What to think about when you think about omnichannel

Looking to join the omnichannel revolution? Here are some things you need to consider.

By Peter Bradley

Omnichannel has become an omnipresent topic of conversation among retailers and their suppliers. Questions ranging from the seemingly simple (What exactly is it?) to the complex (How do I get there?) abound.

Retailers are seeing an omnichannel strategy as an imperative, driven by the rapid growth of online sales and fierce competition from online giants like Amazon. "Store visits are down, while e-commerce is growing by double digits," says Jerry Koch, director of corporate marketing and product management for Intelligrated, an automated material handling technology provider that works with customers on omnichannel implementations.

Bob Babel, vice president of systems engineering for Forte, a firm that designs and builds distribution centers for its customers in addition to developing warehouse execution software, says, "Almost every customer of ours thinks e-commerce will grow by 10, 25, 30, 40 percent. You can fall behind very quickly."

Consumers, Koch says, have learned to expect a perfect order—delivered on time, where and when they want it, at a price they are willing to pay. Meeting those demands while controlling costs means getting a lot of pieces in order.

That creates real complexities for retailers with respect to inventory management, fulfillment operations, and store management. But the end goal, Koch says, is always the same: "You want to find the best way to delight the customer at the lowest cost to serve."

GET THE INVENTORY RIGHT
The first step to achieving that is knowing exactly what it is you have to sell and exactly where it is. That creates two closely linked requirements—dead-on accurate inventory and clear visibility into it across the entire network of DCs, stores, and even suppliers.

"The first thing you need to think about is visibility to inventory," says Michael Khodl, vice president of Dematic, a supplier of automated material handling and logistics systems. "What that [translates to] is the need for a software system to bring visibility to inventory wherever it exists. I think that's the biggest challenge."

Koch agrees. "You want a view of inventory across all your locations and in the stores," he says.

That's particularly challenging at the store level, where inventory accuracy is typically much lower than at the DCs, Khodl adds. And it's vastly complicated by the fact that it requires not a snapshot, but a real-time view into all of the inventory. That's not easy. "When you bring in the stores, you have a measurement of real time that is different," Koch says. "If I do direct-to-consumer, the inventory I'm going to fulfill from is a dynamic thing. No longer can I be on a traditional plan-execute-monitor-report system. I have to be transaction-based with up-to-date information for each transaction."

A view of inventory alone is not enough. Determining where to position inventory is a crucial part of the strategy development, says Koch. Expand stores' backrooms? Use central or regional DCs? Rely on third parties? Have suppliers fulfill e-commerce orders? Consolidate inventory within a DC or segregate store-bound goods from those designated for e-commerce? All of those questions must be addressed as part of an omnichannel implementation.

But the answers vary markedly. The solution for a fashion retailer will be different from the solution for a general merchandise retailer or a grocer. And even businesses in the same sector will have different issues to address. "That's a philosophy discussion inside the customer's operation," Khodl says.

Koch cites one customer he recently visited that is looking to combine wholesale fulfillment, store replenishment, and e-commerce in its operations, with orders varying from heavy boxes to individual items or "eaches," and without adding new real estate. "That's not an isolated discussion," he says. "It's one playing out among different folks in that circumstance: How do I leverage my assets—the buildings doing fulfillment—and leverage my inventory? The discussions center on what software can help me and how my [material handling] equipment can help me."

DIFFICULT DECISIONS
Developing a strategy for responding to these changing requirements can be difficult. Babel says the major issue for most retailers faced with growing e-commerce demand is the need to bring "each" picking into DCs that previously shipped full cases or split cases to stores. For DC managers, he says, that often means making tough calls, such as whether to add the labor needed for "each" picking or make sizable investments in automated solutions such as goods-to-person systems.

And the question of whether and how to fulfill online orders from stores can be a difficult one as well. For one thing, there's the matter of how to best allocate store labor. Consumers expect fast and accurate shipment of online orders. But a clerk boxing an order in the backroom is not meeting another consumer expectation: service on the store floor.

"How you manage the fulfillment process in the stores is an open discussion, and I think it's often forgotten about," Khodl says. It creates multiple issues for store management—including who will pick, pack, and ship orders; what shipping supplies to keep in the backroom; and how to manage cutoff times. It also raises questions for DCs shipping to stores—such as how frequent those shipments should be. The complexity of fulfilling e-commerce orders from stores has led many retailers to decide not to engage in the order-online/ship-from-store piece of omnichannel.

That's distinct from order-online/pick-up-at-store, in which consumers can have visibility into store inventory and reserve an item, a much simpler piece for store management and one that has rapidly become widespread. But as retailers move toward giving consumers the option to order online and pick up at the store, they should be aware of the repercussions upstream, Babel says. "There are various permutations," he says. It might mean picking from store inventory. Or it could mean boxing an item at the DC and including it in a shipment going to the store. Or it could mean that picking from store inventory triggers a replenishment order at the DC. Whichever way it plays out, filling orders at the store might require more frequent shipments to stores. In other cases, he says, retailers are asking suppliers to manage some e-commerce fulfillment from their facilities. "If you decide to go to servicing e-commerce from a DC associated with manufacturing, that's a big change for the manufacturer," he says.

OMNISCIENT SYSTEMS?
Putting all the pieces together—inventory management and visibility, a fulfillment strategy that has inventory in the right place at the right time, integrating DC and store operations—requires robust systems. Retailers face the challenge of blending multiple systems—corporate enterprise resource planning (ERP) systems, DCs' warehouse management systems, stores' inventory systems—to provide a single view of inventory and then creating a single fulfillment engine. "That's our number one challenge," Khodl says. "It's a data challenge. It's not a fulfillment challenge."

"Systems are evolving toward making decisions dynamically versus having long batching and planning cycles," says Koch.

Referring again to his recent customer visit, Koch says the systems discussion centered on how software should view inventory—as a shared pool for all channels or as a single pool. "Our answer is that you have to look at it as a shared pool that you are going to execute orders against, and you don't care if it's case, "each," direct to consumer, or shipped to the store," he says. "You can plan your execution against it and make your allocations against the same inventory pool."

But that's not universally accepted. Babel says customers vary in how they approach the issue. "We have clients that upon receipt are separating inventory and allocating for the e-commerce business." Others, he says, are having suppliers break down shipments to separate goods bound for stores from those destined for e-commerce so that they're segregated when they arrive at the DC. That option, he acknowledges, may be available only to large retailers with enough clout to demand that service from suppliers.

Omnichannel implementation, retailers have come to understand, allows them to strengthen their hand in the battle for consumer hearts and dollars by taking advantage of assets the big online giants don't have—their stores. Yet implementing the strategy remains a daunting challenge.

"I don't know if anyone has quite figured it out," Khodl says. "Everyone is searching."