SUPPLY CHAIN MINDED

OMNICHANNEL AND E-COMMERCE SUPPLY CHAIN MANAGEMENT: Update 2016

OMNICHANNEL AND E-COMMERCE SUPPLY CHAIN MANAGEMENT: Update 2016

CONTRIBUTION BY TOM CRAIG – SUPPLY CHAIN AND LOGISTICS CONSULTANT AND PROFESSIONAL AT LTD MANAGEMENT

E-commerce and Omnichannel especially the e-commerce segment have been and are changing retailing. Amazon, with its online sales and growth, is redefining retailing, selling, and supply chain management to drive it with a new business model. They are doing it on a worldwide scale. So is Alibaba. E-commerce and its impact on omnichannel are not business disruptions. They have reached global mega trend status.
Omnichannel and e-commerce are not just for retailers. They are also for distributors and for manufacturers who have brand identity. That identity is an advantage. But the conundrum for some is selling against retailers who also sell the same products. These two selling venues are for both B2C and B2B. The latter is often overlooked despite its size. B2B can be more complex because of order size and number of SKUs.
Despite its present and growing impact, there is much uncertainty and different directions taken to deal with omnichannel. Possible reasons that retailers struggle are:

  • Retail growth is coming from e-commerce which, in turn, affects market share. This creates a challenge for retail traditionalists. It is also a significant change situation.
  • Omnichannel and E-commerce are new retailing and selling paradigms that have new touch points for customers. They are mer convenience and customer expectations.
  • E-commerce is about customers, not retailers. That is a very different dynamic that places power in the hands of customers.
  • You have conventional, even myopic, views of their business. Many view retail and selling as about stores. They make an internal battle of bricks versus click, and e-commerce should support stores and store traffic.
  • They are not accepting that, at some point, online sales are expected to exceed in-store sales.

The fact is that e-tailers, non-store sellers, dominate online sales around the world. As store retailers ponder what to do as a coherent strategy, Amazon and Alibaba continue to grow and distance themselves from brick and mortar stores and their e-commerce efforts.
E-commerce will continue and accelerate its growth. And future events, such as virtual retailing, would increase the transition from in-store buying to online purchasing.

This further adds to the uncertainty for retailers on what to do and how to do it. E-commerce is 24/7 buying by customers. It is about the customer convenience to order. What is required is the supply chain to meet the customer expectations of immediacy that go with online buying, namely delivering orders within 48 hours—or less–of placement. Everything should support that. It means more than a website; fulfillment and shipping; or the last mile delivery issue. What it demands is the New Supply Chain to provide the customer experience.

Online buying with its immediacy requirement is not limited to retailers, e-tailers, B2C, and consumer goods. It is expanding and taking root and spreading across markets, industries, and the world. There is little immunity from immediacy and what it will mean to manufacturers, distributors, and others. Pandora’s Box is open.

Click And Collect

Perhaps nothing shows the confusion and uncertainty in omnichannel than does the Click And Collect (C&C) approach for customer order delivery. C&C is about having customers go to stores to pick up their e-commerce orders. The practice raises the questions:

  • Does it enhance the customer experience serving customers or is it a way of serving retailers?
  • Is the purpose to get foot traffic for stores?
  • Is it a transition program to serve customers while building the supply chain required to drive e-commerce and omnichannel?
  • How does it really differ from the customer go to the store to buy in-store and skip the online buying?
  • Is requiring a customer to go to a store to pick up his order qualify as “delivery” of the order?
  • Does it provide customer convenience or does it undo the convenience that began with online ordering?
  • Are some retailers trying to reverse omnichannel to monochannel?
  • Does it minimize the role of digital selling?
  • Does it generate the foot traffic and sales to offset possible sales erosion by customers changing their online activities to websites that deliver orders?
  • Is it used as a way not to invest in and to change to the New Supply Chain required to drive e-commerce and omnichannel for the customer experience?
  • What is the long-term viability of this approach against websites that deliver orders?
  • Does this approach limit retailers from addressing the modifying role of brick stores?

One possible positive of C&C may be fewer returned orders with customers who can check their orders before leaving the store. Also, it raises the potential of using stores as an option for returned orders to bring in customers. That changes customer-retailer dynamic to a positive one, as compared to how C&C can be viewed.

Issues with Current E-commerce / Omnichannel Supply Chain Management

There is a reality-check as to how well retailers and e-tailers are performing with order immediacy and meeting customer expectations. Here are some initial questions to set the stage:

  • For omnichannel, retailers are selling into multiple sales channels. Yet many try to use one supply chain to meet the differing requirements of each channel. Is that logical?
  • Do customers really care about omnichannel and various platforms? Or do they just want to order and get quick delivery of their orders?
  • And to the point. For e-commerce and omnichannel sellers, how well do e-tailers and omnichannel retailers supply chains perform?

