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The Imperative for Retailers to Assess Multi-Channel Operations Capabilities as a Prelude to Multi-Channel Commerce

The 2009 holiday buying season in the U.S. and indeed worldwide, presented two important learnings for the retail industry.  First, more consumers turned to online channels to perform price and feature comparisons as well as to execute their purchases.  Online channels were reported as being up 4-5% through mid-December of 2009.  One of the most significant takeaways from this year’s National Retail Federation (NRF) conference was that cost and value conscious consumers have discovered that online shopping and integrated merchandising are becoming a far more attractive option, and these same consumers demand more of these experiences.  The ability to research products, place orders online, pick-up or return purchases at the nearest local retail outlet have captured enormous interest, and consumers demand that these experiences occur without a glitch.

The second learning was that retailers stand to gain more profitability in practicing smart, lean inventory management strategies.  The notion of stocking and promoting just high-demand items, while exercising supplier contracts for quick turnaround drop ship or order fulfillment worked well for those retailers able to pull-off such strategies. Indeed, the results of such strategies are being reflected in added profitability for these retailers. In its 2010 Predictions for Retail Industry, IDC Retail Insights noted that the new winners in retail will be those who can cater to more informed customers, with immersed experiences, integrated merchandising, and instrumental execution.

The reality of immersed experiences and instrumental execution is really about discussions related to Multi-Channel Fulfillment Operations (MCO) or Multi-Channel Commerce (MCC).  The two terms are often confusing, haven’t different meanings for functional retail teams.  In his blog posting, Decide where you integrate: MCO does not equal MCC,Gopikrishnan GR (Gopi) makes a rather cogent argument that retailers need to separate the two meanings, and focus on one building to the other.  MCC is indeed more about B2C commerce strategies related to the customer shopping experience via the web, including personalization, content and shopping cart experiences.  MCO in my view, is really about the capabilities of the retail supply chain to be able to integrate multi-channel sales and inventory fulfillment.   The imperative for retailers is to spend more time and consideration toward implementing a phased MCO strategy, one that meets the specific needs of the retail segment.

The new realities of MCO are fostering the ability of consumers to shop and place an order online or through a mobile channel, have real-time response to global inventory availability, reserve inventory, and have all order information visible to all pertinent partners in the supply chain. As Gopi rightfully points out, this is easier said than done.  In fact, many global manufacturers have struggled and spent considerable resources in implementing many similar type capabilities.  The notion of “walk first and run quickly after” have relevance, and multi-year strategy can be very common.

In my view, retailers need to take two very broad perspectives in addressing an overall MCO strategy.  The first should be the retail supply chain infrastructure and fulfillment processes that are required to effectively manage multiple-channel fulfillment.  Processes should include a comprehensive analysis of the total supply chain network, with a eye toward agility vs. latency.  Think of the means for streamlining inventory cross-docking or supplier drop-ship programs. Supplier sourcing and collaboration programs directed at rapid replenishment will be a rather important consideration. And if your retail operations include private labeling of products, network connections and information integration with contracted manufacturers are also critical considerations.  As noted earlier, optimized inventory deployment, predicated on demand intelligence, is very essential.

After process comes the technology that can best enable specific needs of MCO. The reality of this post-recessionary climate is that technology investments may have to be funded by incremental or ongoing savings in supply chain operations.  The good news for retailers is that there is much learning that can be harvested.  Order fulfillment technology providers who have demonstrated implementation experience have best practices that can be leveraged.  Multi-echelon inventory management software providers also have demonstrated the ability to help retailers implement smarter and more efficient inventory stocking and deployment strategies.  More options exist for technology deployment, including third-party or SaaS platforms. Finally, specialized consultants and system integrators with proven retail industry experience understand the nuances of how to walk before you run, and test before you go-live. 

If you take one nugget from this posting, it should be that a seamless customer experience starts and ends with seamless supply chain capabilities.  While the task is complex, the rewards are the ability to be a leader in multi-channel commerce and fulfillment capabilities for customers.

Bob Ferrari

About the author: Bob Ferrari is the creator and Executive Editor of the Supply Chain Matters Internet blog.

Comments

Thanks Bob for the post and the cross-reference. Since MCC is more of a journey than a specific destination, I am now looking at how we can do it in a structured way over a few quarters on a self-funding basis, so to speak. I would personally prefer to start from the supply side of the house (PO consolidation, inventory sync etc), but budgets might be more forthcoming on the B2B and front-end channel integration areas.

It’s refreshing to see that others in the industry share the view that customer satisfaction is intrinsically tied to efficient and flexible back-end supply chain operations. The obstacles to MCO success go beyond technology. A paradigm shift needs to happen in the way supply networks are planned and modeled for operational efficiency, in order to solve for MCO and eventual MCC. The easy piece is managing the migration of shipments from bulk to single units. The real challenge is moving from traditional enterprise account relationships to diversified consumer relationships. This is easier for the small to mid-size retailer than it is for the global powerhouse. When faced with thousands of individual customers, it is critical to not only set and manage expectations, but also to exceed them. The answer to this lies in refocusing the meter to which we rate supply chain effectiveness; from lean to service assurance. Just as the brick and mortar channel must adjust store operations and services for local market customs and needs, the same rings true for online channel operations.

Gopi and Christine have both provided more insighful commentary noting that the real groudwork for MCO lies in business process change.

I also agree that procesess that support MCO need to reflect the realities of online consumer needs vs. making consumers conform to an existing process constraint.

I also agree with Gopi's observations that existing budgets tend to be more B2B and customer-process focused, which makes the task of supply business process transformation a bit more challenging in terms of securing needed budget resources.

Bob Ferrari
Executive Editor of the Supply Chain Matters blog.

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