Omnichannel is another Word for Complexity

Stephen DeAngelis

May 03, 2018

Omnichannel retail operations are well on their way to becoming the norm. Consumers now take the digital path to purchase more often than not; but, they don’t care what retailers call their shopping journey or what strategies companies use to make the shopping journey a seamless one. Michael Jones (@mdjonesy), a business consultant, explains, “Consumers don’t shop ‘omnichannel.’ They simply just shop.”[1] Successful companies make omnichannel operations seamless and easy for consumers; but, behind the scenes complexity rules. Tom Redd, a marketing expert, observes, “Omnichannel is a marvelous thing, and all cogs in the retail mechanism play a part.”[2] I like that imagery because machines with cogs are generally complicated and each cog serves a purpose. Damage a tooth on a cog and the machine works ineffectively or not at all.

Cogs in the omnichannel machine

Trying to describe all the cogs in the omnichannel machine is difficult. There are customer-facing cogs, internal supply chain cogs, and supplier-facing cogs. Concerning consumer-facing cogs, Jeanne Bliss (@JeanneBliss), Founder and President of CustomerBliss, writes, “You probably know what omnichannel means, but a quick definition is always helpful. It refers to the various touch points by which a business/ organization can reach a customer. The idea — and the ideal — is to get the offer in front of them at the time they’re most likely to be interested.”[3] That customer-centric definition might lead one to believe omnichannel is all about marketing — but supply chain professionals know that’s not true. Nevertheless, Bliss understands there are a number of cogs in consumer-facing omnichannel machine. She lists a few:

  • Website
  • Brick and mortar locations
  • Social media
  • Other digital efforts
  • How you come across on mobile
  • Face-to-face interactions between customers and employees

She adds, “There is more you could group under omnichannel, but that’s a good start.” Once a consumer completes his or her digital path to purchase (i.e., buys something), the goods need to be delivered. A whole bunch of other cogs are involved in that process. Patrick Burnson explains, “While ‘last mile’ carriers receive most of the attention these days, the traditional modal heavyweights are in charge of connecting this ever-growing web of facilities.”[4]

He points to the growing number of fulfillment centers (i.e., warehouses) being built across the U.S. “117 such facilities were built across the United States from 2010 to 2016 for a total of 141.2 million square feet.” And more are being built. Inside those facilities things are also getting more complex. The digital path to purchase now requires much more picking of individual items for e-commerce customers. David Egan, head of industrial and logistics research in the Americas for the CBRE Group, told Burnson, “These mega-facilities serve as the backbone of retailers’ fulfillment networks, distributing goods across multi-state regions. … E-commerce users typically need two to three times the amount of warehouse and distribution space that traditional users do.” Burnson goes to note that e-commerce is having an impact on air freight hubs, maritime cargo, middlemen, and intermodal operations. As President and CEO of a cognitive computer firm, whenever I hear the word complexity, I natural think about how cognitive technologies can help simplify things. Providing near-real-time visibility is certainly one way. Burnson explains, “According to Barrons, the new warehousing infrastructure and downstream processes need to be reinforced with accurate and near-real-time information flows from the upstream container movement from vessel arrival through to container availability and yard management that feeds the gate and rail process.”

Advanced analytics is playing (and will play) a significant role in omnichannel operations. Lori Schafer, Retail analytics technology executive, explains, “[Omnichannel analytics are] allowing the retailer to apply analytics to every step of the customer journey. To be able to give that customer a much better experience, not just in terms of how we market to her, but also in terms of the ideal product assortment in each location, whether it be in-store or online. And also, how much and where the optimal inventory should go so we can satisfy that customer’s needs wherever she wants to shop.”[5] Bliss points out another reason cognitive technologies are needed in today’s omnichannel world — the amount of data needing to be analyzed. She writes, “The sheer math looks like this: 44 zettabytes of generated data in 2020 is 10 times — yes, ten times — what we are generating now. … Companies are already struggling to manage data properly towards better customer experience. What will happen when 10 times the data is available?”

So far, I have just discussed the fulfillment side of omnichannel operations. The unfortunate fact is nearly one-third of all purchases made online are returned. Reverse logistics adds another layer of complexity (and a few more cogs) into the omnichannel machine. Ben Ames (@BenBames) observes, “All this creates big headaches for retailers. That’s partly due to the way they’re set up. The sophisticated automated systems they’ve designed for processing high volumes of outgoing orders typically don’t run as well when shifted into reverse. And inefficient processes are just the half of it. There’s also the added labor, time-consuming worker training, the need to discount inventory, and additional handling and shipping fees. … Returns management is fast becoming a high-stakes endeavor—and how they handle it could dictate whether they thrive or merely survive in the brave new world of omnichannel.”[6]

Summary

Many analysts have pointed out that omnichannel operations are primarily about making customers happy. Redd writes, “Remember when ‘customer centricity’ was just an empty promise? Many thought the visionaries who floated the notion were full of it. Guess what? It’s here, all thanks to the supply chain that must do it all — the ‘extended supply chain’.” Ensuring a consumer’s purchase gets into his or her hands in a timely and efficient manner is certainly the goal. Analysts from Inbound Logistics assert, “As retailers transform their market strategy to embrace new e-commerce and marketplace channels, their supply chain must be ready to pivot as well. … Omnichannel is not just a logistics decision. Re-orienting the company to embrace omnichannel retailing requires integration with IT, sales and marketing, and procurement as well as transportation.”[7] Analysts from Veridian add, “Retailers must align inventory placement, its physical location, with demand. This means moving inventory to make it closer to markets where it is sells. Since using a store-as-a-distribution center is integral to keeping storage costs down in omnichannel, retailers should leverage technology and analytics to align inventory correctly.”[8] Supply chain professionals know the ecommerce landscape is complex; but, as Jason Rosing (@JasonRosing), founding partner of Veridian, notes, “Omnichannel is just business.” Cognitive technologies can help that business and deal with complexities omnichannel operations create.

Footnotes
[1] Michael Jones, “Omnichannel Is Dead — Just Ask Your Customer,” Forbes, 29 October 2015.
[2] Tom Redd, “Extended Supply Chain: What Are We Really Thinking About?” SAP, 6 January 2016.
[3] Jeanne Bliss, “Will omnichannel someday die out because of Big Data?Customer Think, 29 April 2017.
[4] Patrick Burnson, “All Major Modes of Transportation Involved in the Evolving Ecommerce Enabled Supply Chain,” Supply Chain 24/7, 26 March 2018.
[5] Brittany Bullard, “Digging Deeper With Omnichannel Analytics,” Longitudes, 9 August 2018.
[6] Ben Ames, “Study: Reverse logistics still a puzzle for omnichannel retailers,” DC Velocity, 17 November 2017.
[7] Staff, “H.O.W. | How to Transform the Supply Chain for Omnichannel Retailing,” Inbound Logistics, 18 November 2017.
[8] Staff, “Implementing Omnichannel: How to Get Your Supply Chain Ready to Go Omnichannel,” Veridian, 30 January 2018.
[9] Jason Rosing, “Is Omnichannel Dead? Of Course Not…However, the Focus Is Now on Customer Experience in Omnichannel,” Cerasis, 23 February 2018.