A plethora of retailing options today Not too long ago, retail meant brick and mortar stores. In a matter of a decade, retail has come to mean multiple sales channels and formats that include not just stores, but also e-commerce, m-commerce (mobile), f-commerce (Facebook), s-commerce (social) and v-commerce (video-enabled). Online buying has really started to take off in India, as evidenced by a study conducted by Google India and TNS. Online shopping in India saw a 128 percent growth in the period 2011- 12 as compared to only 40 percent growth in the previous year. Additionally, widespread smartphone ownership is ensuring that m-commerce is accelerating faster.
The growth in online spending can also be attributed to several factors – a growing number of retailers beginning to build an online presence, along with major international retailers marketing directly to consumers locally in India, or enabling shipping to India. As per data released by FICCI, the Indian retail sector will become a USD 1.3 trillion opportunity by 2020. Real estate costs are escalating and retailers have no option but to evaluate multi-channels to reach customers.
The advent of the multi-channel retailing era has led to increasingly complex interactions with customers. Now savvy shoppers do not have to restrict their shopping to just brick and mortar stores, but can browse online, check prices using a mobile device and place a ‘click-and-collect’ order or give customer feedback via Facebook. Multichannel retailers now need to get used to consumers doing their research online before appearing in the store to make the actual purchases or vice versa. In many cases, a sale may span several channels before it closes. This places tremendous pressure on the retailer to support integrated, cross-channel selling. The value proposition for multi-channel sales is to capture the sale that would not occur otherwise because a customer no longer relies exclusively on shopping at a brick and mortar store.
In perhaps a more global context, as retailers move to multi-channel selling and grow to a broader geographic customer base, the natural tendency is to increase inventory levels close to the point of demand. Retailers often gravitate to opening regional distribution centres to minimise stock-outs and satisfy their geographically dispersed customers. They add new layers of software and inventory systems to deal with each new retail channel and track each channel through separate divisions and warehouse systems. Controlling inventory, being ready to ship on-time and handling a diverse customer base are all far more diffi cult when using discrete systems for different retail channels. Depending on how resources have been allocated within the company, this can create unanticipated supply chain bottlenecks, resulting in late shipments and customer complaints or supply chain blind-spots where poor inventory visibility results in missed sales Opportunities.
Empty Shelves – A Lost Opportunity
The cardinal sin of retailing for today’s technology-savvy consumer is to have an empty shelf. Most retailers are well aware of the perils of a stock-out and the impact persistent failures in making merchandise available to the customer can have on the bottom line. However, in retail environments that are becoming increasingly complex and multi-faceted, the issues associated with ensuring a full shelf go far beyond simple inventory visibility.
Just as customers have no patience for order delays or non-availability, shareholders have no patience for reduced inventory turns, increased inventory investment, and higher working capital costs. Because of these dynamics, the traditional, static way of fulfilling a customer’s order out of the warehouse located closest (geographically) is becoming outdated, and traditional inventory systems, which are not up to the task of effectively andaccurately supplying products through the mixed modes of modern retailing, are putting companies at a competitive disadvantage. Today’s retailers – as well as distributors and manufacturers – need to adapt to the new multi-channel retailing era or face being marginalised or bankrupt. To adapt, they need to harness the power of inventory across their enterprise and involve suppliers and logistics partners in direct customer order fulfillment. They must strive to reduce costs across the supply chain without sacrificing order quality and on-time delivery.
Warehouse and Distributed Order Management Technology to the Rescue
To deal with the nuances thrown up by multi-channel formats, retailers require a solution that sits outside traditional supply chain systems, one that aggregates data and integrates with the full distribution network – including all the warehouses, stores, intransit inventory and vendors – to provide a consolidated and centralised view of inventory across the network. This will allow a retailer to respond in a split second to a purchase request. It becomes even more critical for food retailers in India, where the food sector is predicted to grow to a size of 400 billion USD by 2025. Clearly, market conditions provide multiple opportunities, especially in supply chain and logistics where there is a clear need for modernisation.
Papa John’s, one of the leading pizza companies in the world, wanted to maintain effi cient, cost-effective operations throughout its supply chain. Though it was growing exponentially, Kentucky (US)-based Papa John’s International was still hampered by supply chain inventory, visibility and accuracy challenges that were impacting its businesses. The company’s growth out-paced the supply chain’s ability to maintain inventory and supply restaurants efficiently and cost-effectively. With intelligent supply chain solutions, the company was able to enjoy the benefi ts of improved overall inventory visibility, reduced outside storage costs and inventory levels, improved DC efficiencies and transportation utilisation, reduced mileage and labour costs.
