Addressing Omnichannel Fulfillment Challenges

Stephen DeAngelis

October 22, 2018

Google the term “omnichannel” and you are likely to find as many articles about the challenges associated with omnichannel fulfillment as you are about the importance of omnichannel operations for the future of retail. For example, Joe Skorupa (@joeskorupa) writes, “Omnichannel fulfillment is an essential retail function and yet few retailers claim they do it well. Major weaknesses include efficiency, accuracy, cost effectiveness and speed.”[1] Consumers might not be familiar with the term “omnichannel,” but, that’s not the case for retailers. Omnichannel operations became a necessity with the rise of e-commerce and the consumer digital path to purchase. Retailers understand today’s consumers want to be able to shop for products using their desktops, tablets, and smartphones as well as brick-and-mortar locations; but, that’s only the first half the story. Fulfillment is the back half of the omnichannel operations story. Analysts from Fortna explain, “The customer wants what they want, when they want it, where they want it and at the price they want it. And if you don’t have it, you better get it to their house tomorrow, or they’ll buy it from Amazon who will — with free shipping.”[2] Fulfillment options identified by Fortna analysts include:

  • Buy it online and pick it up in the store.
  • Try it on in the store and get it delivered at home if the color they want is out of stock in the local store.
  • Place an order on a mobile device and be assured that the item is not only available, but also be able to choose how much to pay for shipping and know exactly when it will be delivered.
  • Order online, have it delivered at home and return to the store if it doesn’t fit.

With consumers demanding so many different options, it’s little wonder omnichannel fulfillment is a challenge for many retailers.

Omnichannel fulfillment challenges and solutions

Skorupa identified a number of challenges associated with omnichannel fulfillment; namely, efficiency, accuracy, cost effectiveness and speed. Fortna analysts added ease of return as another challenge.

Challenge 1. Efficiency. Nathan Resnick (@naterez94), CEO of Sourcify, notes, “Businesses fall victim to focusing on channels independently.”[3] Such an approach creates numerous inefficiencies.

Solution. Resnick insists, “Your supply chain needs to be integrated. … This will ensure you make the most of your channel specific warehouses and have a dynamic outlook towards space allocation.” Fortna analysts add, “The impacts of today’s ‘order from anywhere — fulfill from anywhere’ environment go far beyond the four walls of your distribution center. In essence, it requires a more integrated, holistic strategy across channel owners, merchandising, store operations and distribution operations, among others.”

Challenge 2. Accuracy. Resnick notes, “Knowing the status of your inventory is at the core of a strong omni-channel approach.” Accuracy of inventory is a major problem according to Skorupa. He explains, “In the area of transparency and visibility, just 24% of retailers say they have high maturity levels, which is matched by an equal number (24%) who say their ability to make accurate data available everywhere is low.”

Solution. “To address this challenge,” Resnick writes, “develop an efficient order fulfillment process that works via an optimized warehouse management system. By using inventory visibility as a forecaster of future demand, you can plan your supply chain activities accordingly. Once you scale out your inventory visibility, you may get to the point where you can sell orders online without ever taking physical possession of your product.” The staff from Supply Chain 24/7 writes, “Distributed Order Management, Unified Commerce, and Demand Driven are recent innovations that help enable omnichannel success, but one tried-and-true discipline remains front and center for omnichannel leaders — inventory visibility and optimization.”[4]

Challenge 3. Cost Effectiveness. Many, if not most, retailers struggle to reduce the cost of omnichannel operations. Because of their complexity, costs are difficult to control.

Solution. Chelsea White, an Offering Management Associate at IBM Watson Commerce, observes that cognitive technologies can help address the efficiency challenge. “Cognitive tools,” she writes, “allow retailers to dive into the details of their cost-to-serve to better understand how to optimize different elements for maximum profits and meeting customer expectations. It’s possible to predict fulfillment costs along all dimensions for omnichannel customers, and choose a last-mile delivery path that prioritizes speed while minimizing delivery costs and other factors that quickly add up in terms of cost-to-serve.”[5]

Challenge 4. Speed. Skorupa notes, “The area where retailers show the greatest weakness is in speed of fulfillment that approximately matches Amazon. This weakness is especially evident in the digital channels (online and mobile) where just 17% of retailers believe their systems and processes are at a high level of maturity.” Resnick adds, “One of the hardest parts in selling across channels is ensuring speedy delivery. When a customer buys online, they expect that order to come within a few days … at most.”

Solution. For the most part, retailers have brought this challenge on themselves. In their attempts to match Amazon, they often over promise what they can really achieve. The most important thing that retailers and shippers can do is make realistic promises to customers. Resnick adds, “In addition to creating clear expectations for each channel, utilizing physical stores as fulfillment centers is a must. In fact, given the rising desire among customers, stores should serve as both pickup locations for online orders — buy online, pick up in-store — and fulfillment locations for deliveries (ship-from-store).”

Ease of return. Return rates of goods purchased online are commonly between 30 to 40 percent. Retailers without a thoughtful return strategy can quickly get into trouble. Resnick notes, “Handling the return of orders should be a crucial consideration when setting up your omni-channel logistics system. If you truly want to be integrated across platforms, you should aim to enable returns from different platforms as well.”

Solution. White notes cognitive technologies can also help in this area. “AI tools help maximize fulfillment capacity and create a strategy that’s flexible enough to meet any customer mix while controlling the cost-to-serve,” she writes. “With tools such as real-time sourcing, it’s possible to move returns and at-risk inventory, quickly scale product to meet increased demand, and meet any change with immediate scenario planning that helps map out the fastest and most cost efficient option in the face of current constraints.”

Summary

Resnick concludes, “Implementing an omni-channel logistics and supply chain system may seem complex, yet by mapping it out around your customer journeys, you’ll be able to create a seamless process.” Cognitive technologies can be a great help in addressing many, if not all, of the challenges associated with omnichannel fulfillment.

Footnotes
[1] Joe Skorupa, “Retail’s Surprising Weakness: Omnichannel Fulfillment,” Retail Info Systems News, 28 August 2017.
[2] Staff, “5 Steps to Designing Omni-channel Fulfillment Operations,” Fortna, 2018.
[3] Nathan Resnick, “Top Omni-Channel Logistics & Supply Chain Challenges Ecommerce Founders Must Face,” Shopifyplus, 31 July 2017.
[4] Staff, “Inventory Management and Omnichannel Fulfillment Challenges,” Supply Chain 24/7, 31 May 2018.
[5] Chelsea White, “5 Ways AI is Helping Improve Omnichannel Fulfillment, IBM, 31 August 2018.