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Developing Your Omni-channel

Fulfillment Roadmap

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Omni-channel is the New Normal

Omni-channel customers expect a seamless experience across all channels, allowing them to easily buy from anywhere and have it delivered to anywhere, with the flexibility for easy returns to anywhere at minimal or no cost. They want items delivered fast (same-day/next-day) in the timeframe of their choosing and with the least cost and hassle. They expect you to not only recognize them as they transition easily from one channel to the next, but to also bring to each interaction an understanding of their history and preferences. They expect you to apply that understanding to anticipate their needs and desires and suggest products and services that are customized and priced uniquely for them. You can no longer treat customers differently by channel. You have to be flexible to respond to changes in demand in any of your channels. Inventory visibility must extend across the entire distribution network. Stores, suppliers and even lockers, vending machines, mobile units, etc. all play an increasing role in fulfillment – serving as distribution nodes with ship-from-store and drop-ship capabilities.

This is the new “normal”. And it represents major change for companies who are accustomed to delivering through either a single channel or through multiple disconnected channels. But getting to omni-channel will require multi-year capital investments, unprecedented alignment of stakeholders and the need to build in lots of flexibility for an uncertain future. You Need an Omni-channel Roadmap

This new normal is a tall order for most companies. You will need an omni-channel roadmap that incorporates where you’ve come from and where you need to be, based on your customers’ expectations and your business strategy. But building an omni-channel roadmap isn’t easy.

Omni-channel Expectations for a Seamless Experience

Your customers are more demanding than ever, but who can blame them? With the growth of eCommerce and the rise in competition for this fast growing segment of the market, customers have more options than ever to choose from. The bar has been raised for customer’s service expectations. And there’s a lot at stake. Forrester Research expects the combined global online and web-influenced retail sales to reach $1.8 trillion by 2017 (up from $1.3 trillion in 2013). And B2B online sales are twice that and growing faster.

Traditional Distribution The New Normal Customers purchased through a single channel and/or had no real expectation of cross-channel integration

Customers move seamlessly between channels researching, comparing prices, selecting and ordering through whichever channel is most convenient at the time

Inventory planned, allocated and replenished in channels

Single view of inventory across channels with sharing of inventory

Most products received at a central DC and shipped to wholesale and retail or direct to the customer

Decentralized network with stores and even suppliers extending the distribution network by acting as fulfillment nodes

Limited view of inventory, only available to associates

Inventory information is visible to customers across all channels or you risk losing the sale

Interactions with customers by channel

Single 360 degree view of the customer across all channels

Relatively simple rules for fulfillment

Added complexity of managing split shipments, cross-shipments and dynamic logic to achieve highest profitability and fastest speed

Siloed organization structure with separate P&Ls

Cross-channel organization with common process-driven KPIs

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First, you need to thoroughly assess your omni-channel fulfillment capabilities to determine where you are and where you need to be. Next, you need to identify the gaps and determine the initiatives to fill those gaps. Finally, you need to group those initiatives and develop a sequence of steps to achieve your omni-channel goals. The result should be a roadmap, showing dependencies and segmented by stakeholder group, relative time and/or logical phase.

The Six Omni-channel Capabilities

So where do you start to develop your Omni-channel Roadmap? There are six primary capabilities that support an omni-channel operation: Inventory, Order Management, Delivery and Returns, Customer Information, Operational Effectiveness, and the Distribution Network. In the next six sections, we’ll examine what it means to excel within each of these capabilities.

Stores Merchants

Distribution & Logistics

eCommerce

Desired State

Current State

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Customers want to be able to check product availability before placing an order or going to the store. If an item is out-of-stock, they want to know before being back ordered or delayed. They also want to know when it will be available again and their options for getting it in the desired timeframe. To enable this level of visibility for both customers and associates and coordinate the movement of goods to meet the demand, you need complete and accurate inventory visibility across all channels and nodes – in the DC, in the store, in transit and even in your suppliers’ warehouses. And you need to strategically deploy that inventory to the right locations with the lowest handling costs. This requires a single version of the truth about inventory across all your channels and systems.

