Understanding the impact of omnichannel on logistics operations

Understanding the impact of omnichannel on logistics operations

26 September 2017

  • Indigo uberisation of the supply chain

 

How have consumer habits changed in recent years and what impact has this had on omnichannel or multichannel logistics?

The Internet is now completely mainstream as a shopping channel. Pretty much everyone does some form of online shopping these days and the boundaries between in store and online have blurred for consumers. Shoppers expect the same level of service from a retailer whether they are buying online or from their high street shop, and they want to be able to switch seamlessly between the two. This can mean doing the research for a purchase using one channel, buying from another and then possibly returning an item via another channel. It's all the same to them, they see brands as channel neutral, which is where the challenge lies for logistics.

As a result, logistics operations have become far more reliant on technology to help them to manage the higher levels of order throughput and increased cost implications of this. This includes:

1) optimising processes as much as possible to remove any 'slack' or inefficiencies;

2) ensuring that operations across all channels are joined up, providing them with accurate stock visibility at all times;

3) providing a way for every transaction to be traceable right through the business, onto the consumer and potentially back into the business again;

4) absorbing the inevitable cost implications that these technology investments and business process changes have created.

So just as omnichannel represents a business opportunity, it also creates a real headache for retailers and their logistics operations to get right. It's probably the key development that has really propelled the strategic importance of the logistics function. Whereas previously logistics was predominantly operational, it has become both an enabler and strategic function, in which optimisation and identifying ways to achieve a competitive advantage are critical.

 

What are the key trends within omnichannel or multichannel logistics?

The current big trend is being able to offer ultra fast delivery - ideally next day to match Amazon - without having to charge a high delivery cost. Unless you are buying luxury goods or speciality items only sold by a particular brand, you can pretty much buy everything on Amazon and some brands are also using it as a channel too. This has increased the pressure on omnichannel retailers to create an offering that will win over the consumer and be competitive.

Retailers know consumers want free delivery and this knowledge has led many omnichannel retailers to try and remove their delivery costs in a bid to become more competitive and appealing to consumers and counter the threat of services like Prime. But it has big implications for logistics because there's no such thing as a free delivery. The cost has to be borne somewhere in the process, by improving efficiencies elsewhere to reduce costs or it's not sustainable in the long term - someone ultimately has to pay and it's the retailer or brand owner, because consumers are highly price sensitive and will simply shop elsewhere.

 

What is the most important aspect of omnichannel or multichannel logistics?

Being able to align stock availability with customer expectations and ensure that if you promise to deliver an item within a certain timeframe, it does actually get delivered as expected.  This is why accurate stock visibility is essential. For instance, if a consumer places an order expecting an item to be delivered in 2 weeks, that's fine because they have accepted the original terms. But if the retailer promises the item sooner and fails to meet the contractual delivery timescales, it is unlikely the customer will buy again. They will have had a bad experience and an alternative option is always only a few clicks away. An omnichannel retailer is only ever as good as their last order and if the customer has a poor experience, they are unlikely to return.

 

What are the biggest challenges encountered by omnichannel or multichannel logistics?

The big challenge is being able to meet the demand for free delivery without it compromising profit margins too heavily.  This is a very difficult balance to achieve in the long term and why technology like a warehouse management system is so critical now, to be able to streamline processes in order to become more efficient and reduce costs. Omnichannel retailers need to have an accurate picture of what's in their warehouses or available to sell at all times, and they need the fulfilment capability to meet the customer's expectation of when items will be received.

Another challenge for omnichannel retailers is consumers' increased price sensitivity and their expectations to get a 'bargain'. Although omnichannel retailers have an advantage over pure online sellers, their costs are higher because they have a physical presence. Having a high street presence is advantageous, it enables consumers to visit their stores to view items before potentially buying online, but this means margins are tighter and using the right technology is essential to give them a competitive edge.

Many consumers habitually look for items in store to ascertain quality or suitability and then start to shop around online for the best possible price. Everything has been commoditised now because of the internet and consumers are ruthless about getting the best value for money. Most traditional omnichannel retailers can't compete with ecommerce specialists on price and so many offer two sets of prices - online only and an in-store store price, to reflect the reduced level of customer sales service being offered online - or they will price match which means lower margins and a need for improved efficiency to offset the impact on profits.

 

How can these challenges be overcome?

One way to overcome the challenges of omnichannel retailing is by investing in core technology to allow the business to streamline order process fulfilment and create a sustainable, highly competitive delivery process. This means getting help in the right places, for instance with technology like a warehouse management system to provide stock visibility and efficient warehouse processes. Alternatively, the retailer needs to outsource that aspect of their business and partner with an innovative logistics provider who can provide it for them. However this can often be a more expensive strategy in the long term because it means the retailer doesn't develop the relevant logistics expertise directly, as they would if they invested in a WMS solution.