How to Transform the B2C Customer Experience with Omni

IDC TECHNOLOGY SPOTLIGHT Sponsored by: IBM

How to Transform the B2C Customer Experience with Omni-Channel Order Fulfillment August 2021

Written by: Jordan K. Speer, Research Manager, Global Supply Chain

Introduction Retail is undergoing widespread transformation, driven by the rise in ecommerce, which in turn is prompting changes in store formats and to the evolution of omni-channel business models. All this activity has been accelerated by COVID-19. eCommerce was up 37% in 2Q20 compared with 1Q20 and represented 16.1% of U.S. total retail sales versus just 10.1% for the same period in 2019. Last year, many retailers experienced an increase in ecommerce in a matter of weeks that equaled the share they'd spent the past two decades building. Consumers have flocked to individual retail websites as well as to online marketplaces such as Amazon, Etsy, Houzz, Walmart, and Wish.

This transformation is also being driven in large part by consumers' demand for a wider range of omni-channel fulfillment capabilities for those online orders, including home delivery; store pickup options such as buy online pick up in store (BOPIS), curbside, and lockers; and fulfill from store. These trends were all on the rise prior to the pandemic. However, a variety of factors, including the need for no- and low-contact models, periods of "nonessential" store closures, and the need for greater speed and convenience, accelerated their use. For example, Target reported that curbside fulfillment grew by 700% in 2Q20. Evidence of this shift is highly visible across the nation's store parking lots and storefronts, where bright signage demarcates curbside delivery zones and large signs on entrance doors announce BOPIS availability. Importantly, consumers are now making decisions about where they'll shop based on omni-channel fulfillment offerings as well as their visibility into inventory availability.

Consumers want as much information as possible during the earliest stages of their shopping journeys, not just about the product itself but also about how much inventory is on hand, what the options are for delivery and pickup, and the comparative costs of each. Indeed, 58.9% of consumers said they will likely select another retailer if BOPIS is not offered, and 47.6% said they will likely select another retailer if they cannot see inventory availability before they buy (see Figure 1). The supply chain has truly become an enabler of competitive advantage. To meet demand, retailers must understand what inventory is available to promise and be able to deliver on that promise.

To meet customer demand, retailers must understand what inventory is available to promise and be able to deliver on that promise. Omni-channel order management solutions can help.

KEY TAKEAWAY Omni-channel commerce requires digitally enabled technology and processes; worker connectivity and collaboration; and visibility into and integration among order management, customer service, and inventory fulfillment to link all these processes together to ensure a smooth and happy customer experience.

AT A GLANCE

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IDC TECHNOLOGY SPOTLIGHT How to Transform the B2C Customer Experience with Omni-Channel Order Fulfillment

FIGURE 1: Omni-Channel Models Accelerate Consumers Consider Available to Promise and Fulfillment as Part of the Product

Q How likely is it that you would choose to shop elsewhere if each of the following services were not provided by the retailer?

n = 1,004

Source: IDC's Retail Consumer Insights Survey, September 2020

Consumers' rising expectations for omni-channel fulfillment impact a company's people, processes, and customer experiences in new ways and across multiple touch points. Legacy ways of doing business are not up to the task of managing this level of complexity optimally or profitably. The challenge of balancing customer service (essentially speed, accuracy, and any value-added flourishes that make a brand unique) with profitability has increased dramatically as the number of variables in the equation has escalated. There is also the challenge of achieving balance. Organizations must determine exactly where to place the fulcrum when weighing the many variables that impact the effectiveness of omni-channel communications.

For example, how do you determine which products are eligible to ship, what the related geographical boundaries are, and when it makes sense to relax those rules to please a particular customer? New omni-channel models are putting such questions front and center and driving the need for rapid change in order management, inventory management, and fulfillment. These models require digitally enabled technology and processes; worker connectivity and collaboration; and visibility into and integration among order management, customer service, and inventory fulfillment to link these processes together to ensure a smooth and happy customer experience.

