Seamlessly managing business in today’s ever-changing omni-channel environment is a lot like competing in the Super Bowl: It requires a superior level of skill, agility and collaboration to take home the championship ring. Coaches must devise a strategy and reach consensus about their offensive and defensive lines before they finalize the game plan. Yet, once the players are on the field, any number of things can happen—players get injured, the ball gets intercepted, etc.—to disrupt a team’s plan. The team that can react more quickly to these disruptions, and then execute a newly revised plan to score, is the one that wins.
The same is true in business today. How quickly a company is able to see and react dynamically to market trends, disruption, or change in consumer demand is dependent on the agility of its supply chain and the collaborative relationships it has developed with its supply chain partners. Just as a football is rarely carried in a straight, uninterrupted path toward the goal line, getting a product from one end of the supply chain into the customer’s hands requires significant coordination, adaptation and collaboration between all players of the extended supply chain.
Yet, in reality, often little to no collaboration occurs between retailers, manufacturers and their partners because of differing or conflicting business objectives. We rarely see suppliers, manufacturers, third-party logistics (3PL) providers, warehouses, and retailers operate in unison, and the evolution of today’s connected consumer has only amplified this problem.
Consumers’ expectations are higher than ever now that smart technologies have become an intrinsic part of the shopping experience. Increasingly connected via social media, consumers are more informed and influenced by their peers than ever before. These consumers expect a personalized shopping experience—from initial promotion to post-purchase communication—that’s tailored according to how and when they like to shop. They are also willing to pay more for products and services they value, and they expect these preferences to be anticipated and met.
As a result, succeeding in this new consumer-driven environment is not easy. Increased complexity in the marketplace, data overload, fluctuating demand, trust issues and competitive threats are just a few of the challenges retailers, manufacturers and distributors are facing.
The Impact of Omni-channel in Manufacturing
Fearful of being left behind, many companies are embarking on a “me-too” omni-channel game plan, rushing to offer consumers more personalized products and services. The problem, however, is that few businesses are earning a return on these investments. In fact, according to a recent study conducted for JDA Software by PwC, only 16% of companies can fulfill omni-channel demand profitably today.
In a rat-race to address consumers’ ever-changing expectations, companies are paying a high price to sustain or grow their market share. As businesses sell and deliver products across multiple channels, it’s the high cost of fulfilling orders that is eroding margins. Plus, 67% of companies in the study report that their fulfillment costs are growing, not shrinking, as they increase their focus on selling across channels.
One of the reasons behind this increase is the complexity and high costs associated with managing a fulfillment network that is essentially driven by the end consumer. Smaller order quantities (e.g., eaches or cases), more order variants (e.g., a zillion yogurt flavors) and temperamental consumers who now have access to many different shopping channels are all factors influencing the complexity of the supply chain and the new level of coordination required of all supply chain players. According to the study, businesses report their highest costs associated with omni-channel selling are related to handling returns, shipping directly to customers and shipping to the store for customer pick-ups.
It’s no surprise, then, that the need for multi-channel management has created a plethora of planning and distribution challenges not just for retailers, but for manufacturers, wholesale distributors and 3PLs. In the face of increasing competition and rising demand volatility, companies often make ambitious price/product/service offers in order to win the sale—without considering the true cost of fulfilling those offers.
Manufacturers and their trading partners need to work together as collaborative partners to achieve the ideal balance between too much product and not enough. By tightly connecting the planning and execution processes to what is actually happening with demand, inventory visibility is increased and products can more effectively flow through a synchronized supply chain.
To achieve this level of seamless supply chain planning and execution, companies must build a new type of supply chain—the supply chain grid—that will enable them to thrive in an omni-channel environment.