It’s complicated. Retailers today are deploying omnichannel capabilities including ship-from-store (SFS), buy online/pickup in-store (BOPIS), save-the-sale, buy online/return in-store (BORIS) and other services that eliminate the traditional wall between online and brick-and-mortar operations. Yet, they struggle to profitably combine their traditional model of transporting bulk shipments from distribution centers (DCs) to stores—which isn't going away—and the much less efficient model of moving “eaches” to fulfill e-commerce orders. The cost-to-serve omnichannel customers can be three times more than traditional fulfillment, according to IBM’s Consumer Expectations study.
Driving this fundamental shift are consumers who increasingly expect retailers to provide one seamless "shop anywhere, ship anywhere" experience, and retailers are in no position to ignore this demand in such a competitive environment.
Take, for example, Eileen Fisher Inc., which operates 50 specialty stores and an e-commerce website featuring women's sustainable fashion apparel, shoes and accessories. Since entering e-commerce, the company was initially managing its online, retail and wholesale businesses as separate financial entities, each with its own inventory management systems.
"We knew our manual processes simply wouldn't scale any further, which was putting the brakes on revenue growth," Keir McIntyre, director of direct to consumer technology at Eileen Fisher, explains in a case study. "We set out on an omnichannel retail transformation—and we started our search for a world-class order management system (OMS)." Eileen Fisher subsequently selected IBM Order Management, as well as IBM Store Engagement and IBM Call Center.
McIntyre saw global inventory visibility as the first capability the OMS should enable, and that first phase was completed within six months. "Although our work with the platform is just beginning, feedback from the business has been extremely positive," he says. "We're confident that we will see an improvement in productivity and an increase in customer satisfaction."
The greater the optimization, the greater the impact
As Eileen Fisher moves down its OMS implementation path, it will realize incremental benefits, as retailers preceding it are proving.
"The more optimized capabilities a retailer offers, the greater the benefits it receives from each capability," according to "Put fulfillment at the heart of the customer experience," a Forrester Consulting thought leadership paper commissioned by IBM.
To come to that conclusion, Forrester surveyed 300 omnichannel fulfillment decision makers at retail and electronics organizations in North America and Europe. Based on the number of omnichannel fulfillment capabilities they had optimized, respondents were split into two groups—higher-optimized and less optimized—of 159 and 141 participants, respectively.
Higher-optimized companies were up to four times more likely than less optimized ones to report a large positive impact on their revenue from individual capabilities. For example, 38% of higher-optimized organizations saw a positive impact from BOPIS, in contrast to only 15% of the lower group, and 54% of the higher group saw revenue gains from SFS, versus 33% of less-optimized organizations.
Survey participants were asked how various omnichannel capabilities affected customer satisfaction, and respondents in the higher-optimized group were as much as 2.2 times more likely to report a large positive impact. BORIS, for example, had a large customer satisfaction impact for 56% of companies at the higher-optimization level and for just 25% of those less optimized.
Whether they were highly optimized or less optimized, Forrester survey respondents tended to use similar Key Performance Indicators (KPIs). These included customer satisfaction (50%), profitability (47%), the cost of doing business (44%), sales/new business (43%) and brand position (41%).
For each KPI, though, those at the higher-optimization level were up to twice as likely to see a large positive impact. For example, 58% of the highly optimized saw a large impact on customer satisfaction, versus 36% of the less optimized, and 48% of the hghly optimized reported a large impact on sales/new business, twice the percentage of the less optimized (24%).
Advanced capabilities empower stores and the HQ
Not only does the path to omnichannel supply chain implementation have multiple steps, but it also has multiple stages, according to "The Omnichannel Maturity Assessment" developed by Forrester. Once a retailer is comfortable with its execution of the capabilities mentioned earlier—SFS, BOPIS, save-the-sale and BORIS—it can begin providing advanced capabilities that connect customers to a fuller range of offerings provided by the retailer, sometimes in tandem with select service partners.
Many retailers sell products that require services, such as wireless plans for smartphones or delivery and installation for a washer and dryer, points out Jeff Geoffroy, global product marketing manager for IBM Watson Supply Chain. Logistical issues in scheduling these services can make a customer balk and delay a purchase; once customers walk away, there's a risk they'll buy the products elsewhere.
With technology tools to handle such details, store associates have a greater chance of closing the sale and delighting the customer, and the retail enterprise can gain a significant advantage over the competition as it becomes known as a one-stop-shop for customer convenience. The retailer can also allow customers to go into their online profile or contact the call center to check the status of their orders and make changes as necessary—eliminating more obstacles to completing the sale and reducing returns or cancellations.
Even more important from a financial perspective is the ability to optimize every order with an advanced OMS powered by Artificial Intelligence (AI), such as IBM Watson Order Optimizer, Geoffroy emphasizes. Multiple factors come into play when fulfilling an order, and they can all change from moment to moment. Watson Order Optimizer provides the retailer with a real-time, omnichannel view of all fulfillment parameters and potential inventory locations, so every order can move as efficiently as possible.
For example, fulfilling an online order from a local store might typically be more cost efficient than using the e-commerce DC, but that could change if there's a snowstorm or a highway closure. In another situation, there could be a store in a different region of the country that is about to mark down that product 50% to get rid of it, so shipping it from that store to sell it at full price to the e-commerce customer could be more profitable.
Manual processes just cannot keep up with the details involved in fulfilling millions of unique orders profitably, Geoffroy adds, noting that AI can review and make choices almost instantly and learns faster when it has more data to work with.
There is a broad horizon ahead as OMSs become "a central lynchpin in a strategic, omnichannel distribution world," according to "IDC MarketScape: Worldwide Distributed Order Orchestration for Enterprise Retailers 2018 Vendor Assessment."
"Order orchestration across distribution points has become a competitive necessity in today's retail landscape," observed Victoria Brown, research director, IDC Retail Insights, in the report. "No longer is it acceptable for retailers to make do with inventory as it is placed."