Findings are that, for click and collect, stores do not have the items/inventory that the consumer purchased. Retailers are trying to force stores and supply chains to do more than they were designed for. Even catalog, direct-to-consumer, retailers are not immune to what is happening and are struggling with customer expectations and immediacy.
Uncertainty can be seen the increased inventories that are being carried. They are inventory rich, and not in a positive way. It creates liquidity concerns. What products needed to serve each channel and how to spread them challenge businesses that have traditionally been one channel.
Another issue is that the current supply chain and the distribution centers are about cartons and pallet loads of product that restock stores or stock factories. E-commerce is about eaches and individual orders to individual customers. Two very different dynamics are in conflict and being forced to co-exist. Making one supply chain meet the differing requirements of multiple sale channels is pushing agility beyond its intent. There is a serious flaw in that one supply chain idea.
Add in that distribution center locations for retailers are based on store placements. That network creates shortcomings to satisfying order immediacy. Also, many e-commerce only firms have limited themselves to shipping orders nationwide from one warehouse.
Immediacy is about more than fulfillment or the last mile. Inventory levels were original based on assumptions and practices that have dramatically changed. The underlying issue is the requirement for supply chains—across the entire company to drive growth and meet customer expectations. The purpose and role of supply chain management has changed because of e-commerce and its retail impact.

New Supply Chain Management for Omnichannel and E-commerce

Retailers, e-tailers, manufacturers, and distributors are at a crossroads in supply chain management–stuck with old ways while dealing with e-commerce and omnichannel. Something must give.
Omnichannel is about duality—strategy, retail, and supply chain. Yet many retailers ignore Supply Chain Duality to drive omnichannel. Different channels with different requirements should have different supply chains to deliver consistent performance that meet customer expectations across channels.
New supply chain management is required for e-commerce. That “new” is an innovative imperative and creates the duality for retailers and others to deal with traditional business and with the new business.
The New Supply Chain is about the supply chain, not just parts or functions. Omnichannel and E-commerce need supply chains that accelerate the movement of inventory through the entire supply chain to meet customer expectations.

Being able to view inventory is not enough; companies must make it flow through the supply chain. Emphasis is on inventory velocity through the supply chain and time compression to meet Immediacy. As e-commerce and customer expectations advance, inventory velocity will increase speed to inventory velocity2.

Also, inventory forecasting is raised an issue with omnichannel.  For many retailers, it is about product offerings.  Stores can mask product issues that e-commerce unmasks. Besides the critical inventory velocity and time compression, the New Supply Chain includes:

  • Network Alignment that matches end-customers, their locations, and service needs.
  • Advanced process integration that goes across the supply chain with no gaps or redundancies.
  • Advanced technology integration with visibility across the entire supply chain—and more. 3D printing and delivery, robotics, and RFID are additional technology areas.
  • Implementing lean supply chain management across the chain and especially for the international segment to reduce the wastes of excess time and inventory.
  • Extending the supply chain upstream. This is very important. It redefines supplier relationships.
  • Looking for short cuts in designing and implementing the New Supply Chain will mean continuing problems meeting customer expectations. Firms doing it may be potentially conceding growth and company future to those companies that do it correctly.

Immediacy of order delivery is spreading and is not limited to consumer e-commerce sales. Companies see that it can be done and its benefits. They want them for their firms, regardless of their business. The immediacy demand is spreading and will spread across industries, markets, and channels and the world.

Conclusion

E-commerce and omnichannel are not just new retailing. They are original ways of doing and operating businesses. Old is out. Change is not an option. For retailers, online sellers, manufacturers and logistics service providers, there will be leaders and laggards.

What firms do and how they do it will determine if they see their futures ahead or if they see it in their rear-view mirrors?

[blockquote style=”3″]Omnichannel and e-commerce are making 2016 the Year of the Supply Chain for many companies. The New Supply Chain for e-commerce and Supply Chain Duality are part of the new operating reality.[/blockquote]

Tom Craig

About Tom Craig

Tom is a supply chain and logistics consultant with LTD Management. He has real-world logistics and supply chain experience. Tom's experience and capabilities are cutting-edge and bring authority to clients. Domestic and global. Blue ocean strategy using SCM. New supply chain that drives new e-commerce. Multichannel. Inventory velocity / reduction. Lean. Best practices. Risk assessment. Segmentation. Metrics. Process. Technology. Outsourcing. Suppliers. Supply chain complexity. Product portfolios. Brand and private labels. Short shelf life cycles. Customer portfolios. Transport. Inventory. And more. Also provides consulting for 3PLs and other logistics service providers. Develop and execute strategy, create value proposition/unique selling proposition, positioning, blue ocean strategy, and service / market segmentation that improve customer retentions, increase margins, and grow the business.

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