Online Shopping, Omnichannel Retail & the Importance of CX

Consumer e-commerce buying trends are impacting the supply chain. Is your 3PL business ready to handle it?
For years, 3PLs and the clients they serve have put products first. With the advent of omnichannel retail in the past few years, consumer behavior and expectations have changed dramatically, necessitating significant changes in the supply chain.  Now consumers rather than products need to be the top priority.  This requires an entirely new way of thinking and in dealing with products from development all the way through the supply chain to the hands of consumers.

Meeting consumer expectations while still maintaining an efficient, productive supply chain operation can be very challenging.  To do this, you must keep in mind that processes may need to be changed and flexible technology may need to be added.

Over the past 3-5 years, the supply chain and distribution industry has changed more than it has in the past 20 years.  The level of uncertainty makes running efficient, productive operations highly challenging.  To be successful, supply chain operations need to have adaptable processes, people and technology so that companies can be immediately responsive in meeting consumer needs and expectations.

Some of the Consumer-Driven Supply Chain Operational Requirements

  • Multiple, flexible shipping and delivery options:
    • Ship to store
    • Ship from store
    • Ship to consumer
    • Ship to other location
    • Click and collect
    • Traditional retail distribution
    • Drop ship fulfillment
    • Same day fulfillment
 
Some of the Consumer-Driven Supply Chain Operational Requirements
  • Process orders from anywhere (multi-channel)
  • Enable orders for multiple locations (“endless aisle”)
  • Order/delivery visibility
  • Enhanced customer service options for best CX
  • Maintain brand consistency and visibility throughout the CX
  • End-to-end supply chain visibility and collaboration
  • Ability to forecast and respond to demand quickly
  • Ability to handle high volume operations
  • Real time accurate inventory visibility
  • Ability to continually alter business processes whenever needed
  • Access to real time data and analysis for better decision making
  • Processes, systems and technology such as RFID to prevent stock outs
Processes, systems and technology such as RFID to prevent stock outs

The Importance of the Consumer Experience

The supply chain industry is being restructured to align with a faster-paced consumer-driven model.

Here are some insights from “Dynamic Distribution Disruption 2017 State of Retail Supply Chain Report” prepared by Eyefortransport and Convey.  In this survey, 200 supply chain executives in retail and brands were asked questions regarding CX and last mile delivery as it relates to supply chain performance and internal operational decision making.  Consumers’ experience with delivery is often crucial to the formation of an opinion of the retailer and the likelihood of future purchases.

Most retailers indicated that digital technology and consumer expectations have altered the supply chain and technology has helped to expedite the delivery process.  Making the order and delivery process easy and seamless for consumers is of paramount importance.

Optimizing the customer experience requires improving visibility via the entire supply chain and necessitates use of more advanced technology.

Optimizing the customer experience requires improving visibility via the entire supply chain and necessitates use of more advanced technology. 

Knowing exactly when their packages will arrive is very important to consumers and is central to the customer experience.  The use of technology is often viewed as essential to the success of providing a successful CX.  It is also key to enabling efficiencies and cost reduction, crucial to keeping pricing down to meet consumer expectations.

 The use of technology is often viewed as essential to the success of providing a successful CX.
In the omnichannel retail world, because consumers can place orders via so many different channel, orders are generated from multiple systems.  The orders need to be coordinated and fulfilled in a timely, accurate, organized manner.

Omnichannel logistics networks have traditionally been set up in a hub and spoke model rather than the mesh model that enables each channel to interact with all others.  The mesh model is preferable today as it enables data and goods to flow more efficiently.  This helps to create a faster, more flexible delivery grid.  This type of network often can lack the necessary transparency needed by consumers and logistics professionals.  This is due to the fact that there is a constant flurry of activity in various sections of the network and the information may not necessarily be keep up to date in real time or using a single platform.

 

Omnichannel Case Study:  Adidas in Russia

In Russia, Adidas is the leading sports shoe brand with over 1200 stores.  Adidas has been implementing an omnichannel retail strategy that enables consumers to buy online or in the brick and mortar stores any product that is available anywhere in Russia including in distribution centers and warehouses.  Consumers can then have the product delivered at home, to an Adidas store or to a pick-up location.   To  facilitate this omnichannel retail strategy, Adidas relies on RFID identification chips as well as other technologies including “ship from store” tools, “endless aisle” technology, and a digital “click and collect” solution.
Omnichannel Case Study: Adidas in Russia
Their expectations were minimal for the launch of the “click and collect” option.  Adidas anticipated that only a few consumers would choose to purchase online and “collect” the product at a brick and mortar store.  Instead of the 10-20 orders per week they anticipated, Adidas reported that orders reached 1,000 per week.  Because of the large volume, Adidas stopped their experiment so that they could develop the supply chain infrastructure needed to support the demand.  Today, over 70% of their online sales are through click and collect.  By offering more ways for consumers to buy and receive their goods, Adidas has been able to increase sales and profits significantly.  These omnichannel retail strategies include:
The increased rate of delivery resulted in fewer returns and higher sales, up to 40% higher at full price.
Because Russia is the largest country in the world, the distance in shipping goods from one part of the country to another can take up to 15 days using traditional delivery systems.  Shipping from store locations (known as “ship from store”) has enabled Adidas to reduce delivery times and costs and increase sales.
The increased rate of delivery resulted in fewer returns and higher sales, up to 40% higher at full price.  Reducing the number of returns also resulted in decreased logistics costs.
Using ship from store enabled Adidas to reduce delivery costs and minimize transit time to the consumer.  One of the major challenges with omnichannel and e-commerce sales is product returns.  Adidas found that in specific product categories, return of goods was as high as 50% if the purchase was made online if delivery was made within 24 hours of order.    If the delivery time is three days, however, consumers tend to return as much as 70% of the goods.
return of goods was as high as 50% if the purchase was made online if delivery was made within 24 hours of order. If the delivery time is three days, however, consumers tend to return as much as 70% of the goods.
Increasing the speed of order delivery reduced returns and improved logistics costs considerably.

