Omni-Channel Retail and the Supply Chain

Working Together for a Competitive Advantage

Paul Myerson

• Publisher: Productivity Press
• Year: 2020
• ISBN:
  9781000264449
• Edition: 1
• Topic: Business
• Subtopic: Operations
• Index: Business

Omni-Channel Retail and the Supply Chain

The days of going to the local department store to buy a television, view the options available, and make a purchase now seem "quaint." The emergence of the internet, smartphones, social media, and other technologies has opened a world of new options for consumers (and businesses) to review, research, and buy online with an ever-increasing array of delivery options.

The emergence of e-commerce has resulted in what is commonly known today as "omni-channel" marketing, in which customers engage with companies in a variety of ways, including in a physical store or online via websites and mobile apps. This process puts the supply chain "front and center, " as consumers are increasingly demanding and browsing, buying, and returning goods through various channels, not just the traditional "brick and mortar" way. To accomplish this with high levels of service while remaining profitable requires real-time visibility of inventory across the supply chain and a single view of consumers as they continuously move from one channel to another.

While this is a boon to consumers, it has made the already complex global supply chain even more challenging to manage. On top of that, the 2020 Covid19 pandemic has accelerated this omni-channel retail trend, as consumers need even more ways to order and additional options for last-mile delivery, such as curbside pickup. Covid19 has exposed a lack of flexibility and readiness, resulting in shortages of everything from toilet paper and meats to personal protective equipment (PPE) and ventilators. It has been a real-life example of the "bullwhip effect, " where variability at the consumer end of the supply chain results in increased variability as one goes upstream towards distributors, manufacturers, and suppliers. This results in shortages, misallocations, and increased costs.

No longer can a manufacturer, distributor, or retailer of consumer products just "fill the pipeline" and wait for orders to come in. Now, they must anticipate various purchases and delivery items, while at the same time minimizing costs. To do this is no easy task, requiring a Lean, agile, and responsive supply chain.

Until now, there was no existing "playbook" for organizations to navigate their way through this new world. This book describes the impact of omni-channel marketing on the supply chain and logistics functions, and is intended to help management meet the needs of not only today's ever-changing world but to anticipate what may be required in the future to achieve superior customer service, profitability, and a competitive advantage.

Part I

Omni-Channel Retail and the Supply Chain

Working Together for a Competitive Advantage Introduction

1
Introduction: Where We Are Today

The days of going to the local department store to buy a television, viewing the options available, and making a purchase now seem “quaint”. The emergence of the Internet, smartphones, social media, and other technologies has opened a world of new options for consumers (and businesses) to review, research, and buy online with an ever-increasing array of delivery options.

The emergence of e-commerce has resulted in what is commonly known today as “omni-channel” marketing, in which customers engage with companies in a variety of ways, including in a physical store, and online via websites and mobile apps (Figure 1.1). This puts the supply chain “front and center”, as consumers are increasingly demanding, and browse, buy, and return goods through various channels and not just in the traditional “brick-and-mortar” way. Accomplishing this with high levels of service, while remaining profitable, requires real-time visibility of inventory across the supply chain and a single view of the consumer as they continuously move from one channel to another.

FIGURE 1.1
Omni-channel.

While this is a boon to consumers, it has made the already complex global supply chain even more challenging to manage.

On top of that, the 2020 COVID-19 pandemic has accelerated this omni-channel retail trend as consumers need even more ways to order and additional options for last-mile delivery such as curbside pickup. COVID-19 has exposed the lack of flexibility and readiness, resulting in shortages of everything from toilet paper and meats to personal protective equipment (PPE) and ventilators due to a variety of capacity and inventory allocation issues. It has been a real-life example of the “bullwhip effect” in action, where variability at the consumer end of the supply chain results in increased variability as you go upstream towards distributors, manufacturers, and suppliers, creating shortages, mis-allocation, and increased costs.

No longer can a manufacturer, distributor, or retailer of consumer products just “fill the pipeline” and wait for orders to come in. Now they must anticipate the various purchase and delivery items, while at the same time minimizing costs. To do this is no easy task, requiring a lean, agile, and responsive supply chain.

Until now, there was no existing “playbook” for organizations to navigate their way through this new world. This book describes the impact of omni-channel marketing on the supply chain and logistics functions and is intended to help management not only meet the needs of today’s ever-changing world but also to anticipate what may be required in the future to achieve superior customer service, profitability, and a competitive advantage.

