6 Trends Shaping Omnichannel Supply Chain

6 Trends Shaping Omnichannel Supply Chain

Omnichannel retail sales have consistently doubled every 4-5 years since 2001 and is expected to become a $1.8 trillion dollar market by 2016 and hit $7 trillion by 2025. Part of the growth is driven by consumers taking their shopping online. However this is just one side of the equation.

The other enabler is the continued increase in supply chain innovation as companies seek to make more products available with faster and more flexible delivery options at lower cost.

Going forward, we see the following key global trends shaping omnichannel supply chain
6 Trends in omnichannel SC

1. Blurring of Value Chains

The traditional value chain is starting to blur under omnichannel as companies attempt to get closer to consumers. Retailers are taking on traditional manufacturer roles such as product design and development and product sourcing. Manufacturers on the other hand are shifting downstream and taking on retailer roles such as managing the shopping experience (either in stores or on the web), offering merchant-tainment and product informational services and even brokering actual order fulfillment. As value chains continue to blur, managing channel conflict and collaboration becomes table stakes. Manufacturers and retailers  must also make the right strategic bet in terms of new supply chain capabilities and enabling technologies they want to build in-house vs. buy as they pursue vertical value chain integration. (see related post: Brands Want to be Omnichannel Retailers)

2. Rise of marketplace

While the concept of marketplace has been around for decades such as “classified ads” in the Sunday Paper, it is only until recently that their digital counterpart have become a critical retailing channel. Amazon marketplace saw 25% CAGR while eBay and FlipKart are becoming endless aisle option for consumers in emerging markets. Going forward every omnichannel retailer must have a coherent marketplace strategy and corresponding supply chain capabilities. In particular, where and when to hold inventory vs. cross-dock orders vs. shipping vendor direct to balance assortment, lead time service and cost

3.  Strategic Bet in Same Day:

Scalable, affordable Same Day delivery continues to be the nirvana aspiration for retailers. While demand for Same Day is still emerging (less than 2% of US orders; UK has the highest Same Day penetration at 8-10% of deliveries), many retailers are making strategic bets in exploring Same Day models.  We see four emerging Same Day models – (i) Retailer Managed (e.g. JD.com or Amazon); (ii) 3PL Owned and Managed (e.g. SF Express, DHL, Cainiao); (iii) 3PL Crowdsourced (e.g. Shutl, Deliv) and (iv) Marketplace Crowdsourced (e.g. Google Express). As retailers pursue Same Day they must consider the structural  pros and cons of each of the above models and assess the underlying should-cost economics to inform a sound strategic and investment trigger plan for model selection

4.  Flexible Network Assets and Flows

In a future, retailers will need to transform their channel specific, inflexible supply chain into flexible omnichannel flows to push the performance frontier in terms of cost, turns and service tradeoffs. DCs should have the capability to pick, pack and ship any orders (eaches and case) regardless of their destination (home, stores, other DCs. The entire network is multi-tiered. The reconfigured fulfilment assets are powered by one-view inventory and smart replenishment decision systems to enable flexible, dynamic flows. Trucks making milk runs from DCs to stores reroute their order drop-off points. Slow moving SKUs are picked up from stores and returned to the regional DCs and other stores for improved turns. Demand shaping logic allows shoppers to choose between higher-priced fast delivery or free-shipping slower delivery options. 

5.  Ambidextrous Role of Stores

Stores roles will change as they operate both as nodes for customer engagement and for close-to-demand fulfillment. From a customer engagement perspective, stores will evolve from their traditional point-of-purchase role to providing a digitally enhanced shopping experience. Imagine physical shelves complemented with digital displays that enable endless aisle show-rooming and mobile technologies to provide frictionless payments and checkout. The nearby regional DC then delivers the orders next day. From a fulfilment perspective, stores have the necessary picking technologies, channel agnostic inventory, and order management capabilities to fulfill same day and next day online orders. Getting the right balance between consumer engagement vs. fulfillment right will be critical if retailers are to turn stores into a source of strategic differentiation instead of an underutilized asset.

Omnichannel role of store

6.  Digital Disruption Tipping Point

Digital technologies such as Artificial Intelligence, 3D Printing, Robotics, and Internet of Things are advancing at an exponential rate. Each has the potential to disrupt supply chain paradigms. The convergence of these disruptors create an even more unpredictable myriad of scenarios.

Consider the following scenario where a consumer’s smart sensor enabled refrigerator informs her iWatch to place a fresh grocery replenishment order, at which time a Watson like app communicates with Google Shopping marketplace and builds a basket by picking from store shelf inventory across two local stores. The orders are then crowdsourced by Google for Same Day delivery. Under this scenario, the traditional retailer has a very minor role in consumer engagement, effectively relegated to holding inventory. Drucker warned that “The greatest danger in times of turbulence is not the turbulence itself, but to act with yesterday’s logic”. Companies must heed Drucker’s advice and adopt a new mindset and non-traditional approaches.

Originally posted on Linkedin 

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