Introduction
You want to sell shirts — not lose them. But today, Omni-channel is presenting many questions as firms start their journey forward. Part of the key to success is asking questions — lots of them. And asking the right questions.
Omni-channel models can differ a great deal based on the products and markets you serve. Each business must ask themselves, “What does service and fulfillment really mean?”
A grocer who promises under-3-hour delivery containing a mix of perishables, nonsquishables, and fragile products along with a case of soda has to consider how to pick it, package it, and deliver it. What if the customer comes to pick it up at the store? That last question alone moves fulfillment from the warehouse to the store. It changes how the order is packaged. It changes who will pack it. It changes all the metrics — labor costs and productivity of the store. It may change the store’s safety stock, replenishment, and inbound schedules. And it may change the DC network so that warehouses are moved closer to stores. It will change delivery schedules to provide more frequent store deliveries. It will change your last mile delivery strategy — if you even had one before. What should you charge for web vs. in-store products? What should you charge for delivery? And even with all these questions, I bet I forgot a few things. And those are just some basic questions. However, you see the point. Omni-channel will raise a lot of fundamental questions about the business. These are not trivial questions. Read on —
Question One: What Is the Scope?
Firstly, Omni channel can be for manufacturers, not just retailers. So the question becomes what is the scope of the model — the breadth of services and fulfillment options to pursue? A manufacturer who sells through retailers and now is thinking about selling direct needs to consider the end-consumer needs. Many firms in this category had little to no visibility to consumers in the past. For them, this is a big leap forward. And retailers already know that for many products, consumers need and expect service. Let’s take home furnishings as an example. Though the IKEA factor is big in many areas, some of us still want our furniture to arrive fully assembled and ready to go. And we want those big hulking guys to bring it into the dining room and set it up for us!
A retailer who exclusively sells that one category (furnishings) may have their own service staff. But a big department store with highly variable order mixes may not be interested in staffing full-time technical delivery staff. They often choose regional third-party distributors who are experts at this type of product.
Interestingly, etailers, as many know, have been moving from clicks to bricks. Models here vary as well. Let’s look at apparel. Those apparel retailers that have brick and mortar and mail-order service have the benefit of parcel shipping, and their customers know that if they want tailoring they go the store for service. Online, you are on your own. However, one men’s clothing etailer has opened a storefront where customers can come and see and try on the products. This is no cash and carry, though. These are showrooms, only. Items are then ordered and shipped to your home, or to the store where you can then get some tailoring services. Other online leaders are opening pop-up stores — trying out the model in selected neighborhoods to see if they want to grow into full-fledged stores. Of course, store operations are their own art and science which many etailers know little about. But etailers do have one thing in their favor. They might have been collecting a ton of metrics and consumer information about products, customers, and locations for a long time. That insight helps a firm go a long way in assortment planning for these locations. There are only a few web-only apparel companies, but some have developed such strong brands and loyal following that retailers are signing deals and allocating floor space to them.
These are just a few examples to demonstrate how complex the strategic self-assessment questionnaire can get.
Operational Views
Many companies have already been operating in these complex Omni models or, at least, sampling one channel. They, too, still have many unresolved issues to confront. No one is really a total expert here. And as consumers get savvier and more demanding, checking across sites for availability and price, retailers must respond. So models are fluid.
Question: How Do I Know How Much Inventory I Have?
This may seem like a silly question, but we have done significant research (as many others have) in manufacturing, retail, and distribution inventory levels and accuracy. And we have found that many firms just don’t know how much inventory they actually have. And if channel agreements require you to take back unsold product, you really don’t know how much you have. Thus, inventory accuracy becomes the key to knowing how much inventory you need.
We spoke with High Jump and they told us that they advocate what they called virtual inventory. That is one database, the fount of all inventory visibility across the chain. It allows fluidity regardless of the strategy deployed. The warehouse management system maintains current stock data and is able to provide a promise to customers. With it, users can answer their customers’ critical questions: “Do you have the product? When can I have it?”
