Omni-channel commerce is both an opportunity and a logistics nightmare. You've spent years building efficiencies into traditional supply chain processes, and seemingly overnight, the whole landscape changes and becomes more complex. Without a doubt, omni-channel commerce presents some of the most interesting logistics challenges we've seen in decades for retailers and their manufacturers. If you want to be a click-and-mortar retailer, not only do you have to deal with e-commerce fulfillment, but return rates can be three times higher than traditional brick and mortar retailers. SKU counts are typically much higher and 80 percent of what is returned is returned to stock.
The business opportunities are clear, but the challenges are complex and the solutions will not develop overnight or without some growing pains. The impacts are being felt on both the forward and reverse side of the logistics world, and with the speed of commerce today, we're truly building this plane as it goes down the runway and halfway through the flight.
Think about it. Today, shoppers can buy online and pick up the purchase at their local store or have their purchase shipped to their location. They can also return online purchases to the store or return them from home. Now you have to handle crediting the credit or debit card, adjusting sales data, dealing with return freight charges and figure out when to put goods back into stock; you have to send the item to an outlet, sell on your own discounted online channel, return the product to the manufacturer or liquidate the product on the secondary market. Visibility has never been more important, regulatory risks have never been greater, and primary and secondary channel management has never had a bigger impact on the company's bottom line.
For all the processes you're thinking of right now that are complicated by these choices, multiply those by just a small handful of likely factors:
- Stores become fulfillment hubs.
- You may have multiple distribution centers with different operators, systems and tactics.
- Stores may receive returns of products they didn't stock or sell.
- Direct-from-consumer returns require new receiving processes.
- Consumers want free shipping for returns from home.
- The Outlet store channel is selective in terms of mix and volume.
Is your head spinning yet? Where to start?
As you dive into omni-channel supply chain, there are a few important things to remember in the scramble to find the best solutions. They are all based in the age-old Boy Scout motto, "Be Prepared." Although we're building this plane going down the runway, you can still make the flight. Here are some preparatory recommendations that will go a long way toward making ongoing change and success possible:
Get your house in order
It all starts with the integrity of existing processes. All too often, when shifts like this identify enormous opportunities, they also amplify latent supply chain issues that already need attention. Unaddressed, existing problems can compromise or limit the level of success available in new business opportunities. It's frustrating to jump in for the growth opportunities only to have them kept beyond reach by problems that are already awaiting solutions.
Know your capabilities
Be honest about what you can and can't do. Before moving to a more complex business model, you have to know what is working before you can be confident of what will work. It's like that scene from the movie "Apollo 13" where, as engineers rally to get astronauts home safely after an explosion onboard a spacecraft 200,000 miles from Earth, the flight director stops all his engineers and tells them, "Tell me what does work on the spacecraft," and "I don't care what anything was designed to do, I care about what it can do."
With a good knowledge of your processes, resources and capabilities, you can identify which processes will have to be altered or reworked, which resources need to be added or reallocated, and what changes need to be in place to enable a clearing in which new omni-channel processes can succeed. And you will be able to see new capabilities.
Understand existing complexities
Before you can add complexity to processes you have to know how complex they already are, and more importantly, where the strengths and weaknesses are. Omni-channel business models will most definitely add complexity.
Established retailers are likely to have multiple distribution centers, possibly run by different outsourced providers, potentially using different systems and using different tactics. If that's the case, they're already somewhat siloed. Add in that DCs and stores may both be hubs in the new model and you start up your own outlet channel; things gets even more complicated and segmented. Don't create something you can't maintain or manage.
Get a handle on returns and reverse logistics
Consumers' ease of product return for online purchases is a prime factor in customer loyalty and is fast becoming a brand differentiator. Loyalty erodes very quickly if customers find that they can't easily return an online purchase to the nearest store or simply drop it in the mail. A solid reverse logistics infrastructure is a vital element of good customer service in onmi-channel logistics. Collaborate with experts who can help you evaluate with fresh eyes, maybe even see opportunities and efficiencies you don't see. The time and money saved in the long run will easily pay for itself if you partner with the right people to get your efforts started the best way possible.
New returned-product flows (direct ship and online-to-store) and new expenses (free shipping for online returns) make it more important than ever to have efficiency wrapped up as tight as possible, no matter what route you choose.
We know one thing for sure about this journey into omni-channel supply chain: The best answers won't come overnight, and it will be a bumpy road. Today's best-practices will be tomorrow's quaint ideas from simpler times. But by going in with eyes open, new capabilities will become evident and adaptation will come.
Do you have omni-channel challenges, solutions or even nightmares to share? Tell us all about them by leaving a comment below.