41.1

42.6

47.6

49.1

50.9

58.9

0 20 40 60 80

Offer same-day delivery when buying online

Ability to shop online or in store with the same retailer

Visibility into the available inventory and costs online(pickup, and at which stores, versus delivery) before

hitting the "Buy" button

Options to buy online and pick up curbside

Flexibility to return purchases made in store or online toeither channel

Ability to buy online and pick up in store

(% of respondents)

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Customer Buying Patterns Have Changed: What It Means for Retailers

Omni-channel fulfillment is not new, but it has swiftly accelerated, and it is sticky. Consumers like the convenience. They want to see what's available and where they can get it, how quickly they can get it, by what method, and at what cost to them in both wallet and time. This means retailers must readjust and implement operations and technology to manage the scale and complexity of these changes — or customers will go elsewhere. Omni-channel models of serving the consumer require additional visibility, tasks, labor, and flows that are not built into legacy retail software systems or traditional patterns of operation. When omni-channel fulfillment requests occurred in smaller numbers, a curbside delivery, an in-store pickup, or a service call could be accommodated ad hoc. However, at the scale of today's demand, existing legacy technology and processes are simply not up to the task. They will hamper a retailer's ability to accommodate current customer demands as well as a retailer's agility to accommodate whatever changes the future brings.

What are these growing omni-channel fulfillment offerings, and how are they changing retail operations?

» Buy online, pick up in store (BOPIS). A business-to-consumer (B2C) order management system must be able to see inventory by store to make goods available to consumers and then route any order directly. Workers must be available to pick orders, bag them, stage them for pickup, and pass them to buyers upon their arrival. To deliver the best service requires a mobile-enabled workforce with the ability to see orders, add to them, and accept payment if the customer has not already paid online.

» Curbside (store or micro-fulfillment center). This service mode includes everything needed for BOPIS, with additional scheduling management to provide staff at precise times to wait for customers to arrive and then load goods into cars. Procedures and policies related to worker safety and security must now consider space outside of a retailer's four walls.

» Lockers. With similar requirements to BOPIS, lockers allow for asynchronous operations so that neither workers nor customers are beholden to the others' schedules. Retailers require space for lockers (sometimes including refrigerated units) and must track items that are not picked up and need to go back into inventory, ideally via automated processes.

» Ship from store (SFS). This operation requires labor to pick and dedicated space to pack, but SFS also entails the ability to print labels and ship. On the back end, SFS is more complex than BOPIS, requiring that order management, inventory, and fulfillment systems be fully integrated. It uses rules-based or more advanced artificial intelligence (AI) to route an order to the optimal location for fulfillment, based on variables such as inventory availability, shipping cost, proximity, labor, and opportunity costs.

» Ship from distribution center or micro-fulfillment center. More like traditional warehouse operations, micro-fulfillment centers are cropping up adjacent to their retail facilities or in proximity to large customer bases to enable quick and less expensive shipping or last-mile delivery. Some micro-fulfillment operations (including dark stores) are designed to accommodate curbside delivery.

» Last-mile, same-day delivery from distribution center, micro-fulfillment center, or store. This service requires integration of orders with on-demand last-mile delivery services, whether internal or third party.

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» Drop ship by partner. This service requires integration of order management with supplier or distributor partner inventory and ideally a fulfillment process that selects partner inventory only when that is the optimal choice.

» Direct to consumer (D2C). Many brands/manufacturers that have never dealt with consumers before are now connecting directly. They require front-end capabilities such as the ability to take orders online and to answer consumers' questions.

» Marketplaces. As marketplaces proliferate, businesses require the ability to provide real-time inventory availability to all sites and to integrate orders from all sources in one unified platform that offers a single view of orders and inventory.

What's So Complex About Omni-Channel Fulfillment? Why Is It So Challenging for Retailers?

Customer demands for personalization have extended beyond product to include fulfillment. In other words, as illustrated in Figure 1, the ability to choose the method of fulfillment is now as much a part of the purchase as the product itself. A product SKU used to be the "atom"-level unit that a retailer needed to parse (absent the serialization of each instance of a product). Today, each product SKU can conceivably be divided into smaller units (i.e., the quarks of retail). A little black dress with SKU #A3B898223 is now potentially several different SKUs until it is sold. It is #A3B898223-S if it is bought in the store, #A3B898223-SFS-HD if it is shipped from the store for home delivery, #A3B898223-CB if it is picked up curbside, and so forth.

These types of SKUs do not yet exist in the real world, but they are how retailers must think of product to situate inventory where it needs to be to meet demand profitably. The need to situate inventory from the start is exceedingly complex and hinges on a retailer's ability to understand demand at the product-fulfillment "SKU" level. This, in turn, requires the aggregation of data at the product-fulfillment level from past purchases. Ideally, this data is overlaid with external data affecting future product-fulfillment purchases (e.g., broad demographic trends as well as weather trends that would affect how likely people are to venture out to shop versus selecting a delivery option). Analytical or AI abilities would then crunch all of those factors to provide information that enables the best decisions relative to inventory allocation.

