Tips for retailers to achieve Omni-channel nirvana
10 March 2014
Demanding clear stock visibility, keen predictive techniques and tightly managed fulfillment operations, delivery is the exciting and troubling heart of the Omni-channel experience. HSS editor Simon Duddy reports.
"The customer service and delivery experience isn't optimal yet, which is understandable as what we're trying to do is incredibly difficult. Customers used to do all the work, they'd go and find the product, and now we're trying to navigate through to them.” So said Sir Terry Leahy, ex-CEO of Tesco at The Delivery Conference recently. Difficult it might be, but retailers have to find a way to deliver the Omni-channel challenge - placing the customer at the heart of a consistent brand experience across all channels - and it starts far back from the front door of their customer.
Stock visibility is a critical building block for successful Omni-channel retail. But many retailers still take an operational view of stock, where availability is focused on the warehouse and not on the customer.
Daren Ward, associate partner at Glue Reply explains: "Many retailers need to take a hard look at how they calculate availability. The key is to match availability with the promise; if stock is still on the container ship, with the appropriate promise the customer might be happy with a long lead-time. But when you make a promise, you need to keep it.”
The answer isn’t as simple as identifying stock in all locations or even at the suppliers’ locations.
Descartes EVP marketing & services Chris Jones adds: "You also need to understand what is in transit. That requires networked based solutions that integrate retailers, suppliers and logistics companies and links shipments with inventory and purchase orders.”
Data is everything in this part of the process and one of the upsides of eCommerce is that it generates a vast quantify of useful information. For example, in-store if a product is missing from the shelf it’s impossible to know how many sales have been lost. Not so online.
Robyn Doyle, head of eCommerce strategy & planning at Dixons Retail explains: "When you're talking about online, we actually know how many people want a certain product, and how many couldn't have it and so there's a lot you can do to ensure that you're matching supply and demand.”
Meeting the integration challenge
The integration challenge for traditional retailers should not be underestimated.
LCP Consulting retail partner Stuart Higgins says: "Setting a clear strategic direction is paramount for success and an essential first step. Delivery will require Board alignment and CEO as sponsor, as well as a commitment to invest significantly in the changes required.”
Higgins says the journey will take around three years and will involve addressing most business processes from range selection and deployment through to service proposition, delivery and all points in between. The role of stores, DCs and the whole operating model for the business needs to be redefined to integrate activities that have previously been seen as separate.
People and skills also need to be looked at.
Higgins continues: "Rethink roles at the board table and then deeper into the organisation, just as you did when the idea of multichannel retailing first emerged. Changes in business processes, systems and behaviours mean you have to build or hire-in new skillsets. As an example, the role of store colleagues is changing with the advent of in-store collections, returns, in store ordering for home delivery which requires them to be able interact with customers very differently than they have done in the past – potentially providing an opportunity for further sales.”
Customer feedback loops are also critical to success and need to be incorporated into business metrics, as are an understanding of channel economics to aid inventory deployment decisions coupled with real time sales trends which allow agile supply chain responses to changing customer demands.
Higgins concludes: "It takes tenacious leadership coupled with a measured attitude to ‘learning by doing’ to take retail organisations on this journey – a journey which may take at least three years of sustained effort to deliver.”
Retailers are engaging with Big Data techniques in a bid to harvest high quality insight from this welter of information. DataArt UK logistics business development director John O’Brien says Big Data Analytics can provide insights into costs, down to the vehicle level.
"A large retail multiple in the US analysed its parcel operations and identified annual savings of over $5 million,” he says. "In simple terms parcels were typically routed using the wrong carriers and the wrong service levels at the wrong rates. Big Data Analytics allowed the retailer to see where things were going wrong and correct them.”
Expect to see the application of live weather and traffic data for dynamic transport planning for rapid response home delivery. Another area of focus for Omni-channel retailers is how to deploy inventory across different fulfillment channels in order to best serve future customer demand.
"Big Data can support postponing these deployment decisions, resulting in better inventory management (lower investment), as well as better service,” says Emile Naus, partner and technical director, LCP Consulting.
Perhaps the apogee of big data techniques is Amazon’s recently patented idea of an Anticipatory Packing System. Can Amazon really glean insight from its own data to the extent that it can have a product ready or on the move before a customer has actually placed an order, based on their previous online activity and spend? It sounds outlandish, but shoppers do engage in repeating patterns, so it is likely that Amazon is once again ahead of the game.
Big Data is likely to have an impact on how storage space is allocated. Glue Reply’s Daren Ward speculates we may see a migration from large sheds to an Argos type model where sales space is reduced using digital technology and the in-store warehouse space increases.
"Whether this is the shape of things to come or not, I’m sure Big Data will play a part in analysing how we get our stock to the right place at the right time. It spots the patterns we didn’t realise were there,” he says.
Touching the customer
After all the big data analysis and routing of products through automated handling systems, and down motorways in parcels, the retailer must interact with the customer somehow and hand over the goods.
Some years ago this was carried out literally. A gruff delivery man pounded on a door, demanded a signature and left a dented cardboard box in someone’s hall. Things have moved on in recent years, with the realisation that customer-facing skills are paramount, as is a readiness to provide information proactively to customers waiting on deliveries.
Gary Winter, sales & marketing director at Hermes, the UK’s second largest UK carrier says: "We believe that the carrier has pushed the responsibility of delivery to the retailer, and as a delivery company we need to take more responsibility ourselves.
"We’ve developed Parcel Manager. Every time we attempt to deliver a parcel, before it goes out, we send an email free of charge to all our customers who are due to receive a parcel that day.”