Careful management of “long-tail” SKUs is necessary to preserve margins and keep distribution capacity from being constrained by slow-moving products that would otherwise limit storage and increase handling costs. When the storage profile and disposition strategy for these items is planned appropriately, a longer horizon for sales can yield greater profitability and higher customer satisfaction. For example, retailers who use stores as distribution nodes can reduce mark-downs and increase customer satisfaction just by exposing that inventory to customers online. Likewise, retailers who effectively manage slow-moving items can achieve lower fulfillment costs and make more store shelf space available to SKUs with higher turn rates.

Inventory visibility and accuracy are absolutely essential for providing your customers with product availability. But it requires diligence to process in the DC and the store and help from suppliers to provide accurate and timely product attribute information that drives fulfillment and shipping decisions.

The power is clearly in the hands of the customer. High shipping costs and long order-to-delivery times are leading causes for shopping cart abandonment. Though few are willing to pay for it, one in four shoppers say they would abandon a shopping cart if next-day delivery were not an option. To deliver on the promise of speed and still turn a profit, you need systems and rules for making complex sourcing decisions based on both service expectations and cost. To do that, you need to understand the true cost of handling in each of your nodes.

Inventory Inventory is visible to the consumer across channels, well-deployed to meet demand at the least cost, and shared (available to customers in different channels); product attributes are known and items are efficiently stored for the “long-tail” and flexibility to respond to changes in demand.

Order Management Complete orders sourced from the closest node while minimizing split shipments, cross shipments and transfers.

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Customers base purchase decisions on total cost including shipping, and time to delivery. To provide accurate shipping costs and delivery dates, you need to know where the inventory is in relation to the customer. With the goal of providing customers with a single consolidated order and minimizing cross-shipments to keep costs low, this goes back to the need for accurate and complete inventory visibility and strong analytics to support inventory deployment decisions.

Companies that want to offer a full array of products across all channels must deploy that inventory strategically. This requires an understanding of SKU affinities and velocities, as well as demand forecasting at the geographic, category or even SKU level. And it may involve using vendors to drop-ship directly to the customer or store to reduce transit time, handling, inventory holding costs, etc.

Customers want the freedom to choose the delivery option according to their own cost and timeframe preferences. Giving the customer the freedom to choose – pay more and receive the product sooner or wait a little longer for cost savings – requires understanding true costs and exact transit times from each potential sourcing location. Retailers with brick and mortar assets are taking advantage of existing physical infrastructure to offer yet more options in response to customers’ desire for speed and low cost/no cost shipping, including buy online, pick-up in-store (BOPIS). And companies are experimenting with self-service options including locker systems, vendor-managed inventory kiosks, mobile inventory or rolling stock.

No matter which delivery option your customers choose, they expect you to provide near real-time communications about order status and painless return options. At a minimum, the expectation is for timely communications indicating when the order is received and when it shipped, including tracking information and instructions for returns. Free returns are fast becoming the expectation. But the opportunities for cross-sell, up-sell and add-on sales exist for companies that use these customer touch points wisely.

Delivery & Returns Delivery & Returns provide greater efficiency, flexibility, visibility and options.

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When a customer shops your website or makes a purchase from you, they provide you with something of great value – their personal information. Customers understand the value of their information. If they take the time to give it to you, they expect something in return. Customers expect you to recognize them, understand their preferences and use their history, as well as their geo-location, to engage with them in meaningful and contextually helpful ways. If you are not doing this now, you should get started. Loyalty programs, shopping apps and iBeacon-like technologies all enable greater levels of engagement that should help you better understand the answers to who, what, where and how.

Companies need to turn this data into actionable insights that drive both demand and more efficient fulfillment strategies. A timely offer to replace a product based on anticipated wear and tear… A subscription service that simplifies the repeat order process… A customized offer for coordinating or complementary products to go with a recent purchase… This is the next level of customer experience for companies on the path to omni-channel.

Omni-channel fulfillment places additional requirements on the distribution center, making it more challenging to strike the balance between flexibility and cost. Many companies find that this change in requirements means a shift away from facilities dedicated to a specific channel, to omni-channel facilities that share inventory and can handle a wider array of order profiles and customer service expectations for all channels.

But sharing inventory across channels can get tricky when it comes to things like packaging; for example, when wholesale products are shipped in plastic lined cartons, and stores require garment on hanger and custom labeling, while direct to consumer is poly-bagged. So value-added-services for shared inventory should be delayed as late in the fulfillment process as possible to allow inventory to flow to whatever channel needs it.

