The Omni-Challenged Supply Chain

By Linda Whitaker

Consumers have had no problem adapting to an omnichannel experience, and a majority of them already use multiple channels when shopping. But the race to implement the omnichannel interface has drawn significant expense, and retailers are focusing an increasing amount of time and energy on trying to leverage every interaction for maximum profitability.   Even in the best cases, many are feeling what I call omni-challenged.

The Omnichannel World

The omnichannel world in retail

By now, we’ve all seen plenty of omnichannel representations like the one above: the customer at the center of the retailer’s world interacting with a myriad of touch points that support a seamless and rich shopping experience.

So far so good, but a closer look shows that to successfully support this valuable interaction requires many retail functions.

Moving from omni-challenged to omni-channel

It’s a beautiful picture, and all that inter-group cooperation gets me feeling warm and fuzzy. Because really, to create the kind of omni-play that customers want, and are starting to demand, you need total alignment within your retail organization. Marketing, Merchandising, Store Operations, Supply Chain, and E-commerce (assuming the latter even exists as a separate group in our new omni-world) all need to work together in perfect harmony.

It’s at this point that my vision of the groups holding hands, singing kum-by-ya and dancing in a circle turns sour. Maybe it’s due to memories I have of the customer centricity movement a decade ago (and a decade before that).

The center of the circle is not a happy customer anymore but a swirling vortex, into which time, money, and resources are sucked; never to be seen again.

Okay, so I have some battle scars.   Things will definitely be easier this time around, right?

A simple concept?

Omnichannel is a retail strategy that is not hard to conceptualize. It’s about taking advantage of every customer point of contact to build a closer relationship, including new enabling technologies such as mobile and social. It requires communications to be with one voice and a consistent brand experience. When well executed, today’s retailers are effectively having one-on-one interactions conducted on one-to-many platforms.

Sounds straightforward enough?

The challenge is that the implications and specifics for any single retailer can be expensive and are anything but well-defined.   Investment in the customer experience requires not only changes to each customer touch point, but also to the core systems, distribution network, and internal processes underpinning them. Corporate performance metrics also need to be modified to align with a cross-channel shopping and distribution path.

What omnichannel looks like and the corresponding omni-challenges will be different across retail organizations, and how to get there requires different strategies; there are no cookie cutter solutions. Each retailer must decide where, when and how to invest.

Approaching Omnichannel as an ongoing process, rather than as a discrete project is for most retailers, if not all, the most realistic way forward.

Land Grab 2.0: Cause and Effect

Industry-wide there is currently a significant amount of investment being made into improving the customer experience. Effectively much of North American and European Retail are approaching their target markets as if they are engaging in a customer land grab much like the online retail land grab of the late 1990’s.

Retailers are using a variety of techniques to lure customers, among them: social commerce, a portable path to purchase, new store formats (showcases, multi-formats), expanded delivery options (click and collect, next day delivery, store to home shipping, portable fitting rooms), mobile promotions, and store digitization (mobile maps, tailored promotions, store associate support, captured customer behavior).

Some of these tactics have proven quite effective while for others the jury is still out, and in many cases simply unproven because ROI tracking is not in place. With operational, process, and system implications, the ripple effect can be significant and benefits measurement very difficult.

While every retail function will feel the impact of these changes, one of the largest from an overall revenue point of view is in inventory and supply chain optimization. Why? For most retailers their inventory investment translates to their biggest point of both opportunity and risk.

Because of this it is key to recognize that the customer experience initiatives listed above add a high level of uncertainty to customer demand, associated supply chain costs and complexity in managing the supply network.

Knowledge is Power

Gauge your ability to predict and manage the impact of omnichannel initiatives against your business objectives and the mix of tactics that represent the best places for investment in your environment.

A good place to start would be exploring your comfort with two key areas as they relate to your business prior to defining your omnichannel process.

  • What is your company’s Customer Demand Path?
  • What is the anticipated ROI of Expanded Delivery?

Supply networks are driven by customer demand. But customer demand is not a single point of demand anymore. It’s a path, consisting of the point-of-purchase, receipt of the goods, and some subsequent returns. I think of it as a subset of the full path to purchase.

The demand path is complicated by the fact that customers now want more choices about where and when to receive merchandise.   We are moving away from the simple world where an out-of-stock at the point of purchase implied a chance of a lost sale and that, in turn, determined demand.

For most retailers at least a portion of the customer demand path is hidden due to a basic lack of information. A first critical step is to identify a plan to capture this information starting as soon as possible.   Data capture and pattern recognition may be done in stages. Some retailers start with aggregate path information, attempting to understand demand at points on the path, before moving to the actual path.

For example, you may find that for a class of items, you have 20% returns to stores. Without the demand path, you may or may not be able to determine that 80% of those are items sold and delivered through the e-commerce channel. With only aggregate information, (and removing old assumptions about the link between demand and lost sales) you can improve inventory distribution, but you may not be able to address the cause of the returns in the first place.

Once the demand path is understood (and a great many learnings will come out of that), cost/benefit analysis can proceed around delivery options and other supporting supply chain operational changes.

For example, a program to provide free shipping may have increased sales by 10%, but profitability could go down 20% due to increased costs. This may end up being the best decision from a strategic standpoint, but understanding the impact is critical.

Elevate Execution and Decision Making

Visibility into the demand path allows you to optimize inventory delivery, and create or modify strategies to optimize availability at the desired points of pick-up and return.

Many of these improvements can be added to existing inventory order and fulfillment solutions, so day-to-day execution can be optimized against live customer experience initiatives.

For more value, a supply chain analysis tool can be used with the demand path to assess the impacts of these changes before they are deployed. This type of analysis can be used at a micro level, to improve individual product performance, all the way to the macro level, for insight into large scale initiatives.

Exploit it in the long term (this is where we all hold hands and start singing)

Thus far we’ve looked at understanding the customer demand path, and a method to assess the costs and benefits of particular strategies, in the context of current inventory and supply chain systems.

All of this near-term effort should be done with an eye on the long-term prize, when the standard will be a real-time supply chain capable of making customer specific decisions.

In this case, marketing, merchandising and the supply network will come together to create strategies that maximize lifetime customer value and execute them with customer specific offers in real time.   Optimized offers will understand not only the customer’s desires but also the retailer’s current state of the supply network, inventory lifecycles and availability, vendor support, and competitive positioning.

Oh, was I daydreaming again? Did I just say all that out loud? What can I say; I’m a sucker for a good old-fashioned vision. And I’m battle ready. Let the games begin.

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