Getting fulfillment right is much more mission-critical in a digital enabled, omnichannel setting compared to a traditional brick and mortar retail. (see figure below).
Fulfillment represents significantly higher costs in omnichannel—up to 15-20 per cent of online-order revenue in the US market. This is about five times the proportion compared to traditional B&M channels. Fulfillment also carries more brand impact than traditional settings, as digitally connected customers want their orders quickly and accurately.
Despite its strategic importance, too many retailers still lack an effective omnichannel fulfillment strategy.
Our work with clients suggests a clear separation between omnichannel fulfillment leaders and the also-rans. We define leaders as retailers with online sales growth significantly above the industry average CAGR of 15 per cent over the past three years. Leaders also display faster service levels, a fulfillment-cost advantage over 25 per cent and a greater ability to handle category/demand flexibility. These operational and efficiency advantages translate to increased flexibility to address changing market conditions, driving enhanced performance.
The leaders we have observed follow three core omnichannel fulfillment best practices:
1. Define customer strategy and fulfillment solution simultaneously (and iteratively)
Unlocking fulfillment excellence means creating a two-way, iterative process in which the customer promise informs fulfillment solution, and vice-versa. In other words, to develop the best omnichannel fulfillment, companies need a clear understanding of their customer promise. That means being able to answer myriad interrelated questions. Should we offer endless aisle assortment with free two-day shipping? Should we establish local-store-pickup options for urban customers? Could we expand with an online subscription service?
2. Harness flexible, “no-regrets” fulfillment-solution activation
Even the most thoughtful, fact-based fulfillment system anchored on today’s customer strategy needs to have built-in flexibility to allow for the evolution of requirements. Fulfillment leaders not only design fit-for-purpose solutions; they also harness a sequenced solution build-out with sufficient flexibility to adapt to changing conditions. Others fall into the trap of building quickly ahead of demand expectations and maintaining confidence that the future market will behave as predicted. As a result, they often find that fulfillment assets and capabilities fail to address shifting consumer needs or changing competitive dynamics. Understanding this reality, effective omnichannel organizations adopt an adaptable and agile fulfillment solution
3. Use metrics and incentives aligned with omnichannel fulfillment
Even players that get the consumer promise-strategy-fulfillment link can stumble when it comes to fulfillment-related metrics and incentives. Part of the problem is that traditional single-channel-focused teams and reporting structures create silo mentalities and conflicts of interest across channels. To overcome these barriers, omnichannel fulfillment leaders experiment aggressively with shared incentives to encourage cross-functional and cross-channel collaboration.
Those who employ omnichannel fulfillment best practices and treat supply chain as a strategic weapon can unlock break through performance and growth