Customer Information Being able to identify customer preferences and use that information to provide improved customer experience.

Operational Effectiveness Operational effectiveness strikes balance between flexibility and costs.

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Using shared equipment order profiles drive the flow of work and labor across channels so orders are prioritized and get out the door within the shortest cycle time possible regardless of which channel the order comes through. Increased utilization of shared fulfillment engines and material handling assets can help reduce overall costs; for example, when seasonal lulls in one channel are offset by peaks in other channels. Minimizing both transportation and order handling cost should be the goal when determining where to source each order.

Omni-channel is all about the customer and making it frictionless for them. That means companies have to be able to take orders from anywhere, fulfill from anywhere and ship to anywhere SEAMLESSLY. The customer doesn’t care where the product is currently located or what fulfillment path it comes through. But that creates a complex web of fulfillment paths behind the scenes:

• Buy Online, ship from DC direct to Consumer (DTC) • Buy Online, ship from DC to store for Consumer Pick Up (BOPIS, ISP, Click and Collect) • Buy Online, ship from Store direct to Consumer (SFS) • Drop ship direct from vendor to store (DSD / VTS) • Drop ship direct from vendor to consumer (VTC) • Store-to-store transfer for pick-up in-store (Transfers) • Delivery to lockers • Consignment inventory in kiosks or alternate node types

Network Network enables efficient flow of orders across different paths, balancing service and costs.

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More mature omni-channel companies will have the ability to flow orders across different paths, including 3PLs, stores, DCs, and vendors, to balance customer service expectations against costs. True omni-channel networks will optimize the number and location of inventory nodes to enable desired fill rates at targeted cost-to-serve and inventory turn levels.

Omni-channel Fulfillment Model (OFM)

To help you in this journey, Fortna created an Omni-channel Fulfillment Model (OFM) to help you determine your unique path forward and to prioritize the fulfillment-related initiatives to get you there. The model is comprised of the six capabilities mentioned above. Each capability is further subdivided into elements that support that capability.

Here is an example of the Inventory Capability and its elements.

Inventory

Order Management

Delivery & Returns

Customer Information

Operational Effectiveness

Network

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To help you evaluate where you are and where you need to be, each element has descriptions of good, better and best performance in that element, as shown below in the inventory capability elements.

Element Description

Enterprise View of Inventory

Ability to understand inventory in each node

View Store Quantity Online Ability for the customer to view SKU level quantity by store

Inventory Deployment Ability to identify SKU affinities to other SKUs and SKU affinities to geographies or other demographic attributes in order to strategically deploy the right SKUs in the right locations to ideally fulfill customer orders from the closest location; thereby picking from the location with the least handling costs, reducing transit-time and reducing transportation costs.

Shared Inventory Ability to maintain inventory in a distribution center systemically as a single collective pool of inventory without separating physically.

“Long-tail” Management Ability to manage the life-cycle SKU curve of residual items that do not sale out and only one or few remain.

Product Attributes Ability to know primary item attributes such as weight and dimensions, but also how the item’s demand may be skewed to only certain geographies

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The Omni-channel Fulfillment Model helps by guiding key stakeholders to evaluate where they are today and where they want to be. Once those gaps are identified, a clear set of initiatives to close those gaps is defined and prioritized, resulting in a roadmap that will define your omni-channel evolution.

Summary

Omni-channel transformation is challenging and the path is unique for every company. You need a thoughtfully-developed roadmap, based on your unique requirements and business strategy. But how do you decide what to invest in and in what order to tackle each initiative? Fortna’s Omni-channel Fulfillment Model can help. It lays out 6 key omni-channel fulfillment capabilities and the elements within each that need to be considered. The model can guide you to the investments you need to make so you have a clear roadmap for success.

If you are interested in using this model to develop your omni-channel roadmap, ask to speak with one of our Associates.

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Don’t miss these other articles on our website:

• Designing Omni-channel Distribution Operations • Video: Designing Omni-channel Distribution Centers

ABOUT FORTNA

Fortna is a professional services firm helping companies with complex distribution operations meet customer promises and competitive challenges profitably. We develop a solid business case for change and hold ourselves accountable to those results. Our expertise spans supply chain strategy, distribution center operations, material handling, supply chain systems and organizational excellence.