Nicholas BudzynWilkes University

MBA 592April 16, 2016

The Evolution ofOmni-Channel Supply Chain

Agenda• What is Omni-Channel Supply Chain?• Supply Chain Strategies – Past to Present• Customer Service• Technology• Distribution

• Omni-Channel Implementations• Challenges Experienced• The Future of Omni-Channel Supply Chain

What is Omni-Channel Supply Chain?

• “A Multi-Channel approach to sales that seeks to provide the customer with a seamless shopping experience whether the customer is shopping online from a desktop or a mobile device, by telephone, or in a brick-and-mortar store.”

What is Omni-Channel Supply Chain?• What does that mean?

• Online shopping to In-Store to Mobile experience

• Why Is it important?

• Where did it all begin?

Customer Service• 2003 – Best Buy • Couldn’t Compete with Walmart Prices

• Changed Their Strategy• Recognized Flaws in Walmart• Opted to Capitalize

• Developed Concept of Customer Centricity

Customer Centricity• “Becoming customer-centric means looking at an enterprise from the

outside-in rather than the inside-out — that is, through the lens of the customer rather than the producer”

• Best Buy Looked to Understand their Customer• Realized the demographic & What they wanted

• Best Buy began catering to the wants of theCustomer

Customer Centricity• Started creating Bundles• Worked with various Vendors and Merchandisers

to coordinate distribution of congruent products

Internet Impact on Customer Service• E-commerce strain on customer loyalty• Fostered a less engaging way for customers to interact

• Ability to Track customer preferences• Data can be used to maximize profitability

• Development of loyalty programs

• View Customer engagement through lifecycle

Social Customer Relations Management• Introduction of Mobile Social Media• Social Interaction

• MySpace• Facebook• YouTube• Twitter• Instagram• SnapChat

• New Strategies must constantly be developed to stay with the current trends

The Amazon Effect• Amazon Changed the expectation of Customer Service• “Rule Number One: Don’t just listen to your customer, understand them.”

• Allowed Customers to post real reviews of products and Interact

• Single-Handedly changed consumer behavior in regards to the “Want-it-now” mentality• Amazon Prime challenged conventional wisdom related to shipping costs and

lead times.

Technology Impact on SCM• The internet is a Key Component that changed the Game in the

design of Supply Chains.

• The Internet, and the communication fostered several SCM Benefits:• Reduction of Costs• Allowed intra- & Inter-business collaboration• Improved forecasting and planning• Reduced lead times• More efficient Product flow through manufacturing

Technology Impact on SCM• Integrated Systems have been designed to work hand in hand with

stores and DCs to maintain inventory.

• Collaboration between businesses was a challenge.• Fostered the need to trust• Willingness to allow other businesses to see vital information

Evolution of Consumer E-Commerce• After the “dot-com” bubble collapse,

Businesses that employed the right Strategies started to thrive in e-commerce.

• The world of online sales exploded over a 10 year period

Evolution of Consumer E-Commerce• In 1998, e-commerce sales

accounted for $8B• In Q4 2000, Sales reached 1% for the

first time• By 2002, $54 Billion in Sales• Increased 25% annually from ‘02 –

’07• Sales of $165.9 Billion in 2007• 306% Increase

• 2008 Economic Crisis, Online sales still increased 6%

10 Years Ago...

Introduction to Mobile Devices• iPhone introduced in 2007• Changed retail world forever

• Started the next big step in the evolution to Omni-Channel Supply Chain

• Offered Internet accessibility and Apps

The Amazon Mobile App• Introduced in the Fall of 2011

• Allowed Shoppers to scan a UPC and check prices immediately

• Offered opportunity to research product on the spot

• Encouraged consumers to use Brick-and-Mortar stores as showrooms and then purchase online.

