After years of cautious engagement in the online sales channel, retailers are fully committed to building requisite capabilities for the online segment of their business.
By Rahul Guhathakurta
Image Attribute: Pixabay.com
Across the world, retailers are facing cut-throat competition, not only during selling but also during retaining the same customer to resell their current category of products along with other categories. There is no doubt that, the "digital demand" drives omnichannel in the first place, and omnichannel as a product of digital demand creates expectations in the consumer to that extent that practically anything they imagine is deliverable. So they use omnichannel retailing through all physical channels (offline) and digital channels (online), which in turn offers a seamless, innovative and unified customer experience.
After years of cautious engagement in the online sales channel, retailers are fully committed to building requisite capabilities for the online segment of their business. Many of them report making long-term investments in acquiring powerful, full-featured technology platforms as well as expanding their network of distribution centers (DCs) and order fulfillment facilities. This strategic commitment to the online channel by store-based retailers comes at a time when their mammoth competitor in the online channel, Amazon, continues to make inroads into the retail markets.
Across the retail industry, the supply chain executives are now focusing on leveraging technology and infrastructure investments made in prior years, to gain a much needed competitive edge. The next step for them is to review and upgrade business processes around the new technology and fulfillment capabilities. These restructuring efforts are not only directed at business processes but at organizational and human resource aspects of change management as well.
What is Omnichannel Retailing?
Multichannel retailing or Omnichannel retailing is the use of a variety of channels in a customer's shopping experience including research before a purchase. Such channels include retail stores, online stores, mobile stores, mobile app stores, telephone sales and any other method of transacting with a customer. Transacting includes browsing, buying, returning as well as pre-sale and after-sale service.
The omnichannel is often said to be dictated by systems and processes, but in fact, it is the customer that dictates the route they take during transact. Systems and processes within retail simply facilitate the customer journey to transact and be served, it is multiple channels a very complicated path to establish for successful functionality with the inbuilt flexibility to cater different customer through distribution centers (DCs).
Supply Chain Integration for Omnichannel
Internal supply chain integration is undertaken for joining otherwise separate activities such as purchasing, warehousing, transportation, and distribution as well as customer service within a single enterprise. Presently companies are expanding systems outside the firm’s boundaries to identify higher value opportunities through collaborating with related supply chain partners, External integration, based on information sharing, helped building systems and coordination dimension among companies to improve performance.
Demand Planning
Historically, retailers have forecasted demand for in-store and online channels separately. In an effort to improve demand planning, retail supply chain executives are focused on understanding the extensive demand variation within and between channels. They are also trying to better identify where demand occurs to ensure inventory availability when and where customers need it. This effectively means that correctly forecasting aggregate demand is no longer sufficient. Retailers must also be able to accurately predict the origin of demand (region, store, and channel). For this reason, many executives indicated that they need demand planning at a finer level of detail (item level, store level, channel level). With the proportion of online sales increasing, retailers have a need to establish a single, integrated demand planning process.
Integrated demand planning requires a shift away from the top-down demand forecasting approach currently in use. Instead, a bottom-up approach focused on aggregating demand at the store level and by sales channel is needed.
Integration of channels into demand planning will help retailers expose all inventory – in-store and in the DC – to omnichannel customers. Implementation of this strategy will require retailers to acquire greater analytics and technology firepower. These tools must be capable of handling the vast data requirements of planning at the product category level in stores and across different sales channels.
Word of Caution:
The role of demand planning is not for the faint of heart or the analytical lightweight. Demand planning in a complex omnichannel retail world calls for new innovative approaches, heavy data crunching, and analyst finesse. Smart retailers are responding by establishing cross-functional teams of the merchant, supply chain, and store operations professionals who develop granular-level demand plans covering multiple demand streams and fulfillment nodes. They must couple these plans with innovative store replenishment and delivery processes to respond to changing demand dynamics in this complex planning environment.
Rise in Store-Based Fulfillment Consistency
Fast forward to 2018 and Retailers clearly recognize that store inventory can effectively support demand from multiple channels. As more omnichannel orders are directed to stores, effective strategies must be established. The need for greater customer service for online orders must be balanced against preserving the shopping experience of the in-store customer.
Numerous retailers are following a hub store strategy, and this method is expected to grow significantly over the next 3-5 years. This approach consolidates store fulfillment inside larger and/or centrally located stores rather than establishing fulfillment capability across the entire store network. The hub store may keep larger inventories across the board or have extra backroom space to support picking of high volume items.
Benefits of the hub store approach include reduced inventory management complexity, reduced associate training, and consistent quality of order preparation and customer service. A downside of this approach is that the customer desiring in-store pick-up may be directed to a location that is not the closest, most convenient store.
Omnichannel fulfillment has evolved from a primarily DC-based model to one that leverages all inventory nodes across the network, especially the store. For the same day / next day delivery being demanded by omnichannel, stores often provide the best fulfillment option for retailers. While there are still kinks to be worked out in the store fulfillment process, we believe retailers are moving aggressively toward a model that removes orders from the DC network and places a large percentage of these orders in stores.
Conclusion:
It is evident any type of study cannot offer one right solution for a retailer to develop their omnichannel customer experience. The customer behavior is customer-specific and company strategy should lead the investment decisions to finally lead to the supply chain decisions and offered service level. To plan a well-structured supply chain, retail managers have to understand the customer behavior and all the phases of the customer buying process. Data brought in by the different digital channels is in an important role in the creation of this understanding. In contrast, to offer the best possible customer experience, managers have to make strategic decisions over the supply chain options and control all the factors affecting the omnichannel experience. The parts of the supply chain process that require manual labor will always be the bottlenecks of the service and should be carefully controlled. Technological innovations can bring advancements in the supply chain process and thus cost savings but the investment decision is one of the most important trade-off decisions managers face in the omnichannel retail development.
About the Author:
Rahul Guhathakurta is the founder of IndraStra Global, a strategic analysis, and information services provider. He distributes his time between New York and Ahmedabad.
Cite this Article:
Guhathakurta, R. "B&E | Critical Aspects in Designing an Omnichannel Customer Experiences", IndraStra Global Vol. 03, Issue No: 5 (2017) 0059, http://www.indrastra.com/2017/05/BE-Critical-Aspects-of-Designing-an-Omnichannel-Customer-Experiences-003-05-2017-0059.html | ISSN 2381-3652
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