Channels -> Distribution
By: Craig Sears-Black, Managing Director, Manhattan Associates
Published: 9th November 2012
Copyright Manhattan Associates © 2012
Online buying has really started to take off in the UK, as evidenced by Capgemini figures that reveal how online sales hit their highest growth this year, recording a huge 17% jump on July 2011 and a 9% increase month-on-month from June 2012. This equated to an estimated £6.5bn spent online (an average of £128 per person), a significant rise on the £5.8bn spent during July 2011. Total growth for the year to date stands at approximately 13%—in line with previous forecasts.
The advent of the multi-channel retailing era has led to increasingly complex interactions with customers. Now savvy shoppers can not just shop in stores, but also browse online, price check using a mobile device, place a ‘click-and-collect’ order or give customer feedback via Facebook. Multi-channel retailers are getting used to consumers doing their research online before appearing in the store to make the actual purchases or vice versa. In many cases, a sale may span several channels before it closes.
This places tremendous pressure on the retailer to support integrated, cross-channel selling. The value proposition for multi-channel sales is to capture the sale that would not occur otherwise because a customer no longer relies exclusively on shopping at a brick and mortar store.
In perhaps a more global context, as retailers move to multi-channel selling and grow to a broader geographic customer base, the natural tendency is to increase inventory levels close to the point of demand. Retailers often gravitate to opening regional distribution centres to minimise stock-outs and satisfy their geographically dispersed customers. They add new layers of software and inventory systems to deal with each new retail channel and track each channel through separate divisions and warehouse systems.
Controlling inventory, being ready to ship on-time and handling a diverse customer base are all far more difficult when using discrete systems for different retail channels. Depending on how resources have been allocated within the company, this can create unanticipated supply chain bottlenecks, resulting in late shipments and customer complaints or supply chain blind-spots where poor inventory visibility results in missed sales opportunities.
Just as customers have no patience for order delays or non-availability, shareholders have no patience for reduced inventory turns, increased inventory investment, and higher working capital costs. Because of these dynamics, the traditional, static way of fulfilling a customer’s order out of the geographically closest warehouse is becoming outdated and traditional inventory systems, not up to the task of effectively and accurately supplying products through the mixed modes of modern retailing, are putting companies at a competitive disadvantage.
Today’s retailers—as well as distributors and manufacturers—need to adapt to the new multi-channel retailing era or face being marginalised or bankrupted. To adapt they need to harness the power of inventory across their enterprise and involve suppliers and logistics partners in direct customer order fulfilment. They must strive to reduce costs across the supply chain without sacrificing order quality and on-time delivery.
Distributed Order Management to the rescue
The answer is to integrate supply chains for multiple retail channels to efficiently meet growing demand. This has been challenging despite promises of integration tools, standards and web services. Today, software solutions have matured significantly and have been deployed to help companies accomplish this by weaving the varied strands of their distribution systems into a cohesive, effective network. The promise is rapidly becoming reality as retailers, solution vendors, and the marketplace gain experience in deploying these solutions.
For example, Distributed Order Management solutions allow managers to combine existing inventory systems and coordinate multiple retail channels by sourcing products from warehouses throughout the world. Effective solutions provide system-wide inventory visibility, sourcing, allocation and delivery scheduling at each stage of the fulfilment process in real time. Using configurable rules, Distributed Order Management solutions can aggregate orders as they are placed, evaluate global inventory and then match demand to supply. An effective solution can provide precise understanding of product demand and backlog for all markets—not just single channels.
Distributed Order Management solutions build on traditional inventory systems such as Warehouse Management solutions that determine the fastest and most efficient ways of shipping a particular order whether they be ‘singles’ for web, mobile and call centre orders or bulk consignments for store orders.
Whilst Warehouse Management solutions enable companies to fulfil orders from a specific facility, Distributed Order Management allows companies to connect their Warehouse Management solution, which manages the supply side of the equation, to equally sophisticated instruments such as planning and replenishment solutions on the demand side. This allows companies to manage the diverse ways customers now have of ordering, while orchestrating higher service levels.
By using Distributed Order Management solutions, companies gain a global view of inventory and an equally broad view of the pathways their customers use. These solutions help companies recognise that not all customers are created equal, and that the end user has many choices about where to shop for a product and where to buy it.
Distributed Order Management solutions take into account the fact that different channels demand different levels of service. Some channels need product faster, while others are less time-sensitive. Failure to meet a “just in time” commitment has different consequences depending on how close it is to the final customer transaction.
Tightly focusing the supply chain on that final transaction should be the goal of every effective retail operation. Distributed Order Management solutions allow managers to do just that by optimising supply and demand without building yet another inventory system. When used effectively, Distributed Order Management solutions become the “nervous system” of the entire retail supply equation.
Ultimately, all customer channels—e-commerce, m-commerce, f-commerce, s-commerce and v-commerce plus and the more traditional channels of physical stores, catalogues and call centres—must be brought together into a fully integrated order and distribution loop through coordinated inventory management, instantaneous communication and rapid response to spikes in demand. While few companies can take on such a monumental project all at once, Distributed Order Management solutions offer a cost-effective alternative to gain most of the benefits full integration can achieve.
Order fulfilment execution will always be the gold standard by which successful companies are measured. Distributed Order Management can help them get there, and stay there—whatever new challenges come along.
Recommendations for Action
1. Cultural Re-Alignment
It is critical to understand that improved inventory management and fulfilment processes must be preceded by appropriate corporate cultural shifts. Before designing, buying, or implementing any Distributed Order Management system, ensure your organisation has been realigned to support overall brand prosperity, rather than the health of any one channel. Corporate incentives and measurements should be driven from brand, rather than channel, profitability.
Once the organisation has been brought together, a cross-channel, cross-functional team must be formed to select and shepherd the implementation of a Distributed Order Management System.
2. Next, Pilot a Subset of Products and Geographic Areas
The importance of pilot programmes as a means of fleshing out gaps in workflow, system parameters, or user expectations prior to full system rollout can never be over-stated. Select a narrow set of products across a narrow geographic area for the first 90 days of implementation and experimentation. If appropriate, let your customers and suppliers opt into this pilot programme, with the understanding that they will be receiving the benefits that have been discussed, such as greater fill rates or multi-channel order status visibility. An end-to-end coalition of the willing will be a key contributor to project success, and involving your customers will demonstrate the win-win results that Distributed Order Management promises.
3. Finally, Move to Full Rollout
With incentives and metrics in place, customers on board, and a successful 90-day pilot complete, it is time to move on to full rollout. Start with requests to product and logistics suppliers to participate in the new program. Brand the initiative to the customer base 90 days after full rollout, to be sure that all kinks have been worked out of business processes.
Posted: 15th January 2013 | By George Pembrey :
This is a fascinating article. I wonder if you would mind giving me some examples of Distributed Order Management solutions in the market, and examples of any retailers who are already doing this?
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