For years, retailers have mouthed platitudes like "The customer is king," or bragged that their supply chains are ultimately customer-driven. Now they’re being forced to prove it. The difference is the arrival of the omnichannel - a world in which distinctions between the way that merchandise is ordered and fulfilled are vanishing. Customers today are demanding a seamless experience from retailers, regardless of how they buy products or take delivery. Never mind whether they picked up the item at a store, purchased it online, or ordered it via a mobile phone. Buyers want easy access to inventory, assurance that the chosen item is in stock, and prompt delivery – sometimes as quickly as same-day. Following are excerpts from conversations between SupplyChainBrain editors and industry thought leaders on the topic of retail services and information technology in the age of the omnichannel, conducted at the annual conference of the Council of Supply Chain Management Professionals in San Diego, Calif.
Q: What are the biggest challenges that retailers face today? And what are their biggest pain points?
Fab Brasca, Vice President Solution Strategy, JDA Software: It’s an interesting world that we live in. As consumers, we have incredible power at our fingertips. We’re able to buy anywhere, anytime, anything, which is extraordinary. But the challenge that poses for supply chains – not just for retailers, but for manufacturers and suppliers as well – is unprecedented. The big thing is the amount of variability that it imposes on the supply chain. It’s hard to predict. I’m not just stocking stores anymore. I could be shipping from the store, the customer could be picking up in store, I could be fulfilling from a D.C. – the options continue to enumerate, as different providers bring to market varying solutions.
Brian Bourke, Vice President of Marketing, Seko Logistics: A summary of the biggest pain point in the retail industry would simply be this: omnichannel logistics. No matter how big or how small you are as a retailer, whether you’re 100-percent e-commerce, brick-and-mortar, domestic or based outside of the U.S., all of the rules still apply. But they’re different from what they were just ten years ago, and even just two years ago. Retailers are beginning to look outside of the U.S. for new markets. They’re studying up on what Tmall is, and what Alibaba has to offer, with regard to e-commerce, fulfillment and marketplaces. They’re learning about the Chinese consumer, who might not have even been on their radar two years ago. That’s the biggest challenge – constant and ever more rapid change.
Charlie Armstrong, Founding Partner, Orion Advisors Group: What does omnichannel mean? I think you just jump to the end. Really what we’re doing is just serving customers. They define how they want the product delivered. We happen to use the word “omnichannel” as a physical delivery mechanism. But it’s really about servicing that customer’s expectations, however they might want to change them today.
Prem Khatri, Associate Vice President of Operations, Chetu: To be successful in the retail business now, one channel is not enough. I have to extend my platform from brick and mortar to e-commerce, and it should be available on mobile as well as on the desktop. We have to make sure that we have a common theme, features and facilities running across all of these channels. You cannot have an e-commerce platform from vendor A, and a mobile platform from vendor B, and you keep on fighting at the team level. Custom software can help you run with a common theme all across those channels.
Bourke: Almost every retailer that we talk to is going down this road of optimizing its entire supply chain for omnichannel. What does that mean as it relates to WMS [warehouse management] and TMS [transportation management] software? A perfect example is this. Let’s say 10 years ago a retailer’s e-commerce orders were 2-3 percent of their total revenues. Now it’s closer to 30 or 40 percent. That has a direct impact on how they set up their D.C.s, whether or not they’re outsourced, whether they’ve done a center-of-gravity study. Maybe they have three D.C.s across the country that manage fulfillment for their retail stores perfectly, but they haven’t even taken into consideration drop-ship vendors or marketplaces. And now, you have a rising percentage of direct-to-consumer e-commerce orders. It all starts at the D.C., and includes not only the pick, the fulfill, and pack and ship, but also the shipping, where [there’s a need for] TMS integration. Is this going FedEx? Parcel? Integrator? LTL [less-than-truckload]? All of that routing, and those definitions, oftentimes need to be tied to the WMS, especially as it relates to retail compliance. You may be fine in your e-commerce D.C., fulfilling orders for e-commerce customers, but you still have a need for retail compliance. There’s a long list of dimensions, labels, requirements and other rules that need to be applied to every single shipment. And you have to be on point for all them.
Brasca: Ultimately what we seeing is that there’s no one-size-fits-all. It’s going to be very specific to the type of goods that are being sold. You’ve got emerging partnerships between manufacturers and retailers, to do direct-to-consumer. Some manufacturers are looking to go direct to for staple products. That’s an interesting strategy – it could be very disruptive. I don’t think we’re at a point where there’s just this established norm, and everything is settled. We’re in an era now where more and more trends are going to emerge as people try to find way to become disruptive.
Chris Jones, Executive Vice President of Marketing & Services, Descartes: Home delivery now is considered to be a given. People don’t expect to wait weeks [for their orders]. They don’t want to stay at home all day. We think there’s going to be a whole other wave of capabilities that are coming. Everybody’s talking about same-day, but the ability of retailers to do that is not necessarily there. We’ll see more value-added services. And believe it or not, you’re going to see people charge more for delivery again. With regard to free shipping, Amazon Prime and a number of other retailers are saying they can’t afford to do it that way anymore. They view this as having been a great entrée, to get people’s attention, but not sustainable.
David S. DuBose, Director of Supply Chain Solutions, Sedlak Management Consultants: With regard to supply-chain design, it’s important to think about it from the customer or the store back. You’ve got to consider service levels, the kind of experience you want that customer to have. Everything should be built up to that point of delivery. Think about what service levels you want to achieve, then connect that to how your inventory and your merchandise are deployed throughout your network – from the store to the distribution center, the port, and the factory.
Brasca: We’re seeing a number of emerging trends and operating policies coming into play. It started with the whole notion of e-commerce, where a large retailer might have a dedicated channel to fulfill online orders. But the advent of the large online retailers really has changed the game. More and more, a lot of prominent retailers are looking at their overall supply chains, stores included, as potential fulfillment points. That gets really tricky, because the decision on where to stock inventory and where to fulfill it from becomes much more complex. You go from what traditionally were very linear supply chains – raw materials to manufacturing to D.C.s to the store to the consumer – to many-to-many supply chains. With that extra level of complexity, it comes down to where are you putting your inventory to be most effective? How are you placing it closest to your consumer? What’s the associated assortment? That’s a big challenge.
Armstrong: We are about to embark on the largest transformation in the supply chain in decades. It’s going to affect all of us – every member of the supply chain. We’re going into a situation where the customer, enabled by mobile technology, will set the expectations on every single transaction. Today, I buy something on my way home with my mobile phone, and I pick it up at the store. Tomorrow, I might buy that same item and have you ship it to a hotel where I’m going to be at. And down the road, I might buy it and have you deliver it with a drone. The key difference for the supply chains of the future is that they’ll have to define the customer as a market of one. Each customer defines and sets its own expectations every single day, with every new transaction. The entire supply chain must respond to that market of one customer, but they have to do it thousands of times a day. It’s a pretty exciting process, but it’s going to require change for every component of the supply chain.
Brasca: If I had a caution for retailers, manufacturers and other participants in this phenomenon, it would be, don’t look for the easy fix. This is a challenge that we’re all facing. It’s not going away. It’s going to get more complex. We’re going to see more and more models emerge. Those that take a step back and holistically look at their supply chains, and really look to solve the problem from that point of view, are the ones that are going to emerge.
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