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History Of Omni-Channel Part 6: Bring On The Supply Chain

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This is part 6 of an on-going series on the history of omni-channel. Part 1 addressed the point when customer centricity and “cross-channel ” (the early days of omni-channel) first merged and became the foundation of what most people mean when they say omni-channel today. Part 2 talked about the tipping point of executive awareness, when online sales become big enough that they become more than just the online equivalent of a large or flagship store – and the implications this had on executives looking after the store business. Part 3 looked at the point when retailers realized the store was in trouble. Part 4 focused on mobile’s tipping point. Part 5 focused on the shift from learning about omni-channel to doing something about it.

When many people think of omni-channel, they think “one view of the customer. ” And, as I covered in my last piece on the history of omni-channel, retailers are very much pursuing one view of the customer right now.

But some retailers are ahead of others in this regard, either because they have a loyalty card program, so they don’t have to work so hard to consolidate all of their customer data, or because they have enough budget that even though customer data consolidation is underway, they’re ready to tackle the next omni-channel challenge. Or, of course, consumers could be demanding solutions to their omni-channel challenges, and retailers are forced to respond.

And so, in order to find the front line of omni-channel today – catching up to the present and starting to turn towards the future – we must turn to supply chain. Up until now, retailers did a lot to protect their supply chains from omni-channel disruption. They built separate eCommerce distribution centers and isolated “direct ” fulfillment from that going to stores. But two things happened that upended those plans: speed of fulfillment, and the need to access – and sell – all inventory, no matter where it happens to be located.

First, new “instant ” delivery models increased retailers’ need for speed in responding to consumer demand. Retailers watched with a wary eye as Amazon ramped up its build-out of distribution centers all over the country, and it was just last month that the online retailer started leveraging that new capacity to up the ante for what is considered instant gratification in retail. The objective is obvious. Even with 2-day “free ” delivery for Prime members, a store 20 minutes away can beat out online if a consumer needs it “now. ” But if online fulfillment can promise delivery within two hours? Even four hours? Suddenly, the advantage held by stores doesn’t seem that big any longer.

Store-based retailers are fighting back of course, but in order to do that, the supply chain can no longer be isolated from omni-channel impact. Home delivery is suddenly in vogue again, and companies enabling new kinds of home delivery models are all the rage – Shutl was quickly acquired by eBay, Deliv is the darling of store-based retailers in malls, and even Uber is contemplating how to get into that game. Store-based retailers are hoping that, by leveraging stores as distribution centers, they can combat Amazon’s push for speed by being just as fast, hopefully for less. They already have stores, so they don’t have to build a whole bunch of new distribution capacity. And those stores are theoretically already in ideal locations to reach consumers quickly, or else why build a store there in the first place?

Which leads to the second pressure point on supply chain, which is inventory visibility. Sure, retailers have always been in search of inventory visibility, but never like this. Yes, online inventory can no longer be held for online only, and same goes for stores. In fact, stores used to be considered the destination in the supply chain, and increasingly retailers are looking at them as merely more nodes on that chain. But retailers can also no longer rely on a model where crossing channels to grab inventory in order to meet customer demand is the exception, rather than the rule.

I certainly remember well that groan moment when a store associate reported that she didn’t have the color or size I was looking for, and when I asked if any other store did, her reply was “Let me call around. ” And increasingly, retailers are finding that “inventory visibility ” means much more than just internal access to inventory – customers want that visibility too. They want to know before they head to the store if the retailer has it in stock. And retailers very much want to sell inventory online even if the online DC is out of stock, because they would much rather ship it from a store than mark it down when it doesn’t sell in that specific store location.

But wow is that disruptive. The cost model alone is challenging: stores are the most expensive real estate for storing inventory that a retailer has. And if you then add shipping and handling on top of that inventory, it would seem on the surface that it makes no sense to ship from stores. Cost upon cost upon cost – no wonder Amazon can be so price competitive.

Funny thing, though, especially in apparel, retailers are finding that maybe they aren’t so good at deciding where inventory should be allocated. As stores take a hundred or even two hundred online orders per week to ship from store, retailers are starting to mutter things about how they had no idea the depth of demand, or why did they ship so much stuff to a store that wasn’t ever going to sell it in the first place.

Save the sale – whether by exposing store inventory online, or by making it possible for a store associate to make the sale without having the inventory directly on hand – is a big winner for retailers who have high margin and low weight products, and who face seasonal markdowns that make it highly worthwhile to sell and ship something rather than mark it down. And as retailers get more efficient, both at allocating inventory and at shipping from store, the margin to weight ratio needed to make ship from store profitable will shift in favor of heavier products and/or lower margin goods.

But in the meantime, omni-channel supply chain is separating the men from the boys, if you’ll forgive the cliché: It’s easy for retailers to say they are omni-channel and pursue one view of the customer. In effect, that is the equivalent of applying a coat of paint to the business and calling it “transformed “. If a retailer is still trying to protect stores and their existing supply chain from any kind of process change driven by things like save the sale, then they aren’t truly an omni-channel retailer.

Omni-channel retailers recognize that every aspect of their business model is going to change, thanks to consumers using technology to shop. They’re not trying to hide from it. They’re trying to embrace it. Anyone else – anyone who thinks that all they need to do to be omni-channel is make their Facebook page look like their online site – is, as they say, just applying lipstick to a pig. And consumers are definitely smart enough to see the difference.

Newsletter Articles June 16, 2015
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