NEW AGE OMNI-CHANNEL TRENDS

By:

Ritesh Chaturbedi

(Consultant & Advisor)

Omni-Channel: Superior Customer Experience is key

• 4 elements of Omni-Channel Customer Experience

• Amazon.com has mastered each of these 4 elements and have extended it to digital products

• Omni-channel capabilities, assortment & sourcing strategy, inventory placement, and supply chain

  capabilities, have increasingly started to become THE differentiating factors for customer acquisition & retention

• Omni-Channel: Not only this requires one unified experience across channels; it also means providing customers buying experience on their time, their preferred location, and at their convenience.

• Assortment & Sourcing Strategy: Relevant brands at the right time at the right price is a must. Because of obsolescence risk – fast sourcing is becoming critical.

• Inventory Placement: Placing high-demand inventory as close to the customer to promise fast delivery is becoming critical (2-day, same-day, 4 hour, etc.)

• Supply Chain: Network topology has been disrupted. Automation & WMS Systems has become the differentiating factor. Robotics & Drones are the future.

OMNI-CHANNEL BUYING EXPERIENCE

Omni-Channel by nature means means providing customers a unified customer experience across all

channels while enhancing choice and convenience to deliver anything, anytime, and anywhere!

Core Omni-Channel Capabilities:

• Unified customer profile across all channels (CRM) with personalized recommendation and offers

• Price rarity across channels

• Seamless and low effort experience when customers need service/help across all channels (First Contact Resolution).

• In-App Phone and Chat assist from personal shoppers and customer service agents.

• Buy Online Pick Up at Store (BOPIS)

• Customers to buy from other retailers/vendors in their local area (local commerce).

• Merchandize Pick-up (MPU) locations (includes lockers, UPS stores, etc.) for consolidated orders from either the retailer or retail partners. Consolidating orders from multiple local retailers into one location and delivering same-day

• Buy Online Returns at Store or any MPU. This requires extensive retooling of Reverse Logistics as it will increase returns across all channels. There is opportunity “refurbishing/repairing” products and selling them in marketplaces. FedEx and Genco have made significant strides in this areas. Optoro is a start-up in this area.

• Customer to select apparel in various sizes online. Products to be shipped/picked up and allocated to the nearest stores for the customers to come in and try-on.

Retailers must start treating Stores as an integral part of their supply chain system. This is a core

differentiating and competitive advantage while serving the biggest growth engine: E-Commerce. Many

retailers have started converting portion of their stores to fulfillment engines enabling them for

e-commerce as well as enhance omni-channel capabilities. Integration of store POS systems with CRM

system and backend supply chain system is key.

Emergence of Distributed Commerce will be a disruptor soon. This strategy reduce time and clicks to order product anytime and anywhere. This requires requires a Universal Checkout Technology. Pioneers such as Shoppable and AmazonGo is already charting the way.

ASSORTMENT & SOURCING STRATEGY

Social Media has a direct and immediate impact on customer’s taste. This directly impacts product

relevance and demand. Private brands are taking off as well. This is requiring retailers to adopt best

practices from Fast Fashion companies and other leading e-commerce players.

Having the right assortment selection (brands and size) is becoming critical. But this can be very costly

and risky. To this end, a lot of retailers have started utilizing Marketplace and Vendor Direct as a way to

augment their current selection and optimizing risk.

While shipping over ocean is still the most cost-effective solution; air is becoming a bigger part of sourcing mix. Also, some retailers have chosen to source through domestic whole sellers and leaving the shipping optimization to them.

The millennial generation is increasingly sensitive to environmental and socio-economic impact of global commerce. To that effect socially responsible, sustainable, and labor friendly countries and sourcing partners are becoming increasingly important. Retailer have to have better process and controls to assess impact of local currency on vendor costs, compliance and safety requirements for lowest cost countries, and understanding First Sale rules.

With recent election and changes happening across the world in terms of Geo-Politics; there are challenges as well as arbitrage opportunities that retailers need to be ready to tackle. Currency fluctuations can open up arbitrage and hedging opportunities. There are opportunities to leverage regulations to lower custom valuations to reduce Import Tariffs.

The importance of transparency, collaboration, and strong partnership with vendors and suppliers cannot be understated. Many have relaxed their payment terms, providing hedge for currency fluctuations, invested in process improvement/automation of suppliers, and finally provided gain share options.

INVENTORY PLACEMENT STRATEGY

Optimal inventory placement has become a strategic imperative for retailers trying to optimize for cost vs. service levels. Retailers have started establishing data science practice (with machine learning) to optimally predict customer demand based on past transactional data, promotional cadence, weather impacts, and competitive simulations. This is the new face of S&OP.

Many retailers are using Short-Tail (high demand), Medium-Tail and Long-Tail approach to inventory planning and placement.

• Sourcing short-tail inventory domestically and placing them as close to the customer demand as possible – some even converting stores to FCs. This improves service levels drastically allowing fulfillment within 1-2 days while reducing shipping cost. Though increases inventory placement and holding cost.

• Medium-Tail inventory to be placed in regional and central DCs and utilizing drop-ship network

• Long-Tail inventory to be placed in central DCs and also leveraging Marketplace sellers to provide this assortment.

SUPPLY CHAIN STRATEGY

Amazon has demonstrated that Supply Chain can be a customer acquisition, retention and revenue growth (though not profit). Instead of optimizing for cost, Amazon’s inherent decision to optimize for service levels and convenience has put everyone else in a “catch up fast or else” mode of survival.

They have been able to do this by:

• Being the innovator in automation, information flow (WMS), Amazon Go (no POS) and robotics (KIVA, Drones, etc.)

• Subsidizing their investment through other sources of revenue (Prime Subscriptions, AWS profits)

• Instead of spending marketing dollars with Google/Advertising – redirecting majority of it in innovation and supply chain

To combat this, retailers must treat their supply chains as innovation centers and invest accordingly. By aggressively enhancing their current fulfillment systems, heavily leverage automation and robotics. This will not only improve service levels but decrease cost.

Forming a strong relationship with carriers who are ahead in terms of using technology to optimize their operations is key. Being an early adaptor of their innovative solutions is critical to improve both service levels and costs.

The notion of “building the church for Easter” to meet peak demand is no longer a sustainable strategy. Retailers need to leverage 3rd party vendors, their own stores, and a network of medium/big fulfillment outsourcers to meet their peak demand.

Or, if the retailer already has excess capacity, they need to leverage and monetize their excess capacity during non-peak and provide fulfillment services to others. Similar to disruption that happened for computing from main-frame to PC; supply chain is going through similar disruption. In the new world, the “Fulfillment Software System” acts as the operating system, all distribution centers (including robots) as plug-and-play devices, and retailers/e-commerce platforms as apps!