How the Supply Chain Impacts Retail’s Omnichannel Priorities

By Don Brenchley

Over the last several years, the retail industry has experienced significant changes. The most noticeable change is the Amazon Effect, or the ongoing evolution of the retail market due to Amazon.com's industry dominance. Simultaneously, changing consumer dynamics, including omnichannel expectations and urban population shifts, have forced retailers to rethink their product marketing strategies.

While it seems like online shopping reigns supreme, research has shown that consumers make a choice every day between shopping online or in-store. This research means retailers must work to ensure customer experiences meet consumer demands whether they're placing orders online or visiting physical stores. With the retail industry projected to reach $5.5 trillion in sales by 2020, the key to capitalizing on this growth lies in optimizing the supply chain.

Supply Chain Dynamics

Consumer demands for fast shipping, free returns and personalized offers have caused many retailers to expand their omnichannel strategy, as well as many chief supply chain officers (CSCOs) to increase their company’s adoption of customer-centric supply chain initiatives — e.g., investing in better analytics to avoid delivery issues and encouraging customers to provide feedback on shipping and delivery methods. Retailers are also giving customers more visibility into their e-commerce deliveries, providing them with greater control over their experiences. With 91 percent of consumers more likely to shop with retailers that provide personalized offers and recommendations, these approaches give retailers a competitive edge.

Global companies such as Amazon, Apple, Johnson & Johnson, and Nokia are examples of organizations that have optimized their supply chains to provide superior customer experiences, such as guaranteed two-day delivery. These decisions have had a ripple effect in setting consumer expectations for dealing with companies of all sizes. While the supply chain was once viewed just as a cost center, retail executives now understand that their company’s survival depends on meeting current and future customer needs. With the right tools in place, the modern supply chain is uniquely positioned to identify customers’ needs and drive better experiences for both in-store and online shopping.

Finding the Balance Between Online and Offline Shopping

Retailers know that there are pros and cons to both online and offline experiences. Online shopping allows customers to browse products wherever they choose, while in-store shopping provides the instant gratification of walking out with a product rather than waiting for delivery. Instead of thinking of online and offline shopping as two separate functions, retailers should optimize their supply chain to improve both customer-facing and back-of-the-house functions to ensure that customer experiences are seamless and that brand values are consistent, no matter which channel a consumer chooses.

To ensure optimization, retailers must understand the internal and external factors impacting their supply chains. Some of these include the following:

What’s truly driving demand: To understand how to flow inventory to prevent costly mistakes, CSCOs should consider external factors such as GDP, the Consumer Price Index and weather patterns — and how they impact the supply chain forecast. When companies rely solely on internal historical data, they miss the mark on forecasts, resulting in stock-outs or obsolescence risk.
The real costs of service: The total cost-to-serve looks at the total sum associated with getting a product into a customer's hands. Traditionally, the supply chain operates in silos and only gives thought to costs within the functional domain. However, this is an expensive mistake as the total amount of purchasing inventory, shipping and storing products is vital for CSCOs to understand when setting prices.
Product flow paths: When offering promotions such as buy one, get one (BOGO) discounts, it’s imperative that retailers understand the real impact of promotions and how they will shift demand. Omnichannel offerings complicate product flow paths, therefore retailers should ensure they're considering all factors at play when implementing promotional offers.

For instance, if a customer places an online order with the promise of next-day delivery, the retailer must ensure that the supply chain is optimized to provide the service. Otherwise, the customer may feel less inclined to order from the company in the future. To help provide seamless experiences, retailers should look for solutions that offer real-time insight into where the supply chain can be improved.

Strategies to Improve Omnichannel Experiences

Today’s retailers need a holistic view of the supply chain to support critical, data-driven business decisions. To achieve this, they can use modeling technology to create digital twins of their supply chain. With the help of a digital twin, CSCOs can test new ideas in a risk-free environment, evaluate alternative operating scenarios, and leverage advanced predictive analytics to optimize the supply chain. This technology helps retailers understand how offering a new promotion, either in-store or online, will impact the supply chain and last-mile delivery.

For years, retailers have emphasized increasing delivery speed in the last mile; however, speed alone isn't the answer to providing truly great customer service. By using the data available from supply chain modeling technology, retailers can test fulfillment strategies and assess costs, capacities and changing order patterns so they may increase accuracy in the last mile, thereby enhancing their competitive edge.

As the retail sector continues to evolve, an optimized supply chain will be critical to success. When retailers have the data-driven insights to understand where they can streamline operations, they'll be able to offer better customer experiences, both in-store and online.

Don Brenchley is director, industry strategy at LLamasoft, a supply chain management software.