The 5 great challenges of omnichannel
What do a smartphone and a mall have in common? The clear answer is that they both offer the opportunity to buy goods and services. However; a decade ago, this same question would not have given us the same answer. This is a clear example of how technology has influenced and changed consumer behavior.
Facebook for example, has grown from 360 million users in 2010 to almost 2.9 billion by the end of 2020, of which 17% made some type of purchase through the social network. For companies, these numbers represent a key shift in the way they reach their customers.
The modern consumer is forced to make the change to omnichannel shopping, a sales scheme capable of quickly satisfying their needs through the digital or physical platform of their choice.
Ignoring the consumers preferences and constantly shifting patterns has resulted catastrophic for businesses like Kmart, once the nation’s largest grocery retailer. This company refused to open an online store and concentrated solely on sales in their brick-and-mortar stores. As a result, Kmart filed for bankruptcy in 2018.
What is omnichannel?
We can define omnichannel as the synchronized and seamless use of different methods to sell goods and services to consumers. A well-structured omnichannel approach enables people to buy whatever, whenever, wherever. Omnichannel selling has three main channels:
The consumer enters a website, marketplace, social network or a specialized app where they can find products they wish to purchase and can add them to a virtual shopping cart. The online sales channel shows the general information and price of each product. Once the order is placed, the products are sent to the customer's preferred location.
A traditional brick-and-mortar store where shoppers are able to see the physical product they wish to purchase and, in most cases, take it home with them that same day. For immediate purchases, you are only able to choose from what is available at the store. To the contrary, you may return later on, when the store receives more inventory or go to another location that has what you are looking for.
A hybrid, also known as a BOPIS (Buy Online, Pick up In Store) is where a shopper can select the location where they wish to collect what they bought online through the company’s e-commerce. The e-commerce indicates where and when the product will be available, usually in one of the physical stores or a dark store.
Which channel is the most efficient?
When choosing a sales channel, you must take into consideration the type of product and consumer preferences:
There are products whose characteristics encourage you to see, feel, taste and smell them before making the purchase, so it is common for people to buy them in physical stores.
On the other hand, it is usually more convenient for shoppers to purchase bulky and difficult-to-transport items through e-commerce, or items that physical stores have in limited stock.
Adopting an omnichannel method of selling can seem like an impossible task to accomplish if not done correctly and accompanied by well-defined and thought-out processes, integrated and appropriate information technologies, and a completely dedicated approach to creating exceptional shopping experiences.
The 5 challenges of omnichannel
Order management is key in order to ensure a smooth and profitable operation. The number of variables that are at stake in an omnichannel operation make it difficult to orchestrate the dispatch method; this results in backorders, disappointed customers, and high operating costs.
Traditional order management systems (OMS) lack the capacity to support a multi-platform operation with multiple delivery options; instead, they operate on a single channel and with limited inventory visibility. This is problematic because the new role of stores as order fulfillment centers is excluded from the operation and compromises delivery fulfillment.
Faced with this challenge, more and more businesses are adopting Distributed Order Management Systems (DOM). The main difference between an OMS and a DOM is in the DOM's ability to collect information from multiple sources to orchestrate optimal dispatch plans, rather than consider data from a single sales channel. These systems function as an information repository that links the commercial activity of the different sales channels with demand planning, inventory management and last-mile distribution, among other links in the supply chain in real time.
A DOM allows a retailer to not only dispatch orders with the use of multiple distribution centers, warehouses or stores, but also check availability and prioritize in order to optimize shipping costs and service levels offered to the customer. This also helps create a consistent customer experience.
Breaking down the supply chain process prevents the omnichannel from working at an optimal level. All of the different points of sale; supply centers, dark stores and distribution centers must operate in a unified manner where information and inventory levels are synchronized in real time. An interconnected omnichannel approach facilitates decision-making in terms of supply and customer-facing distribution.
Information regarding inventory levels is stored in a number of systems, such as:
Warehouse management systems (WMS), used in distribution centers
Perpetual inventory management systems
Point Of Sales Systems (POS)
Systems used by logistics operators
Identifying the sources of inventory data and integrating them with the DOM enables both the organization and the consumer to have information on the availability of merchandise, delivery times and order status, which generates greater customer confidence and increases sales.
