While moderating a panel discussion earlier this year on the subject “The Science and Art of Modern Retail,” Lauren Sherman (@lapresmidi), Editor of The Business of Fashion, stated, “[Omnichannel is] a bad word, but a good concept.”[1] Omnichannel operations were supposed to be traditional retailers’ solution to the Amazon challenge. But many retailers and manufacturers have struggled to master the concept.
Coming to Grips with Omnichannel Operations
The staff at Material Handling & Logistics (MH&L) writes, “Understanding the value of cross-channel capabilities is now necessary to serve the global $1. 9 trillion e-commerce landscape, yet it’s something that many companies are struggling with. In fact a new report, ‘Charting Course for Global Commerce’ by 1WorldSync, found that 53% of retailers and suppliers experience a knowledge gap within their organization when it comes to understanding it.”[2] It’s hard to master something you don’t really understand. The report underscores that fact and found, “Forty-five percent of retailers and suppliers have lost more than $1 million in revenue due to cross-channel commerce challenges, and more than one in ten (13%) have lost more than $3 million.” The study went on to state, “A majority of retailers and suppliers are not fully prepared to meet the varied demands of modern customers.”
Scott Fenwick, Senior Director of product management at Manhattan Associates, asks, “Is there anything better for delighting customers than robust omni-channel retail experiences?”[3] Maybe not; but, as noted above, a lot of customers are not being delighted and the biggest challenge appears to be inventory management. Jannie Baik, CEO and co-founder of Orchard Mile and a member of Sherman’s panel, stated, “I’m sick to death of hearing [omnichannel], because everyone talks about it, but no one actually has a solution. The reason your experience sucks is because number one: there’s a distribution center.” The point Baik was trying to make is that omnichannel requires companies to know exactly where inventory is located (i.e., in distribution center, in transit, or in a store). The problems start when inventory is sourced both locally, and from the distribution center, and when keeping track of inventory in real-time isn’t happening. “The holy grail of this stuff is the single pool of inventory,” Baik said. Fenwick explains how an omnichannel system is supposed to work:
“When the distribution center (DC) is out of something displayed on the website, it can be fulfilled from store inventory. Or, when an item is needed right away, like a last-minute-birthday gift, a customer can browse store inventory, pay for an item, and pick it up the same day. And when a merchant has a single record with customer information and orders regardless of channel, store associates and call center representatives can deliver consistent high levels of customer service.”
Fenwick goes on to suggest the customers retailers and manufacturers should strive to make the happiest are superconsumers. “Superconsumers aren’t just frequent buyers,” he writes. “Instead, they’re defined by their passionate attitude toward products and brands. One estimate pegs superconsumers at about 10 percent of a brand’s total customers. And they account for 30 percent to 70 percent of sales.” If you can make a superconsumer happy, you provide almost all customers with a good omnichannel experience. Lori Harner (@HarnerLori) writes, “One of the biggest challenges manufacturers face when delivering is how to meet these high expectations from customers for personalized, faster and cheaper service, but staying profitable at the same time. In fact, every sector of the supply chain is facing this same challenge.”[4] She adds, “It’s clear that technology is changing the way manufacturing operates and that omni-channel isn’t just a retail issue anymore. Because of the shift in technology, modern manufacturers face the dilemma of keeping up with retailers and consumers in an omni-channel world, while remaining profitable. Order lead times that used to be measured in weeks are now being measured in days, and with the way today’s omni-channel consumer is changing the game, you can bet it’ll soon be measured in hours.”
Leveraging Data for a Better Omnichannel Experience
Fenwick asserts there is a direct tie between superconsumers, the data they generate, and inventory optimization. He asks, “What do superconsumers have to do with inventory optimization?” His answer: “Since they account for so many sales, their consumption of inventory leaves breadcrumbs. Those breadcrumbs — or demand signals in inventory terms — can lead the way to stronger forecasts and a better pooled inventory strategy.” Although that sounds easy, collecting the right data to analyze sometimes requires collaboration between stakeholders. Harner explains, “Many times, the planning process doesn’t have visibility into upstream and downstream order and inventory information, making them unable to quickly and accurately re-plan when unexpected events or disruptions occur. This can leave plans both out-of-date and un-executable, leading to overstocks, out-of-stocks and dissatisfied customers. In today’s fast paced business environment, this can make it impossible to meet high customer expectations and stay profitable at the same time.”
Even if stakeholders manage to solve the collaboration challenge, they still require many of the capabilities offered in today’s cognitive computing platforms. Cognitive computing platforms can gather, integrate, and analyze both structured and unstructured data. They can monitor processes and make autonomous decisions to help businesses run at today’s faster speeds. Finally, cognitive computing platforms can bring anomalies to the attention of decision makers and provide them with actionable insights. Armed with the right data and using advanced analytics stakeholders can master omnichannel operations. Fenwick explains, “Advanced omni-channel retailers have been leveraging pooled inventory for fulfillment of walk-in, online and catalog orders for some time. From this, they have a valuable source of data about customer behavior. That’s the catalyst and here’s where the alchemy happens: retailers can use this data to develop a keen understanding of how inventory gets leveraged by channel. In turn, merchants leverage this information to reduce the total amount of network inventory on hand. And at the same time, keep walk-in and online customers happy by positioning it in the right places at the right time.”
Summary
“With inventory optimization and order management aligned,” Fenwick writes, “a merchant can take a systematic approach that orchestrates real-time execution and provides a stronger forecast for inventory utilization. … Companies that understand demand by channel have an opportunity to align inventory with fulfillment strategy. As a result they get lower fulfillment and delivery costs from stores and DCs alike. They also avoid overstocking in store locations. Besides lower logistics costs from channel stocking, they can keep all customers engaged while combating product margin erosion.” Admittedly, omnichannel operations are hard. To master them, stakeholders need every available tool in their kit. A cognitive computing platform is one of those tools.
Footnotes
[1] Perry Simpson, “Why ‘Omnichannel’ Continues to Frustrate Retailers,” DMN, 6 March 2017.
[2] MH&L Staff, “Half of Suppliers Have Lost Revenue Due to Cross-Channel Challenges,” Material Handling & Logistics, 12 April 2017.
[3] Scott Fenwick, “The Ideal Inventory Optimization Approach for Omni-channel Retailers,” Manhattan Associates, 1 March 2017.
[4] Lori Harner, “How Manufacturers Can Keep Up in an Omni-Channel World,” jda.Blog, 12 April 2017.
