Executive Briefings

Unintended Impacts of Omnichannel Distribution

The shift toward omnichannel distribution has both positive and negative unintended impacts. On the positive side are opportunities to blend and leverage channels; on the downside are organizational and operational gaps. Steven DeFazio, executive vice president at Fortna, offers insights on both.

The shift to omnichannel distribution presents new and largely unanticipated opportunities to retailers, says DeFazio. “There are synergies around merchandising and procurement that could not be leveraged when those functions were separated into silos,” he says.

One opportunity is to entice customers to order online – where they can be presented with a much larger selection of products than in a store –and then come into the store to pick up the merchandise, DeFazio says. Not only might the store gain additional sales by having customers walk the aisles, it may also improve its inventory positions since a high volume of customer pickups could warrant daily deliveries from the DC. These deliveries could be used to replenish and freshen store stock. Moreover, daily deliveries would enable the store to reduce the shelf space for any one item and add more products for an improved in-store experience.

On the downside, this shift can leave a number of organizational and operational issues unattended, DeFazio says. “The metrics previously used to monitor the success of one channel vs. another are blurred by shared processes and shared inventory,” he says. “And mechanisms designed to incent behavior in siloed operations often conflict with behaviors needed in an omnichannel footprint.” Success no longer is about defining a supply chain and asking the customer to participate, he says. “It is asking the customer to define success and creating a model that is flexible enough to meet that expectation.”

Omnichannel retailers must enable customers to have an online experience that leads to an in-store experience and an in-store experience that leads to an online fulfillment,” he says. “Retailers that are most successful at omnichannel today have figured out how to make it easy for customers to interact with all channels, rather than isolating them into a particular box.”

To view the video in its entirety, click here

The shift to omnichannel distribution presents new and largely unanticipated opportunities to retailers, says DeFazio. “There are synergies around merchandising and procurement that could not be leveraged when those functions were separated into silos,” he says.

One opportunity is to entice customers to order online – where they can be presented with a much larger selection of products than in a store –and then come into the store to pick up the merchandise, DeFazio says. Not only might the store gain additional sales by having customers walk the aisles, it may also improve its inventory positions since a high volume of customer pickups could warrant daily deliveries from the DC. These deliveries could be used to replenish and freshen store stock. Moreover, daily deliveries would enable the store to reduce the shelf space for any one item and add more products for an improved in-store experience.

On the downside, this shift can leave a number of organizational and operational issues unattended, DeFazio says. “The metrics previously used to monitor the success of one channel vs. another are blurred by shared processes and shared inventory,” he says. “And mechanisms designed to incent behavior in siloed operations often conflict with behaviors needed in an omnichannel footprint.” Success no longer is about defining a supply chain and asking the customer to participate, he says. “It is asking the customer to define success and creating a model that is flexible enough to meet that expectation.”

Omnichannel retailers must enable customers to have an online experience that leads to an in-store experience and an in-store experience that leads to an online fulfillment,” he says. “Retailers that are most successful at omnichannel today have figured out how to make it easy for customers to interact with all channels, rather than isolating them into a particular box.”

To view the video in its entirety, click here