Hermes has also launched a Sunday delivery service after carrying out market research finding 28% of customers surveyed said it would be of interest to them. This follows a recent move by Amazon Logistics to offer Sunday deliveries for Amazon Prime members in selected cities in England.
Winter says: "This offers more choice and convenience to customers - but it's not complete altruism. We have opened three new depots and closed and reopened four more, which will take us to 27 depots. This is really expensive and we're only using them six days a week. So, if we opened on Sundays and adopted a seven day a week model, we could create 17% extra capacity, grow our business and maximise the assets that are already in place.”
The move to an all week long delivery window is certainly upping the ante, as has same-day deliveries, which have allowed some retailers to steal a march.
Descartes’ Chris Jones sounds a note of caution, however. "Same-day is not as important as delivering when and how the customer wants it. The fact that a customer buys a new cooktop doesn’t mean they want it in their house today. They may not want it until their kitchen is re-modelled or they may want it with installation services.”
There are further signs the parcel delivery experience is improving and becoming smoother. Although there was flooding for Christmas 2013, weather did not get in the way of parcel deliveries, unlike in the US where FedEx and UPS were accused of not delivering Christmas.
Logistics consultant Kirsten Tisdale says: "My impression has been the parcels companies have been much better this year at managing deliveries, they’ve managed capacity better. After Christmas last year, parcel companies were warning that rates would have to go up, and that retailers would only be able to deliver high volumes at Christmas if they did a certain volume of business the rest of the year round.”
Perhaps this is a sign of a maturing market? Indeed, IMRG has suggested home delivery parcel volumes in the UK could peak by 2015, due to the use of Click & Collect style services.
Certainly services such as Click & Collect and Drop Boxes have eased delivery pressure by siphoning off considerable volumes and also perhaps the deliveries that were most likely to be missed.
Hermes is seeking to capitalise on this trend by building up its ParcelShop network.
Third party help
You don’t have to go it alone when meeting the Omni-channel challenge. There are many third parties with fulfillment expertise that can help to smooth the way.
Graham Copley, MD for third party fulfillment firm CML says: "3PLs can support the Omni-channel retailer with an understanding of supply chain cost dynamics, enabling the retailer to make cost effective fulfillment decisions.”
Supply chain partners offer a distribution network that is ready to go, along with a service structure, and receipt and order processing. This can obviously be best used to ramp up operations to cope with promotions or seasonal peaks.
Questions to ask of a 3PL are:
• Can you offer the ability to integrate with the retailer’s inventory and order system?
• Can you offer the ability to offer inventory visibility across all sites and channels?
• Can you effectively process returns?
• Do you offer online reporting of stocks and order data?
"They key thing is that the 3PL sees itself as an extension of the retailer’s business and takes time to understand the brand, its values and its customers’ expectations,” adds Copley.
"We work with the retailer to understand the brand’s ethos. We then agree service levels and specifications so we can uphold the brand’s customer experience. We seek to support the company’s growth through collaboration, best working practices and system integration, as well as providing a full e-commerce and wholesale solution.”
Winter says: "Over half of the 200 million parcels per year Hermes delivers is for pure-play online retailers [who appreciate the advantages of a physical location to allow customers to interact with their brand]. We opened 2,500 ParcelShop locations last year and we see no reason why we can't open another 2,500 this year. We have over 3000 stores right now and we're opening about 50 a week. We think that by a combination of the courier network and the ParcelShop network, we can strive to put the product in the hands of the consumer 100% of the time, first time.”
But retailers are rightly concerned that third parties, say convenience store staff, are ‘the face of their brand’ when using Click & Collect. What can providers do to reassure retailers that this aspect of their service is up to standard and improving?
Collect+ CEO Neil Ashworth says: "A customer’s experience at a third party store undoubtedly affects a retailer’s reputation, so it is vital that click and collect providers ensure that their network is set up to provide excellent customer service.
"At Collect+, we ensure consistency in service delivery by providing (through PayPoint), comprehensive support and guidelines to all of our stores. We measure compliance carefully to ensure that each store follows best practice. The criteria by which we select stores takes accessibility and parcel storage capacity into consideration and is continually reviewed. We also monitor customer feedback and take negative comments extremely seriously. On the very rare occasions a store has received a high volume of complaints, we have removed them from our network.”
There are two types of Click & Collect; In-store and via a third party such as a newsagent.
IMRG head of e-logistics Andrew Starkey says "the two are usually said within the same breath but they are very different things”.
"I expect to see a convergence between them as 3rd party aligns with in-store. For example, Collect+ have started a venture with Westfield Shopping Centre to put a collection spot in the centre of the shopping mall.”
The delivery system moves full circle with Returns with Ashworth adding: "Best in class returns management is a cross-business commitment that needs to be expertly managed to gain the maximum benefit – returns is absolutely not a purely logistics process.”
In fact, it begins with the buying and ranging process – and returns accountability needs to be factored firmly into the contract to supply between the retailer and vendor. Whether this covers full return to vendor arrangement, bought-out-guarantee or other mechanism, returns management starts at the decision to range a SKU.
"The rise of online shopping has thrown returns into a greater focus than ever before and so returns management must to be fully integrated with the end-to-end retail process. The retailer’s return policy must be fair, appropriate to the product ranges stocked, and fairly applied,” concludes Ashworth.
The importance of working returns seamlessly into the end-to-end retail process highlights a principle that cuts across the whole Omni-channel challenge - integration. Retailers must be able to integrate the different parts of their business into a coherent fulfillment machine that delivers a consistent brand experience across all platforms.
Integration, visibility and delivery are key to success. Those retailers that have embraced this Omni-channel revolution are emerging as winners.