The “NEXT” Amazon Effect• Caused such commotion that retailers considered installing Signal Blockers or

banning the use of smartphones• Forced Retailers to update “Price-Matching” policies • Put the power back in the hands of consumers... Literally.• Fostered the next step in Omni-Channel Supply Chain

• Price Transparency• Inventory Integration for consumer visibility

• Customers can see product availibilty

• Initiated Apps for retail stores to compete with Amazon• At this point, Omni-Channel became a part of Corporate Strategies

The Move to Multi-Channel Distribution• As the internet and e-commerce came on strong in the early 2000s, Supply Chain

designs needed to adapt.

The Move to Multi-Channel Distribution• Multi-Channel supply chain design involves the same functions as Omni-Channel.

The way they operate is different.• Multi-Channel Supply Chain Designs operate in Silos.

• There is no interaction between channels.• Channels operate as independent business units.

• Very Successful, and needed in the beginning, but ascustomer demands changed, the model becameinefficient.• Threatened other aspects of Omni-Channel design

• Customer Service

Multi-Channel to Omni-Channel• Customers were not satisfied with Multi-Channel• The evolution of Technology and the importance of Customer Service have led us to

the change in Supply Chain distribution.• Distribution from warehouses to retail stores and even direct to customers was never

time sensitive. • Deliveries took weeks to fulfill, this was the norm.• Replenishment product to stores was scheduled and usually not very time responsive.

• The ability to integrate e-commerce segments into the supply chain had to happen.

Multi-Channel to Omni-Channel• Logistics systems had to be developed to offer the communication

between distribution centers, stores, and customers.• The ability to react and respond at to meet customer demand changed

distribution.• Out of Stock Products in stores meant that Concumers could buy via mobile app from

Amazon

• Direct-To-Customer Channels had to be absorbed into DCs to expedite processing.• Reverse logistics flows had to be available in any channel.

Multi-Channel to Omni-Channel• This transition was expensive.

• Technology Costs• Need for more Distribution Centers

• The focus behind all was to increase the ability to service the customer timely and seamlessly.

Transparency and Fulfillment• Distribution systems needed to be increasingly efficient as technology evolved.

• Consumers wanted to be informed each step of the process.• Consumers have become more and more impatient.

• From the moment the order is placed, Consumers want to see the progress.

• While technology and customer service may be the driving factors to facilitate Omni-Channel Distribution, they mean nothing if the distribution operation can’t fulfill the customer expectations.

New Plans for Distribution• DCs are Cost Centers.• Proper Planning is the key to reducing costs

• Location, Location, Location!• Specialization• Internet Fulfillment Centers• Final Mile Distribution

• Specialized DCs extend Supply Chain design to allow faster, better service to their customers.

Successful Implementations• Walmart was late to the party, but quickly took over.

• Didn’t have a real online presence until 2011.

• The Execution and Integration were flawless.• Took advantage of being “Everywhere.”

• Technology integrated with network suppliers allowed for efficient forecasting and transportation• Walmart has been providing suppliers their technology for years to allow for seamless integration

and communication.

• Utilizes all 11,000 stores as fulfillment centers to enhance customer service.

“This isn’t a project, it’s about the future of our company” – Neal Ashe, President of Global e-commerce

Successful Implementations• Home Depot completely redesigned their Supply Chain Network over

past 7 years.• Embracing Omni-Channel Supply Chain.• Recognized need of customers to see product availability and product research.• Allowed for store inventory integration with other stores as well as DCs.• Restructured and built several new Rapid Deployment Centers

• Utilizing Crossdocking as primary function to flow product to stores quickly, same day as receipt.

• Home Depot recognized that a large majority of in-store sales begin online. They want to take advantage of the transaction no matter what form it comes in.

Successful Implementations• Sephora has taken Omni-Channel Supply Chain to the next level with

technology.• Utilizes mobile apps to incite interaction and incentivize store visits.• Loyalty Programs• Push Notifications – for Birthdays; store events; flash sales

• Took advantage of an “Amazon Prime”-like promotion – “Flash”• Pocket Contour App• Utilizing Omni-Channel experience to develop Customer Loyalty.

