Major retail players know that if they want to win in the marketplace, they must provide a seamless and consistent experience to the consumer as they move from channel to channel. But what about the manufacturers? What role do they play in meeting the demands of the consumer?
Over the past few years, the omni-channel discussions have been focused on retailer challenges – IT complexities of poorly integrated systems, limited or non-existent social capabilities, and applications that are not mobile enabled. The focus has also been placed on the front-end functions like marketing, consumer engagement, sales, assortment, pricing, promotion, and customer service. Revamping the consumer experience is certainly a critical success factor in the omni-channel model.
But, let’s talk a minute about omni-supply – the back-end operations that must support the experience and commitment made on the front-end. Omni-channel front-ends create a great deal of complexity on the back-end of the supply chain. To date, very little attention has been given to managing these post-purchase complexities. I think the manufacturers that focus on back-end integration and excel at omni-supply will come out ahead in the omni-channel battle, as it is ultimately execution that brings consumers back to shop. Let’s look at a few examples of omni-channel complexities that manufacturers face:
Some retail outlets have decided to fulfill online orders from their stores. Macy’s and Neiman Marcus are now trying to use in-store inventory, un-utilized space, and store personnel’s “free time” to fulfill orders at stores that are closer to the consumer. Last-mile distribution could be as expensive as the many hundred miles before. By doing fulfillment from the store, they are attempting to make that last leg of the distribution as cost effective as possible by fulfilling it from the closest store. We may be giving them too much credit, though – the move could be an effort to adjust to the new realities of lack of utilization of inventory and space of the brick-and-mortar stores. The impact for brand manufacturers selling through such retailers (e.g. Perry Ellis, The North Face, BCBG, etc.) increases as the requirements to respond to consumer needs multiply. They will have to comply with the retailers’ omni-channel new requirements and also with their own. In the fast moving world of fashion, the promise of next-day delivery from any channel, suggests significant efforts to be made in forecast accuracy and inventory safety stock optmization in order to support omni-supply success.
Small Appliances / Home Electronics
The small appliance sector continues to boom due to consumer appetite to cook healthier and spend more time entertaining at home. Companies such as Hamilton Beach Brands and Sony Electronics have received an interesting boost in sales thanks to such consumer trends. Top-line improvements aside, management of back-end complexities will decide the winner of this market requiring flawless execution on assortment, availability, delivery, returns, and repairs. The physical nature of the products, along with parts and components, force such companies to optimize inventory positions in order to balance total cost to serve. An omni-channel approach will require seamless supply chain forward execution as well as reverse logistics. Visibility through the supply chain, and dynamic calculation of inventory levels at all nodes will become the norm.
The personal care sector is also transforming as it relates to omni-channel. The recent exponential growth of online retailers (e.g., diapers.com, alice.com) has made a considerable dent in brick and mortar store sales. The manufacturers are now faced with an interesting dilemma: do I take advantage of the swing in the balance of power and make a strategic move to reach consumer directly, or do I cheer for the status-quo in order to maintain and leverage my investment in the relationship with existing retailers? The reality is that the manufacturers will be forced to serve a plethora of channels ranging from big box retailers, club, convenience, wholesale, on-line and most recently e-commerce. Sensing mechanisms close to consumption and stocking locations near consumers will become mainstream; postponement of packaging will help to attain the required speed. But, providing an omni-channel experience at the front end is only the start. Executing seamlessly in the back end will prove to be a long endeavor.
Manufacturers must reformulate their supply chain strategies to match this paradigm shift in consumer expectation. A front-end approach to omni-channel is only half the battle. The winners will be those that design omni-supply models to ultimately delivery on their front-end commitments.