How Supply Chain Strategies Impact E-Commerce Success

E-commerce has emerged as an important part of a company's omni-channel marketing program. Achieving success requires an agile, lean supply chain with a comprehensive strategy on how to get there.

Many e-commerce companies sell a variety of products, and each type of product establishes different strategic needs. For example, functional products require lean and flexible network strategies, while innovative products require more responsive or agile strategies.

Some key factors to consider when employing an e-commerce strategy include:

• Individual product characteristics
• Demand volatility
• Product variety
• Product life cycle length and position
• Criteria for orders, profit margins, and dominant costs – for example, physical vs. marketing
• Quality of information available
• Type of forecast used – qualitative vs. quantitative

In many cases, considering all these factors may result in the need to develop segmented strategies for each supply chain and individual groups of products.

E-commerce has evolved into a combination of retail and industrial product types and industries, as well as Internet technology and devices, the transportation and logistics sectors, and inventory tracking and fulfillment systems (Figure 1.2).

FIGURE 1.2
Omni-channel retail supply chain.

As a result, e-commerce requires strategies that address the following major elements:

1. The Internet and mobile devices – The platform where sales happen is moving from personal computers to mobile devices such as tablets and smartphones (also referred to as m-commerce).
2. Omni-channel retailing – This process integrates brick-and-mortar, TV, catalog, social media, e-commerce, and m-commerce channels both for purchases and for returns.
3. Changing supply chains – In retail, inventory must become more transparent to create efficiencies in new supply chains with direct-to-consumer shipments from online orders, sometimes with returns to stores. Adding to the complexity are ship-to-store and ship-from-store customer orders.
4. Distribution and fulfillment centers – In the world of e-commerce, companies design and build fulfillment centers to satisfy online orders, which, in many cases, are for a single item. E-commerce orders typically are smaller than those for traditional brick-and-mortar distribution centers, and often require one-day fulfillment.
5. Automated inventory systems – Beyond the increased current use of radio-frequency identification (RFID), barcode readers, handheld mobile computers, and automated carousels, e-commerce requires companies to plan for the design and implementation of robotic systems in their fulfillment centers and supply chains. These systems can range from the use of automated guide vehicles and robots to the potential future use of air and land drones for delivery.

Online retailing has been growing by an annual average of more than 18 percent globally in recent years, while non-Internet sales are growing by only 1.3 percent annually. As a result, e-commerce is one strategy retailers should not take lightly [Myerson, 2016b].

Omni-Channel Retail and the Supply Chain: Challenges ahead

An omni-channel retail strategy provides an integrated and consistent shopping experience across different channels and devices. Making this strategy a reality requires your supply chain to provide a smooth, positive experience for customers regardless of where and how they interact with your brand.

The omni-channel retail strategy has been driven by the growth of e-commerce and a multi-channel marketing strategy that offers customers multiple ways to buy products (i.e. brick-and-mortar stores, buy at home via the Internet, tablet, smartphone, laptop, or catalogs with home delivery or in-store pick up).

E-commerce sales grew from only 8.0 percent of total U.S. retail sales in 2012 to 16.5 percent in 2019 and accounted for more than half (56.9 percent) of all gains in the retail market in 2019 [Young, 2020]. So, for future success, it is imperative that manufacturers, distributors, and retailers redesign their supply chains to meet growing customer expectations which require real-time visibility of inventory across the supply chain and a single view of the consumer as they go from one channel to another.

Companies must now include omni-channel retail in their supply chain strategies to transform them to be agile and responsive to the changing needs of the consumer, and must build robust data and analytics capabilities.

Some of the challenges ahead that need to be addressed by supply chain executives (covered in more detail in Chapter 9) when dealing with an omni-channel retail strategy include visibility within the supply chain, network design, order fulfillment, pricing, customer service, reverse logistics, and customer engagement.

While these and many other challenges arise from an omni-channel retail strategy, supply chain professionals must rise to the occasion, as it’s always better to be part of the solution rather than part of the problem [Myerson, 2018a].

Omni-Channel Multiplies the Challenges for Distribution-Centric Supply Chains

Companies today have some big decisions to make about when and how to invest in realigning ...

Table of contents

• Cover
• Half-Title
• Title
• Copyright
• Contents
• PART I Omni-Channel Retail and the Supply ChainWorking Together for a Competitive Advantage Introduction
• PART II Traditional vs. Omni-Channel Marketing
• PART III Traditional vs. Omni-Channel Distribution
• PART IV Transformational Omni-Channel Supply Chain Strategies to Achieve a Competitive Advantage
• PART V The Shape of Things to Come
• References
• Index