One of the keys in the virtual inventory model is understanding that not all stocking locations have the same policies. Many understand the ‘stocking levels by location’ element. They have forecasts that understand, by location, what the fast and slow movers are, and what a reasonable re-order point may be. By expanding to a virtual model, you change your whole philosophy about stocking. A good example we can all relate to is seasonality. In the central warehouse you may want to keep levels high. As the season ends in one location, you may not want to refill stock at all; however, in another location the season may be just beginning1 and you want inventory levels high.
Question: Can I See My Inventory?
Managing in a dynamic, virtual inventory world is not just about great software, but item-level intelligence. Many retailers are turning to RFID to ensure accurate inventory and maintain safety levels. This has many benefits (you can read about them in this issue in Understanding Real-World ROI for RFID in Retail).
Question: How Can I Fulfill Inventory Most Profitably?
From speaking with JDA we learned that they have developed an integrated set of analytics in their approach to order fulfillment. In their suite, they have inventory optimization, WMS, and TMS options to do something they call Intelligent Fulfillment. This blends the fulfillment functions in a manner that reduces wasted movement and determines the best transportation method. They are able to answer the questions: Where is the best place to fulfill from? From where is fulfillment most profitable?
This concept, the JDA WMS leaders pointed out to me, also applies to inbound. Increased supply chain costs can turn a good buy into a bad one. Coordinating buyer decisions such as warehouse capacity (why buy when you don’t have space to stock it?) or transportation costs (existing contracts with carriers and leveraging capacity when they have it available to reduce cost) can improve throughput and/or reduce costs.
Question: To Stock or Not to Stock Inventory?
In the Omni world, especially for internet retailers who carry many brands, lies the question of whether they should stock or even catalogue certain products. As I learned from ToolsGroup, who has internet retailer, Wayfair, for a customer, ‘offering’ 5 million products is a really big deal. However, Wayfair only — only! — stocks a million of them. Many traditional retailers and distributors know they have the opportunity to offer so much more, but we all know the costs associated with actual ownership — the cost of product and carrying costs — eat up working capital. However, stocking certain products may provide premier search, exclusivity, and the ability to ensure fulfillment. In spite of great web software, the connection with the suppliers often yields back orders or out of stocks due to a poor information connection. So stocking ensures that the retailer, and therefore, their customers, know exactly what they have.
Questions: Where Do I Put the Inventory?
One of the major questions that plagues distributors and retailers in the Omni world is where to put the inventory. Do I have a single fulfillment center that serves the whole country? That might work if you segment your online offering from the in-store. But consumers are restless. They lose patience with these types of scenarios. They want the same offering — and the same price. However, if you are offering the same product line in-store and online, the challenge becomes where to put it.
Retailers who build assortment and allocation models that are static may need to rethink that approach.2 Customer demand and how they will buy is a fickle thing. Trans-shipments add cost with no payback. And if your business model is not set up for click and collect (buy online, pick up in store) or pick and ship anywhere to anywhere (pick either in-store or warehouse and ship to customers), you may be adding lots of transportation costs to fulfill orders. Logility has developed a dynamic allocation approach that blends localized demand data with allocation planning to create a more dynamic approach.
Conclusion: Can I Get Access to the Data and Understand What It Means?
Another area for your consideration is the user experience. This is an area in which software firms have made huge investments (you can read about this in JDA FOCUS in this issue). JDA Labs has developed new role-based approaches. JDA is not just talking about the “I” part — the interface — but the whole flow of information: served to various users according to their role. HighJump has also jumped in with a holistic cross-device UI strategy. This is not just a layer of middleware that allows for integration between HighJump models across their various products, it also provides functional multi-device strategies that span from the warehouse worker to management and to the store associate. These approaches from HighJump and JDA fulfill the Omni perspective by providing access across the organization, since anyone in the organization may be the person who gets asked ‘the’ question from the customer: Is it in stock?
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1 A benefit of a global or national brand is that once a season is gone, rather than marking down, inventory can be shipped ‘south’ to a whole new market. — Return to article text above
2 Read about more dynamic allocations approaches in Making Allocations Smarter. — Return to article text above
To view other articles from this issue of the brief, click here.