizing all fulfillment options. The recent deluge of OMS vendor acquisitions by e-commerce giants (IBM, Netsuite, hybris, Ecommera, Demandware* and others) again strengthen the need for strong OMS capabilities for e-Commerce.

*Note: Demandware is now Salesforce Commerce Cloud.

Increased mobile fulfillment devices

A renewed focus on the supply chain has then brought attention to significant changes in fulfillment that will now come from the growing use of mobile devices. The 2012 Retail Vision Survey showed that in the next five years the most dramatic shift will be in the in-store pickup of goods ordered on mobile devices. This is an option predicted to virtually double by 2017.

DC operations continuous improvement

The Retailer Distribution operations will need re-imagine their changing role in the supply chain.  DC now also has the responsibility to predict the velocity of a SKU whereas that used to come from the storefront. With Direct to Consumer and drop ship strategies, there is little cushion remaining for the DC operations.

Shipping costs reduction and optimizing on Freight

It is known that “72% of the TOP 50 US online retailers offer either ‘free shipping’ or free shipping with an order threshold, the pressure is on the holdouts to reduce or eliminate the shipping costs in order to maintain the competitive relevance” ⁷.

Forging the omni-commerce logistics strategy

while firming up the omni-commerce logistics strategy, one should note that the major models being utilized to date by many retailers including National Fulfillment Centre, Regional Fulfillment Centres, Ship From Distibution Centre, Ship From All Stores, Regional Hub Stores, Pick Up Centres and/or Lockerboxes, Drop Ship From Vendors will NOT be a one size fits all.

So, this requires the retailer and experts to perform a complete analysis of the business and come up with a sophisticated omni-commerce network strategy model after weighing in on the advantages, disadvantages keeping in mind the true North direction envisioned by the CXOs.

Summary

In Summary, it is clear from the article that the Bottom Line is:

The customer wants WHAT they want, WHEN they want it, WHERE they want it and at the PRICE they want it. And if the retailer or E-tailer doesn’t have it, they better get it to the consumer soon, or they’ll buy it from Amazon (or their likes) who will very soon with NO shipping fee.

Retailers are doing everything they can in their power to enhance and optimize their end-to-end processes and what is worth noting is that it is the fulfillment strategy and tailored strategy that leads to business excellence and customer retention.

If you feel that your company could benefit from an assessment and/or consultation from Newmine’s omnichannel pros, please get in touch with Mark by clicking here.

Feel free to pour in your feedback for the Author Sai S. Mudulodu here.

References:

1. Source: RIS News/EKN “Cross-Channel Trends Study.”  – RIS News March/April 2014
2. Source: EKN, ‘State of the industry research series: the future of the store
3. Source: 24th Annual Retail Technology Study, A supplement to RIS News March/April 2014
4. Source: RSI News Omni-channel readiness report, October 2013
5. Source: IBM Institute for Business Value Research
6. Source: Omni-Channel Fulfillment and the Future of Retail Supply Chain’ Nikki Baird and Brian Kilcourse, Managing Partners
7. Source: Free Shipping Continues To Be Every Retailer’s Frenemy (Forrester Research, October 7, 2013) By Sucharita Mulpuru, Marcus Johnson with Patti Freeman Evans, Rebecca Katz