It is easy to define omni-channel business success by desired outcomes: Happy, loyal customers resulting in increased sales and profits. According to supply chain solutions provider Dematic, what is considerably more difficult is describing how to get there and making it happen. Dematic explains more.
From the customer’s point of view, omni-channel means being the centre of the buying
experience. No matter how customers interact with a particular brand — whether online, in-store or from a mobile device — they expect the experience to be seamless.
From the retailer’s point of view, omni-channel is much more complex. It means implementing a system that produces a consistently positive experience for shoppers and buyers. In practice, this means providing multiple purchase and delivery options, managing channel expansion, optimising supply chains, automating order fulfilment and more.
The real challenge is making this all happen efficiently. It requires a thoughtful plan. This article provides a structure for that plan: A high-level description of the steps necessary for meeting the expectations of today’s omni-channel customer.
There are three basic steps:
1 Define: Research and document what the customer experience needs to be.
2 Account: Identify exactly where inventory is in the supply chain and whether that inventory count is accurate and can meet customer expectations.
3 Execute: Invest in the solution technology necessary to make it all happen profitably.
Challenges of supporting omni-channel
Omni-channel is not a new concept. Companies in many markets have recognised the wisdom of adapting to customer buying habits to remain relevant and competitive. However, even if a company is aware of the trend, it might not fully understand the barriers to developing a successful omni-channel initiative.
Consider these challenges:
Order fulfilment costs: Omnichannel means delivering inventory in a way that is most convenient for the customer, which is often not the most cost-effective way for the company. For example, instead of a shirt being shipped from a distribution centre (DC), the shirt is pulled from one store and transported overnight to another. Much more expensive, but the customer is happy.
Margin pressure: If new methods are implemented to accommodate customer demand (but without updating back-end processes and supporting structure), margins will inevitably be squeezed. Every attempt to be more responsive without well-defined supply chain solutions comes with an additional cost, and those costs add up quickly.
Stock keeping unit (SKU) proliferation: Omni-channel is often described as “anytime, anywhere, anything I want to buy” shopping. The net effect of responsiveness to this is a tendency for a greater variety of inventory to be distributed in more locations.
Returns: As soon as the DC adds in e-commerce orders, decisions must be made regarding the handling of returns — be it to the store, back to the DC, or to dedicated returns processing centres. This can add a significant workload to the DC, especially in apparel where returns can be up to around 40% of activity, driven by consumers ordering multiple sizes in addition to normal reasons for returns.
There are trends towards free returns as a compelling enabler (and sometimes differentiator) as customers expect a quick turnaround and resolution of any issue. Real-time inventory visibility and rapid processing are essential to ensure that stock is quickly processed and returned to the supply chain.
Order processing speed: As next-day, or even same-day, delivery becomes the norm, customers expect a rapid turnaround for all of their orders. Ever-shrinking cut-off times only increase the need for orders to be processed quickly. Competition is fierce.
Companies must ensure that inventory is available and controlled across their entire supply chain.
Order processing accuracy: Customers also expect their orders to be correct. Even a single wrong direct shipment can cause customers to never order from that company again. Social media, in addition, can compound the error of a wrong shipment to put off multiple customers.
It is critical for order accuracy to be addressed in omni-channel supply chains.
Available network: Even with the best of intentions and planning, companies are potentially limited by their existing infrastructure and geography. Locations of DCs and stores factor heavily into meeting regional, national and global consumer demands, not to mention beating the competition.
Inventory visibility: To meet customer expectations, companies must know where inventory is in their supply chain and be confident the count is accurate.
Given these challenges, it is important to first define what customers want. What is their situational experience — is it in-store, on a mobile device, or at home? What should their overall experience be? What should their impression of the company be? What protects and reinforces the company’s brand image?
Finding the answers to these questions provides a goal to prepare for the next step: Accounting for one’s inventory.
In an omni-channel world, to meet the anytime, anywhere shopping demands, companies absolutely need full control of their inventory. The tenuous loyalty of a target demographic can rest on the company’s ability to provide an accurate account of the stocking status of the product that consumers desire.
After consumers make a purchase decision, there are some complex calculations necessary to determine the most cost-effective method of delivering a specific item to store, home, office or other location. This is well beyond the capabilities of any manual or per-location system. It requires strategic intelligence backed by enterprise software applications and support hardware.
