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Home>Resources>WhitePapers>RethinkingRetailFulfillment:DrivingOmniChannelProfitability

WHITEPAPER

RethinkingRetailFulfillment:DrivingOmniChannel
Profitability
ByAlanFreeman,SeniorManagerSupplyChainCenterofExcellence,TCS

Customerstodayexpectretailerstoknowtheirpreferences,provideshortleadtimesandnot
chargeexcessivefees.Theretailersvisionistomeetallofthesecustomerexpectationswhilst
optimizingprofitability.Thismeansdynamicallydeterminingthebestflowpathforeveryorder
byconsideringfactorssuchascosts,serviceexpectations,inventorystatus,pickingcapacity
andcustomerpreferences.

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Achievingdynamicomnichannelfulfillmentrequiresaseriesofbuildingblockstobeinplace,suchasenablingasingleview

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ofcustomers,ordersandinventory.Theeverdecreasingordertodeliverycycletimesrequireinventoryintegrationanddata

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flowstoberealtime,asbatchbasedupdateswillnolongerworkinsuchanenvironment.Inaddition,theallocationrulesfor
ordermanagementneedtoaccountforthecostsassociatedwitheachflowpath,whichcanbedeterminedonthebasisof
accuratecosttoservedata.
Ordermanagementpackagescontainarulesengine,supplementedbyrealtimeintegrationtoinformationsuchasinventory
statusandcapacityutilizationatpickinglocations.Usingexistingbrickandmortarstoresmaybecosteffectivebut,for
example,groceryretailerscannotaffordtolimitaccesstotheshelvesforinstoreshoppersonaFriday,justtomeetthe
influxofeCommerceorders.
Existingordermanagementtoolswillnotdynamicallyoptimizeprofitability
Ordermanagementpackages,however,havetheirlimitations.Insomecases,theremaybeotherfactorsinvolvedin
determiningtheoptimalflowpath.Forexample,usingslowmovinginventoryinaretailstoretopreventmarkdownevenif
thepurefulfillmentcostsarehigher.Thereisaneedforasolutionthatscorespossibleflowpathsacrosschannels,based
notonlyonthecostoftheflowpathbutalsootherrelevantfactorssuchasinventoryandcapacity.
Theoptimalflowpathmaybewithinthesamechannel.Thismeansthecustomerisunconcernedaslongasservicelevelsare
met.Ontheotherhand,ifthecalculationsdetermineascorethatdoesnotmeetcertaindefinedcriteria,achannelshiftmay
becomeattractivetotheretailer,suchasincentivizingthecustomertocollectinstore.Toenablethisshiftinchannels,the
calculationsneedtooccurinrealtime,allowingthecustomertoreceiveanattractiveoffertomovechannels.Figure1
illustratessuchascenario.Theincentivecouldbeanelectronicmoneyoffcouponthatissenttothecustomersmobilefor
useinstore.Theorderfulfillmentcostsarenowrepresentedbythevalueofthecoupon.However,thisisbalancedagainst
theassumptionthatcustomerscollectingonlineordersinstorewilloftenmakeadditionalpurchases.
Heresanotherexamplerelatedtoleadtime.Thefixedchargesforspecific
leadtimeofferingsdonotreflecttheprofitabilityofeachorder.By
determiningthescoreforeachflowpathandcomparingitwithdefined
criteria,acustomercouldreceiveanappropriateincentivetoconsidera
differentleadtime.Fromafulfillmentperspective,theproposedleadtime
maybemorefavorabletotheretailer,asitopensupanopportunityto
enhancecapacityutilizationatthepickinglocation.Similarly,ifcertain
homedeliveryslotsreachcapacity,anappropriateincentivecanbeused
totrytokeeptheorderandallowthecustomertoselectanalternateslot
or,ifavailable,usetheclickandcollectservice.
Aclickandcollectcapacityissuecouldbesuboptimallyresolvedby
pickinginanearbystore.However,thescoringmechanismmaycomeup
withalternatesolutionssuchascollectattheadjacentstoreorchoosean
alternatecollectionslot.Anincentivecanbeissuedinrealtimeinsuch
casestoencouragethecustomertoshiftthedemand.
Omnichannelfulfillmentbringstogethersupplychainandcustomer

Figure1:Evaluationoffulfillmentoptionsin
realtime

marketing
Determiningtherighttradeoffbetweensupplychaincomplexityandthecost,leadtimeandordercutoffofferedtoa

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7/26/2015

RethinkingRetailFulfillment:DrivingOmniChannelProfitability

customeronlinerequiresthedevelopmentofsimulationmodels,tobereviewedbybothcustomermarketingandsupply
chaintodeterminetheoptimaltradeoff.Asimilarexerciseisrequiredtodeterminetheavailableincentivesaswellashow
andwhentheyshouldbetriggered.
Theflowpathdeterminationdecisionsareavitalsourceofmanagementinformation.Ifordersneedtobesplitbetweentwo
sourcinglocations,isthisbecausenotallorderedarticlesarerangedintheoptimallocation?Orcoulditbeduetomaster
dataerrors,inventoryaccuracyproblemsortargetinventoryissues?Itcouldbeduetospecificlocationscontinuallyreaching
capacity.Capacityissuesforaregionmaybealleviatedbysettingupadarkstore,alocationdedicatedtofulfillingonline
orders.Capacityissuesmayalsobemitigatedbyinvestingininstorefulfillmentcapabilitiessuchasusingthespacefreedup
inbigboxbricksandmortarstoresbythemigrationofcustomerstoconvenienceshopping.Thisapproachcanbeaddressed
withthehelpofsupplychainsoftwarethatoffersdedicatedstorefulfillmentfunctionality.
LeveragingBPMsolutionstosupportdynamicomnichannelfulfilment
Itisclearthatthereisvalueinaddingdemandshiftingtothefunctionalcapabilitiesofferedbyanordermanagementtool.
BusinessProcessManagement(BPM)softwareiscapableofrapidlyprocessingsignificantvolumesofdata.When
supplementedwiththemorerecentcapabilitytoincorporaterealtimeactionabledata,BPMtoolscaneffectivelyaddress
dynamicomnichannelfulfillmentrequirements.Inaddition,BPMtoolshavearelativelyrapidimplementationcycleand
incorporateanalyticswithdashboardstoidentifyactionabletrendsandopportunities.
Retailersthatadoptdynamicomnichannelfulfillmentcanminimizecartabandonmentandoptimizeprofitabilityby'shaping'
demandinrealtime,usingcostedflowpathsalongwithrealtimedatasuchasinventoryandcapacityutilization.
Withcompetitionbetweenretailersdrivingevertightermarginsandomnichannelgrowthshowingnosignsofabating,itis
theretailerwhomatchesservicewiththeoptimizationofomnichannelprofitability,thatwillbebestplacedtothriveinthe
newretailenvironment.

TCSRetailForumJournal
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TheVisibleSupplyChain:ServingCustomersTeppanyakiStyle
OmniVisibleInventory:PathtoAchievingOmniChannelLeadership
RethinkingRetailFulfillment:DrivingOmniChannelProfitability
FulfillingtheOmniChannelPromiseTimeforaWMSRenewal
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