Adidas also introduced another strategy that proved to be successful “endless aisle”.  This enabled consumers to be able to order products that are no longer in stock in their local aisle but that are available in another store elsewhere in the country.

 

Another Complexity:  Increased Product Diversity

 

Maintaining a wide array of goods that cannot easily be shipped together presents major challenges for retailers.  In order to accommodate consumers’ appetite for product diversity, many smaller B2B and B2C market companies have resorted to using drop-shipping services to fulfill orders rather than stocking inventory.

Another Complexity: Increased Product Diversity
Shipping carriers have strict standards for the type of shipments that can be transported on each truck.  This is a conundrum. Shipping carrier terminals were designed to handle specific types of freight.  Because of this, retailers sometimes have to utilize a variety of service providers in order to ship the range of goods they carry.  This introduces new major complexity into the average supply chain.

Why are Omnichannel Consumer-Driven Supply Chains so Challenging?

 

Traditional supply chains operate based on seasoned forecasts that have been honed for effectiveness with years of experience.  Because goods are shipped in bulk quantities to save money, the pace is slower, there are fewer end destinations and efficiency is easier to project.

Instead of processing a smaller number of orders for bulk shipments of goods, the reverse is now the standard.  Companies now process an exponentially larger number of orders, but all to separate destinations rather than to centralized destinations.

For added complexity, there is a much wider range of goods, even for the same type of product, all which must be managed to a near perfect standard to avoid out-of-stock conditions.  Orders come in from multiple channels and consumers want fast turnaround and immediate delivery. Instead of processing a smaller number of orders for bulk shipments of goods, the reverse is now the standard.  

Why are Omnichannel Consumer-Driven Supply Chains so Challenging?

Companies now process an exponentially larger number of orders, but all to separate destinations rather than to centralized destinations.

For added complexity, there is a much wider range of goods, even for the same type of product, all which must be managed to a near perfect standard to avoid out-of-stock conditions.  Orders come in from multiple channels and consumers want fast turnaround and immediate delivery.

It is all tremendously complicated and challenging, and all must be done accurately, efficiently and with an eye to keeping costs under control.

Outsourcing Omnichannel Fulfillment to 3PLs

 

This year, the rate of outsourcing continues to outpace moves to insource.  The 2017 3PL Study reinforced the need for openness, transparency, communication and collaboration as well as for both shippers and 3PLs to be flexible.

Shippers continue to primarily outsource transactional activities including transportation, warehousing, transportation management and planning, cross-docking, inventory management, order management and fulfillment, and reverse logistics.
Outsourcing Omnichannel Fulfillment to 3PLs

Some of the key differentiators of 3PLs, especially in winning omnichannel business include:

  • Technology/IT capabilities
  • Fulfillment capabilities
  • Ability to collaborate with others in the supply chain
  • Ability to provide real time access to data and operations
  • Reporting and business intelligence capabilities
  • Ability to provide a wide range of value added services
  • Operational flexibility and quick responsiveness
  • Exceptional customer service
  • EDI

3PL fulfillment companies now often handle and process goods needed for subscription kits (also known as subscription boxes), a major hit with current consumers.  Many third party logistics providers now market aggressively for this type of business.

 

What are Subscription Kits and What Has Made Them so Popular?

 

From beauty products to crafts, electronics and food, subscription kits and subscription boxes provide convenience and new options for today’s busy consumer.  How did this all start?

Millennials especially eschew long term financial commitments and expensive purchases.  They love the “borrowing” culture. This has led to the development of an entirely new business model:  subscription rental programs.   Examples of these types of companies include:

  • Rent the Runway
  • Fabletics
  • Le Tote
  • Rocksbox
  • Gwynnie Bee
https://letote.com/
Another business model provides a variety of products for consumers to sample and use, directly to the home or business.  Convenience is of critical importance to consumers.  They love sampling goods and testing a variety of products.   Here are some examples of gift box subscriptions that are a huge trend:
  • Birchbox
  • Dollar Shaving Club
  • Vinebox
  • Craft Beer Club
  • BarkBox
  • Sock Panda
https://barkbox.com/

Conclusion

 

Today consumers are more powerful than in years past.  Their ability to shop, buy and ship goods from anywhere, to anywhere using any kind of device, desire for fast delivery and excellent customer service have presented unique challenges for the distribution supply chain.

By implementing new processes and technology and using insight provided by Big Data, supply chain companies to learn to adapt, communicate and collaborate to meet the needs and expectations of consumers.

Omnichannel & the Consumer-Driven Supply Chain: Part One

 

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