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The Impact of Omnichannel Operations on the Supply Chain

October 16, 2013


At the end of my post entitled Surviving in the Omni-channel World, I indicated that, in a later post, I would discuss the impact of omnichannel operations on the supply chain. In that post, I quoted the editorial staff of SupplyChainBrain who wrote: “With more customers shopping online and on their mobile devices, it seems imperative that retailers offer different channels for fulfillment to not only keep prices low, but to remain competitive and foster customer loyalty.” [“Multichannel Fulfillment Is The New Normal,” 11 March 2013] Dave Kilzer, senior vice president of supply chain solutions with Idhasoft, told the SCB staff that many companies fail to understand the nuances between “all-channel” and “omnichannel” operations. He stated that omnichannel “describes a distributor’s ability to provide an equally high level of service, regardless of the means by which product is purchased or shipped. All-channel can result in excess inventory, physically separated and unable to cross boundaries to meet the needs of the moment. Omni-channel, by contrast, makes it possible to hold inventory in multiple locations while treating it in one coherent ‘bucket’.” [“‘The ‘Omni-Channel’ – and Its Implications for the Supply Chain,” SupplyChainBrain, 11 July 2013]


As I understand it, the differences between all-channel and omnichannel operations described by Kilzer rest on a distributor’s ability to tap all sources of supply regardless of where they are located. The article helps explain this:

“The two concepts involve different rules of allocation, and the supporting technology has to recognize that. It’s getting to the point, says Kilzer, ‘where much of fulfillment in e-commerce is now being fueled, not from a DC, but from the backroom of a retail location.’ In essence, the distributor is reaching all the way to the store shelf. The setup requires pinpoint visibility throughout the distribution chain, including the ability to manage the ‘black hole’ that is created when a consumer takes product off the shelf and moves to the checkout stand. ‘Those two seconds are how tightly inventory has to be tracked,’ says Kilzer.”

Clearly, successful omnichannel operations involve a number of technologies that can track supplies in real-time as well as predictive analytics that ensure supply is going to be able to meet demand. That’s why Ann Grackin, CEO of ChainLink Research, told the SCB staff that “more dollars are being spent on operational challenges: customer experience touch points (single view of the customer, POS, store and web design); IT infrastructure challenges from web to wireless in the store; and supply chain – which includes inbound merchandise allocation, replenishment, inventory management, and fulfillment to the customer.” [“Supply Chain Takes Its Power Position in the Retail Industry!,” SupplyChainBrain, 11 March 2013] If, as the SCB staff claims, omnichannel fulfillment is the new norm, it should come as no surprise that the staff believes that the supply chain now sits in a new power position. To ensure that supply chain professionals make the most of their empowered position, the ChainLink analysts assert that those professionals need to ensure they have the following technology tools in their kit:

“• WMS –Various warehouse technologies to support inventory management and omnichannel fulfillment. The past model of web-only or catalog-only inventory infuriates potential buyers. Amazon has shown the way: pass-through shopping with inventory status from partners – merchants and manufacturers to locate the specific products – puts private label retailers to shame. Private label, who own the end-to-end – from manufacturers through to point of sale – still can’t provide seamless inventory locating and fulfillment. Yet Amazon can, without owning the back of the supply chain. Voila – collaboration and process mastery!

“• Source tagging and B2B transacting – RFID, bar-coding and EDI will continue to grow to provide seamless communications and visibility across the trading network.

“• Transportation and Trade – Logistics technology and process methods such as collaboration for carrier consolidation to reduce inbound coordination and bottlenecks.

“• Mobile and Wireless – Our research showed more mobile for supply chain than the shopper experience! End-to-end visibility, coordination with third-party services, direct store delivery, and same-day service to customers will grow. Wireless infrastructure in stores will grow not only to support mobile checkout and tablets for sales assistance but store operation such as inventory management and pricing.

“• Demand Management – Demand process and technologies continue to evolve. One method yet to master is how to make sense out of the great customer insights coming from social. There are solutions that provide these, but they are ‘newbies.’ Few traditional demand forecasting players provide these – at their peril. Retailers and brand companies are reaching beyond the traditionalists to access these.

“• Social Enterprise – There are three flavors of social: one for customer facing marketing and customer support; one for B2B collaboration; and one for knowledge sharing in the enterprise. The latter two we call Enterprise Social Networking. Retailers will begin to understand the differences and not just use social for marketing.”

Research conducted by SD Retail Consulting concluded that, despite the impact that omnichannel operations will have on the future survival of businesses, many large companies have been slow to adapt. [“Largest Retailers Slow to Adapt to Needs of Omni-Channel Shopping Environment, Study Finds,” by SD Retail Consulting, SupplyChainBrain, 7 June 2013] Some of the more significant findings from their research include:

“• U.S. trails U.K. for in-store pick-up of web-based orders: Only 29% of U.S. retailers surveyed have implemented in-store pick-up options, and a mere 24% are planning to unveil a pilot program by late 2013. These figures represent a stark contrast to U.K. retailers, where 78% of retailers surveyed have deployed in-store pick-ups. U.K. retailers continue to improve on the convenience of in-store pick-up programs, testing additional benefits such as free parking for customers who pick up during morning business hours

“• Mobile POS Is Rare: Only 18% of U.S. retailers have implemented mobile POS systems across a significant portion of their stores, and in most of those cases, retailers have only rolled it out to select groups of stores, rather than entire chains. Further, mobile POS is still typically utilized for only one or two specific uses (i.e., line busting or search/assistance within specific departments), rather than leveraging the full extent of its capabilities (CRM, labor scheduling, traffic counters, etc.)

“• Store staff are not getting effective cross-channel training: 80% of U.S. and U.K. retailers said they have not invested sufficiently in training their staff on how to handle multichannel customers in-store, whether on how to handle ‘show rooming,’ competitive price-matching, in-store pick-up requests, or addressing specific product knowledge customers may have gained from the web. Additionally, fewer than 25% of retailers surveyed indicated that their field management was providing the leadership necessary to drive improved productivity through their physical stores in this new multichannel environment

“• No store associate incentive and recognition for cross-channel selling: Less than 10% of retailers surveyed are currently compensating their associates in some way that recognizes their contribution to cross-channel sales. Retailers with cross-channel customers acknowledge that while the store may not ring the sale, their associates play a critical part in driving company top-line sales, yet methods for compensating employees for contributing to the sale by servicing the shopper in-store (before they actually transact on-line) have yet to be formalized.”

What clearly pops out to me is that visibility and collaboration need to be improved dramatically if omnichannel operations are to succeed. In order to achieve the necessary level of collaboration, new key performance indicators need to be developed that take in account new digital paths to purchase that are being embraced by many consumers.

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