When customers make a purchase online, they are making decisions — before they click the "Buy" button — not only about what they will buy but also about how they will receive or retrieve the purchase. That vastly complicates what retailers must do and know before they expose that inventory online as well as after customers have hit the "Buy" button. Retailers are challenged to:

» Have visibility into inventory to always know where it is across their supply chains, what is available to promise, and where and how it is available to promise.

» Provide an accurate view of inventory availability to customers regardless of where they place orders — in store, online at the retailer's website, or through a third-party marketplace.

» Have visibility into labor to understand what worker labor availability exists to pick or ship from store, deliver curbside, or handle inventory other ways as well as be able to make intelligent decisions about when to use that labor for that task instead of helping an in-store customer, for example.

» Understand when it makes sense to offer inventory online for delivery and when doing so is too problematic or unprofitable.

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» Offer customers visibility into their orders so that they can track their home deliveries, know when their product is ready for pickup, or make changes to their orders.

» Be able to communicate, bidirectionally, with customers at all times.

» Recognize demand and effectively forecast to make decisions about where to locate inventory so that it is close to the customer from the start.

» Factor in multiple variables to make intelligent decisions about the best location from which to fulfill an order.

In short, a retailer requires visibility into and connectivity among orders, inventory, fulfillment, customers, and labor to make intelligent and dynamic decisions about what inventory to expose to customers online, where to allocate inventory from the start, and from where to fulfill any given order. Many of today's retailers have come up short in achieving the visibility and agility they need to manage inventories and fulfill orders effectively and profitably.

For example, some retailers do not have real-time integration among point-of-sale (POS), order management, and inventory systems, which means that a product purchased or fulfilled in store is not removed from inventory until later (in some cases much later). This lack of visibility leaves retailers vulnerable to disappointing consumers who may purchase something online, only to find it is unavailable when they show up at the store to pick it up.

Retailers often use very rudimentary rules for determining from where to fulfill an online order, typically choosing the store closest to the customer to minimize shipping costs and maximize speed without factoring in other variables. Consider a scenario in which a Florida-based customer orders a bathing suit online for two-day delivery. The retailer might automatically fulfill that order from a nearby store in a resort location, where swimsuits are flying off the shelves at full price. Meanwhile, the same SKU sits on the shelf in a Vermont store where historical data suggests that most swimsuits will sell only at steep markdowns. The higher shipping cost of fulfilling the item from further away is outweighed by the profitability of selling it at full price to the online shopper. Retailers need that data to make fulfillment decisions that meet customer demands while achieving or increasing retailer omni-channel profitability.

These are just two of many challenges that retailers face without the automation of real-time data transmission, digital enablement, and integration among systems. Making data accessible across the value chain was the difficulty most often cited by retailers both for enabling an integrated view of store and ecommerce inventory and operations (44.9%) and for fulfillment (42.0%), according to an IDC retail survey conducted in May 2021. The lack of digital connectivity and real-time data stymies the visibility that retailers require to effectively manage and optimize the swift and information-rich business of omni-channel order management and fulfillment.

What's the answer? An effective B2C order management solution working together with inventory visibility and fulfillment optimization can deliver value to a B2C organization that can be measured via key performance indicators (KPIs) such as inventory turns, on-time deliveries, cart conversion, sales per square foot, reductions in customer service calls, omni-channel profitability, and customer satisfaction scores.

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Benefits of Order Management, Inventory Management, and Fulfillment Optimization Retailers require functionality, visibility, speed, and the ability to provide stellar customer service at scale that only advanced B2C management technology can provide.

Implementing modern order management, inventory management, and fulfillment optimization systems gives retailers the ability to minimize errors, speed order life cycles, increase efficiency, and free up labor by automating manual processes. With automation and integration, B2C organizations gain the ability to unify people, data, technology, and other assets, which allows for greater efficiency and optimization. This, in turn, produces more frictionless experiences, with customers receiving correctly filled orders on time. They no longer need to spend time online or on the phone with customer service trying to track down their package or log a complaint about its contents. The decrease in queries and complaints reduces costs and frees up IT and other human resources for value-added activities focused on engaging the consumer. It's a virtuous cycle.