Today, software solutions have matured significantly and have been deployed to help companies weave the varied strands of their distribution systems into a cohesive, effective network. The promise is rapidly becoming a reality as retailers, solution vendors, and the marketplace gain experience in deploying these solutions. For example, Warehouse and Distributed Order Management solutions allow managers to combine existing inventory systems and coordinate multiple retail channels by sourcing products from warehouses throughout the world. Effective solutions provide system-wide inventory visibility, sourcing, allocation and delivery scheduling at each stage of the fulfillment process in real time. Using confi gurable rules, Distributed Order Management solutions can aggregate orders as they are placed, evaluate global inventory, and then match demand to the supply. An effective solution can provide precise understanding of product demand and backlog for all markets, and not just single channels.
Distributed Order Management solutions build on traditional inventory systems such as Warehouse Management solutions that determine the fastest and most efficient ways of shipping a particular order whether they be ‘singles’ for web, mobile and call centre orders, or bulk consignments for store orders. Whilst Warehouse Management solutions enable companies to fulfil orders from a specific facility, Distributed Order Management allows companies to connect their Warehouse Management solution, which manages the supply side of the equation, to equally sophisticated instruments such as planning and replenishment solutions on the demand side. This allows companies to manage the diverse ways customers now have for ordering, while orchestrating higher service levels.
Distributed Order Management solutions take into account the fact that different channels demand different levels of service. Some channels need products faster, while others are less time-sensitive. Failure to meet a “just in time” commitment has different consequences depending on how close it is to the final customer transaction.
Tightly focussing the supply chain on the final transaction should be the goal of every effective retail operation. Distributed Order Management solutions allow managers to do just that by optimising supply and demand without building yet another inventory system. When used effectively, Distributed Order Management solutions become the “nervous system” of the entire retail supply equation.
For instance, take Nature’s Best, a leading and award-winning natural and organic grocery distributor of refrigerated, bulk, supplements, personal care, herbs, medicinal, pet, and many other products in the US. Increased distribution volume, slim margins, and strong competitors forced a complete evaluation of their supply chain prior to moving to their new distribution facility. The company felt the need to fi nd a supply chain solution that would optimise operations, increase efficiency, and create a distribution model that could be replicated in other regions. With the right supply chain solutions, the company was able to reduce product handling by 75 percent; labour was reduced by 66 percent; throughput increased by 114 percent; order accuracy doubled; the company achieved ingnearly $100,000 savings in fleet costs and most importantly, customer service levels improved with on-time deliveries increasing by 11 Percent.
Going multi-channel is essential if a retailer wants to draw customers in rather than being marginalised by today’s consumer behaviour. Ultimately, all customer channels – e-commerce, m-commerce, f-commerce, s-commerce and v-commerce, plus the more traditional channels of physical stores, catalogues and call centers – must be brought together into a fully integrated order and distribution loop through coordinated inventory management, instantaneous communication, and rapid response to spikes in demand.
While few companies can take on such a monumental project all at once, Distributed Order Management solutions offer a costeffective alternative to gain most of the benefits full integration can achieve. Order fulfillment execution will always be the gold standard by which successful companies are measured. Distributed Order Management can help them get there, and stay there – whatever new challenges come along.
It is critical to understand that improved inventory management and fulfilment processes must be preceded by appropriate corporate cultural shifts. Before designing, buying, or implementing any Distributed Order Management system, ensure that your organisation has been realigned to support overall brand prosperity, rather than the health of any one channel. Corporate incentives and measurements should be driven from the brand (rather than channel) profitability. Once the organisation has been brought together, a cross-channel, cross-functional team must be formed to select and shepherd the implementation of a Distributed Order Management System.
Next, Pilot a Subset of Products and Geographic Areas
The importance of pilot programmes as a means of flshing out the gaps in workflow, system parameters, or user expectations prior to full system rollout can never be over-stated. Select a narrow set of products across a narrow geographic area for the first 90 days of implementation and experimentation. If appropriate, let your customers and suppliers opt for this pilot programme, with the understanding that they will be receiving the benefits that have been discussed, such as greater fill rates or multi-channel order status visibility. An end-to-end coalition of the willing will be a key contributor to project success, and involving your customers will demonstrate the win-win results that Distributed Order Management promises.
Finally, Move to Full Rollout
With incentives and metrics in place, customers on board, and a successful 90- day pilot complete, it is time to move on to full rollout. Start with requests to product and logistics suppliers to participate in the new programme. Brand the initiative to the customer base 90 days after full rollout to be sure that all kinks have been worked out of business processes.