Omnichannel 101

Everything you need to know but were afraid to ask

November 29, 2017
by Bruce Winder & Suthamie Poologasingham

One of the most important changes to the way retailers and manufacturers sell goods and services to customers is what the industry calls omni-channel selling. As its namesake suggests, it involves selling to customers the way they want.

Customers want options to research, buy and receive their products from one or multiple channels (physical, digital, virtual) or touch points (mobile, catalogue, store, online) for a single purchase journey. For select businesses, omni-channel selling provides an opportunity to compete with smart e-commerce retailers and international competition by leveraging your physical presence.

Just as important, there are immense cost savings in omni-channel over the long term. Syncing data in order to communicate with customers and retail staff about product knowledge, pricing, promotions, inventory availability, and so forth enables better decision-making and inventory planning.

Omni-channel as a capability has gained momentum in the US and UK but will be coming to Canada shortly. Retailers will move from single- or double-channel selling now—for example, bricks-and-mortor will add online, online may add a few bricks stores, and most firms will start to leverage mobile. It will be a multi-year journey to complete omni- or multi-channel selling. It can’t and shouldn’t happen overnight.

So what does it all mean for the procurement professional? Take a deep breath and consider the following thought starters.

Process—get ready for some re-engineering
Omni-channel will require you to build new processes as you procure and move product or transact services through new avenues. It’s like adding new stores or warehouses except they behave differently—like playing three-dimensional chess. Take the time to map current state and proposed future state carefully.

Resources—you may need more people
Depending on how many additional channels you add and when you add them, you may need some incremental people to manage day-to-day procurement activities’ steady state. Inventory must be managed in several locations and with significantly different and unknown demand profiles. Returns can be trickier. Omni-channel selling has no tolerance for out-of-stocks, wrong prices or slow response.

Inventory accuracy will be paramount
Because you will be managing inventory in a variety of new and unique channels within different formats, the accuracy of real-time, on-hand inventory is mandatory. Customers will want to know exactly where stock is at any given moment when they are ready to buy. Bin capacities will be smaller in some cases and transit lead times will vary. Companies will soon have rampant out-of-stocks or ballooning inventory if not managed proactively.

A 360-degree visibility of inventory allows retailers to transfer desired stock from one “fulfillment store” to another. Merchandisers are able to transfer out items that are selling poorly at the Toronto store but are in high demand at the Winnipeg location. Customers can also see stock availability and request an item if it is not available at their closest store. This results in less clearance inventory and greater customer accessibility to desired products.

Inventory accuracy starts at procurement and better inventory visibility leads to accurate forecasting and sourcing, higher ROI and lower costs.

Vendors will be expected to do more
Vendors will need to be nimble and flexible with lower minimum order quantities, ship direct to customer capabilities, digital content development and more resources to manage this new complexity. Make sure you bring your key vendors along on the journey as you build this capability. Get their concerns out early and watch for sudden cost increases to offset the effort. They will win too, as your customer engagement increases and sales grow.

Products under management could increase
Have you heard of the endless aisle? Sounds great from a sales person’s perspective but it can be a nightmare for others. You may be forced to add numerous low volume products online. Make sure you push back to keep the 80/20 rule on the table. Managing hundreds or thousands of low volume SKUs burns up scarce time and money on your team and your vendors.

A lot of new data will be available. Make sure to obtain and analyze data in real time to help you forecast future requirements. Data intelligence enables you to make smarter purchasing decisions.

You need to sit at the table in a cross-channel team. Real-time data allows organizations to test out products and stock the “endless aisle” intelligently, cutting back on SKU variations that aren’t in sync with customer purchasing and beefing up the SKUs that are gaining traction.

Retail is detail
If you sell to retail, much of the information once kept in-house is now requested by buyers on the front end to educate customers online and in-store. Online research is a key component of omni-channel selling. This means that data needs to be accessible and understandable. Codes for SKU variations must sync with the meaning. Product X in variation 10010 must be “translated” for consumption by the average consumer and store associate. This not only includes high-level product information but also includes raw material details as consumers and retailers require more information to display in all their channels. Will this information be on a sales tag? Not likely. But it will be available online for customers to look up while they are standing in a store.

Changing manufacturing models
Lastly, a trend that may seem far off but impacts procurement specialists significantly is 3D printing. A few large retailers like Nike and some small ones already offer customization by using 3D technology for insoles of their shoes. Customers and even businesses can order an item in-store and have it delivered to their home, as we see an increase in demand for raw supplies by retailers in order to manufacture closer to the customer instead of in factories abroad. Customization creates a new retail model that will be accelerated by omni-channel selling, as consumers get comfortable with research, buying and receiving products through multiple channels for one purchase. Understanding how raw materials translate into final product can be an advantage to specialists in an increasingly customized world.

Omni-channel, if done correctly, will delight customers but make the jobs of others a little more complex—at least in the short run. Make sure you’re at the table with other leaders within your organization to be part of this new capability build. You may need incremental resources so ensure your business case includes these. Also, negotiate a careful test and learn phase as you start to roll omni-channel out. It will be here shortly, so prepare now.

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