Executive Briefings

Top Retail Megatrends Require an Omnichannel Supply Chain

Analyst Insight: The retail industry is undergoing massive transformations as a result of three megatrends: technology, globalization and supply chain. New technologies have changed the definition of the word "shopping." Globalization has resulted in products designed for international consumption and manufactured in the country with lowest total delivered cost. Supply chain's role is to support the desires of global customers with an efficient flow of goods, information and cash. The omnichannel supply chain is critical to these transformations, and it should evolve through a Strategy-Structure-Implementation process. – Jim Tompkins, CEO, Tompkins International

Top Retail Megatrends Require an Omnichannel Supply Chain

A smart omnichannel strategy consists of four key components:

First, there is Omnichannel Channel Management (OCM), which requires organizations to answer some questions. What to sell? They must decide a path for “OWN” brand and general merchandise. Whom to sell to, or how to segment product offerings for different channels and minimize channel conflict? Where to sell, because there are different offerings for different geographical areas. How to sell – directly via stores, outlets, e-commerce, etc., or indirectly via wholesale and/or forward or backward marketplaces? And what services to offer – free shipping, free returns, click-and-collect, etc.?

Second, with Omnichannel Retail (OR), there is the realization that customers do not necessarily think about channels. They want to shop anywhere, receive anywhere, and return anywhere. Retailers need to respond to customers’ expectations and desires to ensure all touch points work together seamlessly.

Third, Omnichannel Logistics (OL) requires that the supply chain network of DCs, FCs and combined DCs/FCs work together for all channels with the inventory allocation, order management and transportation systems. This allows the network to satisfy customers while maximizing profitable growth.

Fourth, there is Omnichannel Capabilities, or OC. That means translation of the OCM, OR and OL into the capabilities that the supply chain must be able to achieve. The OC includes areas such as how quickly your supply chain must perform, what fill rates need to be achieved, what capacity you need to have, what levels of consistency and agility you must deliver, etc.

The omnichannel structure is the design of the four omnichannel structural components of your supply chain to deliver the omnichannel capabilities. That includes:

Network Design: How can the network of DCs, FCs, combined DCs/FCs, and 3PLs allow for the maximization of profit to flow products from their origin to customers? What role do store fulfillment, click-and-collect, and store backrooms play?

Facilities Design: How should the DCs, FCs, combined DCs/FCs, and store backrooms achieve the OC at a minimal cost? How can facilities be designed for maximum ROI by using more thought and less steel?

Transportation Design: What is the right configuration of modes of transportation and specific providers to achieve the OC at a minimal cost? How can you utilize the transportation system to meet customers’ needs for personalization?

Technology Design: What is the right configuration of the supply chain technology required to meet OC?

The speed of implementation is critical because it leads to the speed of ROI, speed of competitive advantage, and the speed of achieving high performance. To successfully achieve the anticipated results, implementation must be accompanied by a robust change management process. It must be supported by top-notch communications and involvement, engagement and inclusion, while also realizing the need for nonstop continuous improvement and adaptation to evolving requirements.

The Outlook

Organizations are undertaking massive transformation to respond to the megatrends of technology, globalization and supply chain. The supply chain transformation is to become an omnichannel supply chain by following the process of defining the omnichannel strategy, then the omnichannel structure, and finally implementing the omnichannel supply chain to achieve omnichannel excellence. There is a lot going on in the retail industry, and it’s time to hang on to your hats.

A smart omnichannel strategy consists of four key components:

First, there is Omnichannel Channel Management (OCM), which requires organizations to answer some questions. What to sell? They must decide a path for “OWN” brand and general merchandise. Whom to sell to, or how to segment product offerings for different channels and minimize channel conflict? Where to sell, because there are different offerings for different geographical areas. How to sell – directly via stores, outlets, e-commerce, etc., or indirectly via wholesale and/or forward or backward marketplaces? And what services to offer – free shipping, free returns, click-and-collect, etc.?

Second, with Omnichannel Retail (OR), there is the realization that customers do not necessarily think about channels. They want to shop anywhere, receive anywhere, and return anywhere. Retailers need to respond to customers’ expectations and desires to ensure all touch points work together seamlessly.

Third, Omnichannel Logistics (OL) requires that the supply chain network of DCs, FCs and combined DCs/FCs work together for all channels with the inventory allocation, order management and transportation systems. This allows the network to satisfy customers while maximizing profitable growth.

Fourth, there is Omnichannel Capabilities, or OC. That means translation of the OCM, OR and OL into the capabilities that the supply chain must be able to achieve. The OC includes areas such as how quickly your supply chain must perform, what fill rates need to be achieved, what capacity you need to have, what levels of consistency and agility you must deliver, etc.

The omnichannel structure is the design of the four omnichannel structural components of your supply chain to deliver the omnichannel capabilities. That includes:

Network Design: How can the network of DCs, FCs, combined DCs/FCs, and 3PLs allow for the maximization of profit to flow products from their origin to customers? What role do store fulfillment, click-and-collect, and store backrooms play?

Facilities Design: How should the DCs, FCs, combined DCs/FCs, and store backrooms achieve the OC at a minimal cost? How can facilities be designed for maximum ROI by using more thought and less steel?

Transportation Design: What is the right configuration of modes of transportation and specific providers to achieve the OC at a minimal cost? How can you utilize the transportation system to meet customers’ needs for personalization?

Technology Design: What is the right configuration of the supply chain technology required to meet OC?

The speed of implementation is critical because it leads to the speed of ROI, speed of competitive advantage, and the speed of achieving high performance. To successfully achieve the anticipated results, implementation must be accompanied by a robust change management process. It must be supported by top-notch communications and involvement, engagement and inclusion, while also realizing the need for nonstop continuous improvement and adaptation to evolving requirements.

The Outlook

Organizations are undertaking massive transformation to respond to the megatrends of technology, globalization and supply chain. The supply chain transformation is to become an omnichannel supply chain by following the process of defining the omnichannel strategy, then the omnichannel structure, and finally implementing the omnichannel supply chain to achieve omnichannel excellence. There is a lot going on in the retail industry, and it’s time to hang on to your hats.

Top Retail Megatrends Require an Omnichannel Supply Chain