To retailers and wholesalers, this means an enterprise resource planning (ERP) or distributed order management (DOM) system as the central processing brain for order fulfilment. Central processing with strategic intelligence enables retailers and wholesalers to measure not only inventory but also the performance of the stores.
Data from the stores can then be used to leverage existing information to plan orders, shipments and fulfilment activities. Real-time data, analytics and reports provide the information flow necessary for inventory visibility.
For example, a customer orders a shirt on a mobile device for pickup at a local store. It is the ERP or DOM that knows that particular SKU is not in stock at the local store, but available at a DC or two other stores, and will determine the optimal way to deliver it.
But even after customer expectations are defined and system inventory logistics are accounted for, the omni-channel puzzle is still not solved. There is still one more vital step, which is addressed in the next section.
Strategies for filling orders
The last (sometimes forgotten but certainly important) step to a successful omni-channel order fulfilment system is actually fulfilling the orders. It sounds obvious but it is no small consideration. Again, with a goal as aggressive as meeting every customer’s shopping whim, modern automated solutions for order fulfilment are not just an option — they are a critical component.
Automated order fulfilment solutions include the software and controls to receive, store, pick, put and ship products with absolute efficiency. It is the technology that brings the system to life and maintains the throughput.
In this example, after the ERP or DOM determines that the DC is the best source for filling this order, it is the automated order fulfilment system that picks the shirt, packs it and ships it to the local store where the customer can collect it.
The next section provides general design solutions for automated order fulfilment.
Case study solution examples
The omni-channel challenge represents an opportunity to rethink how inventory is deployed to optimise labour productivity, order accuracy, inventory accuracy and processing speed. How a company configures its omni-channel order fulfilment operations depends on variations in business volume, geographic constraints and its logistics philosophy.
Below are brief descriptions of the design approaches available:
Dedicated e-commerce DCs, dedicated retail store DCs: Owners of dedicated fulfilment centres believe that the activity profile, and therefore the picking processes, are fundamentally different for each channel. Industrial engineering analysis indicates that the order fulfilment system configuration and technology best suited for e-commerce is different from the configuration for retail store replenishment.
Simply stated, assembling orders that consist of one- or two-line items is a world apart from assembling orders that consist of hundreds of line items with multiple pallets of merchandise.
Dedicated fulfilment centres are also more appropriate when the inventory is different from what is offered in the retail store version of the brand.
These fulfilment centres can be designed to accommodate the peak periods of each channel more effectively. For example, on weekends, e-commerce must accommodate pooled order surges and a wider variation in average-to-peak ratios. Engineers need to consider order accuracy and order processing speeds in the system design — e-commerce orders must be accurate and timely.
On the other hand, if a retail store DC ships too much of a particular SKU, the store could accept the order and sell it without affecting customer goodwill.
Multi-channel DCs: A hybrid DC can fill orders for e-commerce, a small retail store and a large retail store. Inventory and labour can be shared across channels.
As each business peaks at different times, the labour force can be flexible between the channels. For instance, the labour force can be applied to retail if it peaks prior to e-commerce; then, the same labour force can be applied to e-commerce when it peaks later in the cycle.
One can use reserve storage with separate active picking locations for e-commerce and retail stores, or use the same active picking locations for both channels. An analysis of the activity profile reveals which strategy is best for each application.
Consolidating operations: To gain efficiencies, some omni-channel retailers have merged multiple distribution centres and brands into one operation. This allows efficiencies of scale and volume to reduce the cost to pick, pack and ship each order. The single inventory storing location reduces the cost of carrying inventory, and there is less need for safety stock throughout the network. In addition, inventory coming from just one location simplifies decision making for the order management software.
Consolidated operations are more appropriate for automation. Increased volume at a single location can make the business case for order fulfilment technology such as sorting automation and label print/apply systems. With automation, the cost to assemble each order is reduced while processing speed, labour ergonomics and order accuracy increase.
Small, low volume: Low volume retailers must be both effective and efficient in supporting omni-channel. Many boutique retailers are implementing pick, pack and ship systems that are preengineered and modular. Paper-based picking with hunt and pick methods are clunky, slow and labour-intensive.
Discrete or batch-pick methods that use performance optimising software allow small-volume operations to keep up with the highly automated large-volume national or global brands, but with a much lower capital expenditure. Pre-engineered, modular solutions are scalable for weekend-pooled order surges as well as other peak periods. Furthermore, these solutions allow fast and easy expansion to accommodate volume growth.