As retailers achieve one set of unified, clean data, they can use analytics and AI to make intelligent decisions that optimize the business across a variety of factors, including inventory, promising, fulfillment, and delivery. As AI learns, it continues to improve its ability to optimize.

Realistically, retailers cannot dump all legacy systems at once (or sometimes at all) because they still require these capabilities. Using microservices and APIs, companies can achieve much of the inventory and fulfillment optimization and customer service capability they require without ripping out deeply embedded ERP systems.

By implementing and integrating modern software systems, organizations gain real-time visibility and the ability to act on events quickly, keeping business moving while making intelligent decisions about inventory and order management and fulfillment.

The integration and real-time flow of information enable a shift from a linear supply chain to a collaborative supply "matrix." This is the hallmark of a modern retail enterprise, where one unified version of orders and inventory is available to all parties that need it in real time and where the location from which to fulfill those orders is selected based on a wide range of relevant variables to balance across and optimize for customer satisfaction and omni-channel profitability.

B2C Order Management and Fulfillment Trends Major trends that will shape the B2C omni-channel market in the next three years include the following:

» Supply chain convergence. The separation between the supply chain and the consumer has narrowed as B2C buyers demand more omni-channel fulfillment options that bring consumers closer to supply chains, requiring that organizations place more emphasis on customer experience at the points where consumers connect, such as last-mile or curbside delivery. All stakeholders, including customers and sales associates, must be enabled with the order and inventory information they need.

» AI. This technology is driving a new age of omni-channel retailing by delivering predictive and prescriptive analytics. AI lends a hand across many decision-making points such as determining the optimal location to place inventory, deciding what promises to make to the customer, choosing the optimal location from which to fulfill orders, selecting which sales associates to assign to which tasks, and picking the optimal last-mile delivery routes to follow.

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» Cloud. Cloud, including both single-tenant and multitenant options, has become the default deployment option in the order management application market. While large enterprises have historically been hesitant to move to the cloud, IDC has witnessed an overwhelming shift in the past year as businesses realize they prefer to outsource hosting, security, and updates. In IDC's Future Enterprise Resiliency and Spending Survey, Wave 5, June 2021, 37.5% of respondents said that having cloud infrastructure to support their data, analytics, AI, and other enterprise intelligence initiatives is the top factor in achieving resilience in the face of COVID-19.

» Continuous shifts in retail models and technology. Shifting consumer preferences combined with supply chain disruptions are having a transformative effect on what items are purchased, how and where purchases are made, and how purchases are received by buyers. While much of the acceleration of omni-channel was driven by the pandemic, omni-channel conveniences are sticky, and consumers say they will continue to use these services. This trend has highlighted the importance not only of accommodating the acceleration in omni-channel shopping and fulfillment but also the need to be agile and responsive to future evolutions and sudden changes as they arise.

» Sustainable commerce. In IDC's September 2020 Consumer Experiences Survey, 39% of consumers said that a brand's sustainability program has a large or very large impact on their decision to do business with an organization. Efforts to achieve greater sustainability by reducing emissions, such as optimizing routing or situating inventory where it needs to go from the start, also lead to greater profitability. Order management systems and fulfillment optimization software will fuel this transition to more sustainable supply chain operations by providing organizations with greater ability to factor these considerations into their decision-making processes. As sustainable commerce matures, retailers will have increased opportunity to draw the consumer further into the process, such as by exposing not only inventory and fulfillment options but also the environmental cost of each.

Considering IBM IBM Sterling omni-channel solutions have supported B2C organizations' order orchestration and inventory management efforts for more than a decade. In the B2C order management space, IBM Sterling enables a wide variety of retailers, such as REI, JOANN Stores, Sally Beauty, and Pandora, to serve the omni-channel needs of customers and deliver on the promises they make.

The company has advanced, microservice technologies for intelligent promising and fulfillment optimization that enhance shopper experiences. IBM Sterling empowers retailers to improve digital conversions and in-store sales while increasing omni-channel profitability.