The visibility of the inventory also helps optimize reorder policies at the SKU level for each channel by geographic location, leading to an increase in inventory rotation and decrease in safety stock (necessary to avoid shortages).
The change towards omnichannel brings with it a considerable number of challenges within the operation of the distribution centers. In many, if not most cases, operations migrate from a cross dock system –where full pallets are sent to stores– to a system where orders also include pieces for final consumers. As a result, many companies are forced to update their Warehouse Management Systems (WMS) to simultaneously streamline store replenishment and be able to process online orders placed by end consumers.
There are many solutions that complement a WMS that should be taken into account. These solutions help carry out detailed picking for each order—Voice Picking, radio frequencies or Pick-to-light can reduce errors in orders and avoid excessive costs within warehouse operations. These types of technologies also increase the speed with which orders are prepared, which is increasingly important to today’s consumer.
Along with a technological and operational transformation of the warehouse, it is equally important to redesign the layout of the spaces in order to fully integrate assortment lines and other value-added processes. These can include anything from assembling kits and packaging, to direct shipments to customers.
Last mile delivery
In the early years of Amazon, circa 2000, their average delivery time was eight days. In 2005, Amazon launched Prime, offering two-day delivery for over one million of its products. In 2016, they started offering same-day delivery in 27 metropolitan areas within the United States, bringing with it over 200 million subscribers to their Prime program.
Amazon’s success story is even more impressive when you take a moment to analyze the vast logistical implications of every single same-day delivery order made. Taking into account the time and resources required to prepare an order, package it, ship it and transport it to its final destination, two- or three-day shipping seems reasonable enough. However, consumers do not think about the how, but the when. In order to keep customers happy, retailers are forced to resort to costly tactics such as express courier services, sacrificing profit margins along the way.
To offset this situation, companies must evaluate the feasibility of shipping merchandise from their own stores/locations and even plan to open new stores in order to increase their coverage and be able to match delivery times offered in the market.
From a technological perspective, it is convenient to consider implementing a system to optimize distribution costs and orchestrate an intelligent delivery strategy in real time. Among other factors, it would influence:
Availability and location of the product
Destination of the product
Dates and times
Similarly, in order to achieve an extraordinary shopping experience and customer service, the delivery management solution must provide full visibility of the entire transport process. This means it must track orders in transit, estimated times of arrival (ETA’s) and provide some sort of proof of delivery (POD).
It may seem useless to build a relationship with shoppers whose only interaction with you will be via an online store or Marketplace, where no human interaction will occur. However, the foundation of a successful omnichannel approach lies precisely in building strong relationships with customers through personalized and satisfying shopping experiences. This will later translate into more sales and greater customer retention.
The best way to achieve this is by collecting data on every customer interaction, whether or not it has resulted in a purchase. To do this, there are CRMs (customer relationship management systems) that have the purpose to centralize and manage marketing, sales and customer service activities.
With the right CRM, retailers can establish more effective communication with their customers and understand how they behave and shop in each of their different sales channels throughout the sales cycle. Integrating a CRM into an omnichannel approach opens up the possibility to automate and personalize marketing campaigns, send relevant content and offer the ideal promos to each client.
A CRM also plays a key strategic role within customer service operations, as it significantly reduces response times. It does this by connecting customer information, orders, returns and other transactions between different departments and points of contact within the organization.
Another good practice to follow in order to forge lasting relationships with customers is to implement a rewards program. This, in addition to promoting consumer loyalty, will serve as an instrument to identify and collect your consumers’ transactions and shopping patterns. Rewards programs are especially useful in physical stores, where a customer has not logged into your system and left their information already.
To stay in the game, you have to cover all angles
The omnichannel approach has changed the way we traditionally acquire goods, we now have an unlimited number of options that allow us to choose the store that will deliver our orders where we want them and, most importantly, with the fastest delivery time. This high demand we have as customers poses a great challenge to organizations competing for our loyalty. The companies that stand out and survive will be those that are armed with the best technological tools, streamline their processes, offer enough flexibility to meet new consumer trends and can also enable decision-making without the need for human intervention.
I have a BSc in Industrial Engineering from Tecnologico de Monterrey and a MSc in Financial Engineering and Risk Management from Imperial College London. I enjoy writing about the issues I’ve helped my clients solve over my almost 20 years’ experience as a supply chain consultant.