Tuesday, April 14, 2015

OMNICHANNEL, RED OCEAN SUPPLY CHAIN

These are Red Ocean strategy firms using the same-old supply chain. Issue is not delivery options.  It is the failure to move to Blue Ocean Strategy Using New Supply Chain Management.


Companies struggling with omni-channel profitability

A new PwC report, commissioned by JDA Software, found fewer than one in five companies have profitable omni-channel fulfillment processes, likely due to a focus on providing multiple, but expensive delivery options.

   A new PwC study, commissioned by the supply chain solutions provider JDA Software, has found that only 60 percent of companies are able to fulfill omni-channel demand profitably.
   The study, Global Retail & Consumer Goods CEO Survey: The Omni-Channel Fulfillment Imperative, is based on a global survey of more than 400 retail and consumer goods chief executive officers about their perspectives on omni-channel fulfillment.
   A quarter of respondents to the survey, and more than a third of top 250 global retailers, see omni-channel fulfillment as a top priority. Transportation and logistics was the most commonly cited function requiring additional attention from companies in order to achieve true omni-channel fulfillment.
   “We started with the question, ‘Does the CEO understand what omni-channel means to his or her business,’” Wayne Usie, senior vice president of retail at JDA, said in an interview with American Shipper Monday.
   Usie said most companies have focused their omni-channel strategy around quickly trying to offer a range of different shipping options to their customers.
   “It’s pretty self-evident what motivates CEOs – when margins come under pressure, it changes their behavior,” he said. “There was a rush to offer different delivery options, but then they realized it costs a lot. The cost of the last mile was not contemplated.”
   Usie pointed to JDA’s relationship with IBM on distributed order management as the way his company is attempting to help retailers and manufacturers address the challenges of omni-channel fulfillment.
   Usie said third party logistics providers have been the boldest and most aggressive among JDA customers in terms of adopting technology to support an omni-channel strategy. That’s no surprise, given the expectations placed on 3PLs, in terms of service and solutions, by their customers.
   Among shippers, retailers in the fashion and apparel industry and specialty retailers are farther along than some of their peers, as are mega-retailers at the forefront of the omni-channel discussion. Lagging behind are Tier 2 specialty retailers and grocery stores - a category that might find it hard to truly adopt an omni-channel strategy given their reliance on perishables.
   Manufacturers, meanwhile, have begun delivering direct-to-consumer. Most notably, Proctor & Gamble has enlisted Amazon to drive fulfillment.
   “Retail reacted to this tidal wave of omni-channel, and now they’re plugging the holes,” Usie said, noting that fulfilling to and from different locations runs totally counter to the traditional retail model, which is why it’s been difficult for retailers to adapt. “Amazon knows this model because they came from this world.”
   Usie gave an example of the complexities that retailers face in terms of optimizing fulfillment.
   “In the past, the only channel a store had to worry about was the store,” he said. “For the most part, fulfillment was focused on determining what your sales to that store would be. Now you have a customer who may want to buy in-store, but have it delivered.
   “Part of what we’re working with is, if I have an item that is shipped direct to the customer 80 percent of the time, why would I stock that item in store versus keep it in a fulfillment center. It’s about thinking through where should I stage the inventory."
   The question of from to where fulfill orders is not a simple geographic or transportation network efficiency question alone.
   “When you go into corporate part of the supply chain, you look for the demand signal,” he said. “Almost every retailer’s demand signal starts when an order is fulfilled, but it’s really complicated more than that.”
   Usie gave an example where an order might be fulfilled from a distribution center in the western United States but for an online customer in the eastern United States. Old demand signal patterns would call for a replenishment at the western DC, even though the customer comes from the East Coast.
   “So you getting these mismatches of inventory,” he said.
   To combat these new challenges, Usie said systems now must be trained on getting beyond the static, rules-based constraints upon most which most optimization engines are founded.
   “These optimizations that had been done in bulk, are now being done on an individual basis,” he said. “As customers’ orders are flying the through system, then it decides where to allocate. The challenge is it has no visibility to certain things that could affect the right choice. Say you live in St. Louis, so I’m going to distribute from that store. But I need to know if I have forecasted sales in that location for this weekend for that item. Am I cannibalizing sales in that store? Do I have a labor cost issue to fulfill that item from that location?”
   Usie said the survey was conducted primarily to shed light on how important companies see omni-channel fulfillment as being, and yet how few are accomplishing it profitably. He pointed to results suggesting that half of respondents plan to increase investment in omini-channel capabilities.
   Another interesting tidbit from the report is that it’s not clear who will be responsible for driving omni-channel initiatives. Roughly a third of respondents each said this responsibility would lie with their CEO, head of e-commerce, or head of supply chain.
   “We've been on the soap box for a while about the profitability side of this,” Usie added. “For us, the survey was another validation of that.”