Key characteristics of IBM Sterling Order Management include:

» Order orchestration. Offers configurable, automated order workflows and an easy-to-use unified dashboard where users can modify, cancel, track, and monitor orders in real-time across channels and the business

» Inventory visibility. Provides a single, scalable, real-time view of inventory and demand across data sources, including insights into global inventory available to promise, inventory thresholds, and supply-demand matching

» Optimized order sourcing. Analyzes orders and business scenarios to identify the best sourcing decisions to balance and improve capacity

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» Physical location experience. Offers in-store product and inventory search, in-store fulfillment flexibility (BOPIS, SFS, ship to store [STS]), cycle count, store pick/pack/ship, clienteling, and omni-channel return capabilities

» Reverse logistics. Manages returns dispositioning, accepts cross-channel returns, and provides visibility into return order status — all to optimize inventory and customer satisfaction while increasing value

» AI-infused execution. Optimizes fulfillment execution and inventory levels, improves cost to serve, and balances fulfillment operations with state-of-the-art machine learning capabilities

» Configure, price, and quote. Provides online capabilities for customers or sales to select, configure, and order complex products and solutions; automates pricing and approval processes

B2C organizations need a solution that can help them focus on their customers with easy-to-configure solutions to create an automated process for friction-free orders and provide them with real-time insight into their inventory wherever it resides in their organizations. The IBM Sterling portfolio supports the needs of B2C organizations looking to better handle the complexity of their supply chains and make order orchestration processes more efficient. Solutions include Sterling Order Management, Sterling Inventory Visibility, and Sterling Fulfillment Optimizer with Watson.

IBM Sterling Intelligent Promising, the newest addition to the IBM Sterling portfolio, offers inventory promising to enable modern omni-channel experiences, from discovery to delivery. This headless microservice optimizes a shopper's journey while maximizing a retailer's profitability.

Sterling Intelligent Promising can help retailers achieve the following benefits:

» Maximize inventory productivity. Retailers can use real-time inventory visibility to confidently expose inventory and maximize conversions, gaining granular control over inventory actions such as safety stock setting based on configurable business rules. They can improve inventory turns by applying additional context such as channel, fulfillment type, and labor availability when making available-to-promise decisions.

» Make and manage order promises. Retailers can boost conversion rates by making promises across every step of the shopper's journey, including the product list page, product detail page, cart, and checkout. The system can automate the review of inventory, capacity, and costs so retailers can make informed promises. The system harnesses powerful AI during fulfillment to simplify complex scenarios such as orders with third-party services and supports a wide range of fulfillment options.

» Optimize omni-channel profitability. Retailers can set operating performance objectives and KPIs using real-cost drivers (such as distance, labor, capacity, and carrier costs) and profit drivers (markdown, stockout) so that they can confidently make the best fulfillment decisions for their business objectives. By optimizing across thousands of fulfillment permutations in milliseconds, retailers balance profitability and the best customer experience.

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Challenges

IBM faces the following challenges in the B2C order management market:

» Market perception. IBM Sterling holds a strong advantage in that it is among the few providers of B2C order management that also has a strong history of success in the business-to-business (B2B) order management market. While IBM Sterling can operate in both the B2C sphere and the B2B sphere, it faces the perception of being a monolithic order management application due to its legacy technology architecture. To address this perception, IBM now offers the Order Management Essentials Edition for small and medium-sized businesses. This edition is based on the same code base as Sterling Order Management but offers a smaller footprint. IBM also makes key business capabilities available as modular business services — such as Inventory Visibility and Inventory Promising.

» Competition. Due to the rise in omni-channel commerce, new contenders have entered the B2C order management space. IBM will need to stay on its toes to remain competitive in the B2C space, where solutions that are easy to operate and configure are even more in demand.

Conclusion IDC anticipates that change in the B2C omni-channel commerce and fulfillment market will only continue to accelerate. Organizations must be prepared to navigate that change while fostering and managing future growth and providing customer experiences that meet and even exceed expectations. Businesses with modern, integrated technology and a digital-first mentality are better prepared to quickly assess and respond to these challenges; they are also more resilient.

B2C organizations should seek out order management, inventory management, and fulfillment optimization systems that are built to handle the complex challenges of today and that can scale to adapt to their customers' needs in the future.

About the Analyst

Jordan K. Speer, Research Manager, Global Supply Chain

Jordan K. Speer is Research Manager for IDC Retail Insights, responsible for covering the global supply chain. Ms. Speer's core research examines how digital technology opens opportunities to better connect and optimize the execution of the end-to-end supply chain from order creation through order fulfillment. Before joining IDC, Jordan was editor in chief of Apparel, a 60-year-old print and online magazine covering the business and technology of the apparel supply chain.

IDC anticipates that change in the B2C omni-channel commerce and fulfillment market will only continue to accelerate.

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The content in this paper was adapted from existing IDC research published on www.idc.com.

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How to Transform the B2C Customer Experience with Omni