Omnichannel Merchants Shift Closer to the Customer

supply chain illustration

Thanks to their higher lifetime value, retailers are putting more effort into fulfilling the delivery needs of omnichannel consumers. Despite representing only 7% of total customers, omnichannel customers account for 27% of all sales; so they order more and more often than others.

Plus, digital media use before and while consumers shop already influences most in-store sales, and its influence is increasing, projected to influence 58% of all in-store sales by 2022. By embracing an omnichannel model, merchants can improve their chances of remaining profitable while improving the service they provide customers buying in-store or online.

When buying online, omnichannel consumers increasingly demand smaller, more frequent shipments to their doorsteps, workplaces and/or a convenient pickup location, and many will take their business elsewhere if merchants don’t oblige. According to Forbes coverage of a Capgemini study, for example, almost half of consumers say they would stop buying from a retailer that could not provide a satisfactory delivery. On the other hand, 55% said two-hour deliveries would increase their brand loyalty.

As consumer behavior shifts and omnichannel retailing grows, retailers are getting closer to customers to improve service and help ensure profitability. Increasingly, they look to four key areas where shifts can make fulfillment more efficient:

  • Their retail footprint
  • Manufacturer direct shipping
  • 3D print & ship
  • Pickup sites

Retail: Location, Location, Location

On the omnichannel playing field, the greatest challenge for most retailers is deciding how and where they can cost-effectively locate and operate fulfillment centers to meet the new demands and changing expectations of customers. In other words, the struggle for many retailers is figuring out how to reduce costs without compromising delivery.

Gone are the days of shipping in bulk to a distribution center (DC) and from there, replenishing inventory. As Amazon continues to succeed in building fulfillment centers closer to its customers, retailers are trying to replicate that success by using their stores as mini-FCs from which purchases are shipped directly to customers.

For many retailers, that’s a tall order. Why? Because either their warehouse management system (WMS), order management system (OMS), transportation management system (TMS) or all of these systems have not been architected to handle the new omnichannel paradigm.

The solution? Commit to a strategic path forward. Some retailers choose to rebuild from the ground up, but for many this is not practical. Others seek out partners for the resources and on-the-ground expertise needed to effectively offer omnichannel shipping and distribution. Some may ultimately choose not to make operational upgrades in favor of counting on things like a unique product mix to keep them successful, but they risk losing key customer segments, particularly younger shoppers.

Manufacturing: Exploring New Roads to Profitability

As smart manufacturers today understand, the old strategy of focusing on cutting production costs to increase profits has run out of steam. In the growing omnichannel-driven landscape, the more reliable road to boosting profit margins is concentrating on lowering distribution costs.

To do just that, manufacturers will find that understanding – and taking control of – their Net Landed Costs of Goods (NLCOG) can be a simple, yet successful strategy.

Throughout manufacturing, business models continue to shift as the supply chain addresses the growing demand for omnichannel, as well as the inevitability of automation. This is especially true for organizations in the auto industry, which is likely to change more in the next five years than it has in the last 50 because of the advance of automation and autonomous transportation.

As the automation and driverless transportation phenomenon continues to play out, successful manufacturers are laser-focused on unlocking more direct-to-consumer supply chain opportunities. For example, innovative parts manufacturers have begun cutting out the middleman – specialist auto parts distributors (a.k.a. SAPDs) – aiming to supply their customers directly with discounted products and capture the margins currently enjoyed by the SAPDs. Meanwhile, both eBay and Amazon have signed agreements with original equipment manufacturers to provide e-commerce supply chains.

3D Print & Ship: Closer to the Customer

Although distribution has always been, and will likely remain, all about moving atoms, 3D printing is adding an entirely new dimension to the business – providing a revolutionary means of creating products closer to the consumer.

For example, Nike is not only using 3D printers to manufacture some of its athletic shoes, but also licensing print files to their customers.

Electrolux has begun using 3D printers for manufacturing parts on-demand for engineers and repair centers to reduce inventory and distribution costs.

As these and other 3D printing pioneers have discovered, 3D printing not only allows them to drive down their supply chain costs, but ultimately enables them to make products closer to where they need to be – and in the millennial-driven, omnichannel consumer market, that means closer to their customers.

Pickup Sites: Mitigating Last-Mile Misery

Asked what they hate most about the shipping and distribution business, most carriers will reply that it’s last-mile delivery. Why? Because lacking aggregated delivery, it tends to be expensive and inefficient – as well as environmentally unfriendly with a high carbon footprint.

Fortunately, business models are emerging to mitigate these issues. These new models encourage consumers to pick up shipments at convenient locations. This is especially helpful for urban consumers, where drop-offs at apartments and high-rise condominium buildings often pose security and storage issues.

The FedEx Hold at Location and UPS Access Point programs are great examples. At check out, consumers can opt to pick up shipments at designated points including FedEx and UPS stores, and retail outlets. Other examples are DHL’s new trunk delivery program and Amazon’s rollout of 2,000 lockers.

Challenges, Opportunities Abound

Omnichannel delivery presents both significant challenges and substantial opportunities in enterprise parcel shipping and distribution. Leveraging a more comprehensive approach to managing the transportation of parcels can enable companies to overcome the former and seize the latter.

Fueled by younger shoppers, the demand for omnichannel is poised to rise even higher. For enterprises today and tomorrow, the writing is on the wall: Moving closer to the consumer will be a key driver for success.

Ken Fleming is President of Logistyx

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