Omnichannel: From Threat to Opportunity
In a recent Logistics 2.0 episode, I outlined three significant supply-chain trends that will drive changes in our industry over the coming year: 1) The current logistics tech revolution, 2) The rise of the dynamic warehouse network and 3) The strategic shift from warehouse-as-a-cost-center to warehouse-as-a-revenue-generator. All three of those trends are often driven by, and emblematic of, increasingly competitive shifts in retail. Retailers of all sizes know that in order to remain competitive they need to adopt an omnichannel model and evolve their approach in every corner of their business. For traditional retailers and their suppliers, that sweeping, strategic change may have the most profound impact on the supply chain.
Amazon has become a retail giant by improving the customer experience at every stage in the purchasing lifecycle, from browsing to personalized recommendations, to pricing and availability to free and same-day shipping to hassle-free returns. At the core of nearly every one of their disruptive services, Amazon has found a way to gain a competitive advantage by using innovative logistics as a strategic weapon. Out of competitive necessity, many traditional retailers are pushing hard to reshape their customer experiences. In order to remain competitive, they’re upgrading their online presence, improving product availability, offering more competitive service models, accelerating delivery and unifying improved branded experiences across every viable sales channel — physical stores, website, mobile site and apps. And, that drive toward omnichannel requires numerous adjustments in traditional retail logistics and supply chain management. Here are a few examples:
Online buying, in-store pick-up: One of the key omnichannel advantages of brick and mortar retailers is a service that enables customers to order products online and easily pick them up in the store. If the item isn’t already on-hand at that location, quick delivery is critical.
In-store browsing, online buying: A key benefit to an omnichannel strategy is that buyers can visit the store and see the product before they buy. As omnichannel retailers tie their in-store and online experiences together, more consumers are using the retailer’s apps and mobile sites to price and order those products online while they’re in the store. Once they’ve seen those products in the store, they tend to expect those products at their door in short order.
Faster delivery: With over ninety distribution centers around North America and same day shipping service now available to a third of the population, Amazon is dominating quick delivery. The key to competing in the quick-turn arena is keeping delivery costs per shipment low while increasing speed of delivery. A dynamic warehouse network can help you to push your most popular SKU’s further in to the market to test delivery times, costs and impacts to customer satisfaction.
Hassle-free returns: Most customers now expect to be able to easily return both online and in-store purchases that don’t meet their needs or expectations. Omnichannel retailers can gain an edge by accepting returns both in-store and online. To protect and increase sales, this policy may increase the need for additional and flexible return storage space, especially during peak sales periods when space is at a premium. Eventually, it may also mean more individual items are being returned from more locations which may ultimately require more complex, more precise and more distributed tracking, storage and redistribution of returns.
Free delivery: More retailers, both pure-play and omnichannel, are offering Amazon Prime-like services that include free shipping and other benefits for an annual subscription fee. It’s good for customer loyalty but may also require logistics changes, such as expanded localized warehousing and fulfillment, in order to keep costs in check and meet delivery promises.
Marketplace-based buying: Marketplace sites like Etsy that enable users to easily shop across thousands of sites are becoming more mainstream. Shoppers on those sites often make their choices based on price and availability of a particular item. As that buying behavior trends upward, so will the need for cost-efficiency and on-hand or available drop-shipped inventory. Marketplace-based buying can work against omnichannel retailers because brand loyalty is often less of a factor, so omnichannel retailers have to be every bit as competitive in this arena as their pure online counterparts.
Of course, the drive toward a true omnichannel model isn’t easy. It’s a switch from a brick and mortar operation to a much more complex business that offers a fully integrated customer experience, no matter where or how the customer chooses to browse, price, buy, receive or return products. But it’s working. Last December, holiday sales research from Channel Advisor pointed out that omnichannel retailers, like Best Buy and Sears, who sell through both brick and click did very well and were able to successfully tie their store and online sales together. In order for competitive retailers to become omnichannel leaders, their logistics and supply chain managers now have to store, turn, track and replenish hundreds of thousands of items for both online and in-store commerce, all at Internet speed. The drive toward omnichannel definitely requires a logistics rethink. Luckily, it’s also fueling innovation and producing numerous new supply chain options that make successful omnichannel strategies possible.
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