Omni-Channel Failures• Barnes & Noble • No Integration between Channels

• Blockbuster• Failed to see importance of Customer Service and Online Integration

• Target• Failed Distribution Network & Logistics System• Failed Customer Service

Challenges within Omni-Channel Supply Chain• Customer Service• Failing to see the need

• Business needs overrode customer needs

• Failing to React

• Failing to integrate distribution channels

• Movement to ban smartphone use• Trying to keep customers in the dark

Challenges within Omni-Channel Supply Chain• Technology• Companies failed to get on board with e-commerce and were left

behind.• Failure to update communication tools• Capital Costs

• Not cheap to overhaul internal operations systems• Continual Upgrading and evolving

• Stay up with the trends

Challenges within Omni-Channel Supply Chain• Distribution• Capital Costs

• New Distribution Centers aren’t Cheap.• Transition from Multi-channel to Omni-Channel

• Failure to integrate the channels• Ability to react to expedited consumer demands

• Archaic distribution schedules and plans failed• Failure to compete with Amazon’s delivery lead times

• The Cost of Business• Only 19% of the top 250 retailers stated they can fulfill Omni-channel

demand profitably.

The Future of Omni-Channel Supply Chain• Business Trends provide a strong pathway for the direction we are

headed.

• Customer Satisfaction will Continue to drive Omni-Channel Evolution.• Customers want products faster... And faster.• Customers continue to grow more and more volatile. • Unhappy Customers will move on – Lots of Alternatives available

The Future of Omni-Channel Supply Chain• CEOs were asked to predict which segment would own the

Omni-Channel fulfillment Strategy and investment over the next few years:• 27% - Head of eCommerce• 26% - Head of Supply Chain• 25% - CEO

• The success of Omni-Channel Supply Chain resides in ALL aspects of the operation

The Future of Omni-Channel Supply Chain• Everything comes back to Customer Service• Customers Expect to be recognized and pampered.• They will switch loyalty for the smallest of added perceived value.

• Purely Online players will force Brick-&-Mortar operations to link Omni-Channel Strategies into competitive advantages.• Utilizing available in-Stock product in vicinity of customer• Same Day Deliveries• Take advantage of “Want-it-now” consumer mentaility

The Future of Omni-Channel Supply Chain• Retailers will utilize technology to enhance Shopping experience.• Interactive – experiential kiosks in stores• Virtual Reality experience

• Lowe’s Holoroom• Use of Tablets in the retail workplace

• Point of Sale devices• Take Advantage of the moment of customer engagement and capitalize on the sale

• Technology within the operation will need to advance• Many retailers are still using decades-old merchandise planning systems

• Fail to address new Omni-Channel Problems• Upgrading systems will be crucial to survival

The Future of Omni-Channel Supply Chain• Technology advances in delivery opportunities• Amazon, Google, and Walmart have all piloted “Delivery Drones”• Same day delivery

The Future of Omni-Channel Supply Chain• Distribution Facilities will need to become more responsive to consumer

demands• Expedited Processing• More predictive planning tools

• Less out of stock products

• Reduction of Costs • Becoming more efficient in operation• Profit Margins are becoming smaller

The Future of Omni-Channel Supply Chain• Utilizing Retail Stores as fulfillment hubs• Offers faster delivery lead times• Opportunity to take advantage of same day deliveries

• Faster Distribution is Expected• Amazon is already testing “Two Hour Delivery” in specific markets with certain

products.

Conclusion• Omni-Channel didn’t truly exist 10 Years ago, it is still in it’s infancy.• Customer Expectations have changed, and will continue to.• Omni-Channel Supply Chain will need to continue to evolve and adapt.• An Organizations implementation could direct the future of the company.

• Omni-Channel Supply Chain is not going away.• 71% of CEOs feel that the success of Omni-Channel Supply Chain is the Top Priority in their business.

Conclusion

Companies that provide the best customer experience and deliver the right products, at the right time, and in the right quantities and condition, will build customer loyalty. This will determine the winners in the new Omni-Channel world.

- Kelly Reed, EVP Tompkins International, Supply Chain Consultants