Consultants in Logistics

Moving from Multi-channel to Omni-channel Retailing

Moving from Multi-channel to Omni-channel Retailing

What is the difference between MULTI-CHANNEL TO OMNI-CHANNEL RETAILING?

Multichannel retailing is the use of a variety of channels in a customer’s shopping experience including research.  Channels include retail stores, websites, mobile apps, telephone sales, mail order and any other method of transacting.

As technologies develop, forms of customer interaction keep increasing.  Fulfilment options have also increased, beyond either buying in store or home delivery, to include click & collect and the use of manned or unmanned third-party collection points.

Omni-channel retailing strives for a seamless customer experience regardless of order channel and fulfilment option.

RETAIL DISTRIBUTION CHALLENGES

Historically, retail distribution networks have been designed around store replenishment, with the purpose of picking relatively large orders to supply a limited number of stores.

Fulfilment of e-commerce orders alongside store operations creates the following challenges for warehouse operations:

  • The need to accommodate multiple order profiles
  • Increased complexity from managing multiple channels simultaneously
  • Progressive service level expectations
  • The growth of international orders
  • Returns

Multiple Order Profiles:

Order data samples show that e-commerce orders typically tend to be for 1.6 to 2.1 items per order, are shipped to 1,000s of locations.  In the example of one retailer, while e-commerce orders represent just 2% of unit volume these account for 89% of pick tickets generated.

As well as a less efficient pick profile, e-commerce orders require additional packaging and labelling.  The effort per unit despatched increases and with it the cost per unit - often a key warehouse measure.

Picking and moving small product quantities around a large distribution centre can be inefficient which encourages the use of bulk order picking, the use of dedicated internet pick areas, or more mechanisation.

Increased Complexity:

Combining multiple fulfilment processes adds specific complexity to warehouse operations.  For example, sharing stock and other resources between channels requires allocation rules.

Customers generally expect their orders to arrive as a single delivery, for convenience and cost.  In a large warehouse, combining multiple pick items into a single consignment requires co-ordination in pick timing and physical product flows.

Progressive Service Levels:

Customer order lead times are becoming shorter.  For example, Next offer next day home delivery for orders place up to 22:00, or midnight for store collections.  The later cut-off times reduce the pick window which results in a spike in the warehouse workload.  To balance resources with demand and to maximise capacity, warehouse operators smooth the workload over one or multiple shifts by working ahead of the cut-off times.  This now becomes increasingly difficult.

The shorter lead times also remove buffers in the supply chain to cope with operational issues such as system down time, traffic delays, etc.

International Orders:

Internet and mobile ordering increases a customer’s accessibility across borders.  While this increases the potential market for the retailer, it also extends the fulfilment geography, adding complexity around delivery, currency, Customs clearance, packaging and returns.

OPPORTUNITY KNOCKS FOR RETAILERS

While there has been talk of the threat posed by e-tailers to bricks & mortar retailers, the move to omni-channel retailing has given the latter opportunities to use their store network as part of the fulfilment solution through: 

  • Fulfilling click & collect orders centrally and distributing them using store delivery vehicles
  • Fulfilling click & collect orders from store stock
  • Offering local fulfilment and delivery from store stock
  • Processing returns via stores

As fulfilment channels become more integrated, the impact on the overall network of initiatives in each channel needs to be considered.  For example, the benefit of picking e-commerce orders from a store DC is likely to impact the store-pick productivity.  Similarly, the vehicle fill may be affected by adding smaller consignments to the loads.

MATURITY

E-commerce retail fulfilment operations typically follow a maturation process, characterised by physical operations and their support systems, as follows: 

  1. Fulfil orders from a physical store – no systems
  2. Operate online as ‘store’ in warehouse – adapted systems
  3. Dedicated e-commerce operations – specific systems
  4. Integrated operations: mixed fulfilment routes – integrated systems
  5. Physical or systems integration between supplier and retailer

Progressing through these stages allows a retailer to balance trade-offs between capital outlay, capacity required, efficiency, and maturity of the service offering.  As fulfilment operations mature, their capacity increases, and unit costs reduce. Greater levels of automation and investment are often associated with more mature fulfilment solutions.

WHERE NEXT?

E-commerce is, and is likely to remain, a growing part of any business.  As the business develops, so should the supporting infrastructure.  Davies & Robson can help analysing the current and anticipated business profile, develop a future proof fulfilment solution, compare  the new solution against the current infrastructure and develop a migration path.

If you would like to discuss your options and how we can improve the performance of your fulfilment operations please call us on 01327 349090 or contact us.

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