There is no longer any debate regarding the far-reaching, and disruptive impact that e-commerce has had on retail business models, and the supply chains that support them. As traditional retailers attempt to retain market share by introducing companion e-commerce sites, the approach adopted when doing so can ultimately have a marked impact on the success of such venture down the road.
The concept is relatively simple – create a variety of ways in which consumers can interact and purchase products from an organisation to capture the entire buying experience.
While there are many technologies available to add channels to the go-to-market mix the primary way that these channels are serviced are either via a multichannel, or omnichannel supply chain.
Within supply chain management the terms multichannel and omnichannel are often used interchangeably to describe the operating system that supports multi-channel retailing. The so-called multi-channel supply chain arose out of initial responses to the rise of e-commerce. Organisations created multiple value chains each focusing on a single channel, and this tends to breed siloed operations that are disconnected, inherently more costly and often lacking the visibility between systems to offer accurate, holistic service. An omnichannel supply chain, however, refers to an integrated platform offering a single source of service to customers across multiple go-to-market channels.
A recent study by McKinsey found that the lines between these traditionally distinct market channels are blurring. Consumers are demanding interchangeable experiences such as ordering online within in-store pickup as a delivery option, selecting a product instore but purchasing online for home delivery and free returns across channels. Such evolving demand means that most traditional, and indeed multichannel supply chains, are not prepared to handle the ever-increasing demand for speed, convenience and low-cost deliveries.
Most retail networks do not have enough distribution centres to effectively provide consistent service to all customers over a geographic area. For example, within South Africa, most online stores offer a 1-2 day transit time to main centres, but customers in smaller towns need to wait up to 5 days for delivery. While this is already becoming insufficient concerning customer demand, the rise of the same day delivery requirement would require a significant increase in the number of centres servicing a single brand. This is likely to cause cost escalation, however, as one-day shipping increases in popularity, retailers are likely to have to bear the higher costs of expedited shipping simply to stay competitive.
This challenge is further compounded by the legacy of traditional supply chains designed to support in-store retail, with the e-commerce leg bolted on to accommodate demand. Such models lead to inefficiencies in inventory and fulfilment processes leading to many sales being impacted by out-of-stock SKU’s. Furthermore, the lack of integrated data prevents organisations from achieving true visibility into their clients' behaviour, causing them to lose out on the opportunities unlocked through data analytics.
This is where the strength of an omnichannel supply chain is most sharply reflected. A holistic view of a supply chain, across multiple retail channels, allows for the optimised planning of inventory flow to the points of demand when needed most. Integrated data allows for innovative solutions to network constraints – for example, some retailers are utilising stores for both traditional purchases and as fulfilment centres should an online order be placed for delivery in proximity to the bricks-and-mortar location. In the States, some retailers are even going as far as creating “dark stores” which are essentially underperforming retail stores transformed into mini fulfilment centres.
Such evolutions in the supply chain will require deep integration across operations, shared inventory pools across multiple channels, advanced planning and oversight into every step of the product fulfilment journey as well as advanced data analytics to build networks most responsive to demand in a changing world. Smart supply chains will need dynamic modelling that continuously reevaluate and reallocate inventory across channels based on factors such as sales rates, and even go as far as shaping demand to maximise profit in the more attractive channels. Managing this complexity will create supply chain operations that are conductors – overseeing and coordinating and indeed understanding that value is not only create by owning the customer but by owning the numerous, integrated supply chain interactions that deliver on that customer's expectation.
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