The Impact & Opportunity of Omni Channel on the Supply Chain
The retail landscape has never witnessed as much disruptive innovation as we see today. It started with the explosion of the “digital age” and the impact is demonstrated by what used to be a small Seattle based online bookstore that is now the Amazon we see today.
In its early days, digital was never perceived a game changer to core “brick & mortar” business. It was considered more like a service for a small cross section of customers. With this thinking back then, most traditional retailers established separate operations for digital and never took time to integrate it within the core brick & mortar business.
What has changed since then?
- Digital has grown at a much faster pace compared to traditional channels,
- The biggest threat to retail giants such as Wal-Mart & Target is not from a traditional retailer but that small online book store from Seattle.
- Customer shopping habits have changed – using more than one medium to make a purchase.
What has not changed is digital is still run as separate channel operations.
With the explosion of sales channels, much faster growth of digital channels (or stagnation in traditional channels) and most importantly changing customer shopping habits, retailers that want to grow need greater channel integration in order to remain competitive.
The big question is; “Are supply chains ready to serve the the rise of the omni-present customer” The current supply chains were designed in 1980s to serve the stores, the way product is ordered, shipped to the DC and eventually to stores is done in retail quantities. The inventory management, and logistics are perfected for retail flows over several years of execution and they are not optimized to serve the cross channel needs.
A recent survey asked leading retailers, “what they think are the biggest impacts to their supply chains due to changing customer shopping behaviors”, and 65% of them said, unpredictability of channel demand, speed to customers and increasing supply chain costs are the biggest impacts.
Many organizations have already found innovative ways to address these impacts and enable their customers, buy anywhere fulfill anywhere capabilities, for example:
- The reason why channel level demand is hard to predict is because of customers shopping by utilizing more than one medium to make a purchase. To further complicate the matter, retail and digital channels typically operate with their own inventory pools, have no visibility into each other’s inventory levels, and no capability to cross utilize the inventory assets. Often when one channel sells out and loses sale the other channel is marking down excess inventory due to lower than expected demand.
The opportunity is to build a supply chain that has the ability view global demand, and find out the place in the network to fulfill that demand in a timely fashion. The cross channel movement of inventory is enabled such that inventory is not trapped behind the virtual channel walls.
- There is also an increasing expectation from customers for faster deliveries and leading supply chains are responding by offering same day deliveries to their competitive advantage.
This represent an opportunities to strategically position inventory closer to where demand is and improve speed to customer. However just being fast is not enough, it’s more important to be consistently fast.
- The supply chain has always been under cost pressures, however organizations running multiple parallel supply chains to serve different channels is a big impact.
The opportunity is to evaluate how much of the supply chain functions and processes vary by channel. Merge & standardize common functions & processes to reduce labor, asset and technology costs.
Today’s Omni present consumer is demanding buy anywhere deliver anywhere capabilities. To provide that channel centric supply chains have to transform to become cross channel supply chains.