The Road to Omni-Channel Retail Profitability

DHL Supply Chain explored this topic in a holistic research study and collaborated with DHL Consulting to assess the implications of digitization on retailing and shopping behavior. This joint-effort led to the articulation of a strategic framework to help businesses build a profitable Omni-channel supply chain model.

Omni-channel – A MUST in Today’s Digital Society

The digital transformation has not spared any industry. The emergence of a powerful, digitally- connected consumer generation, the overwhelming availability of data, and the always-on communication dynamics have pushed many businesses to rethink their operating model, their processes and go-to-market strategies. Retailing is no exception. No other area has seen such a pressing imperative to rethink its core business structure and engagement approach with their consumers – from product delivery to order fulfillment, IT infrastructure, and supply chain capabilities.

What is driving the need for transformation in the retail landscape? Simple – the consumer. Understanding and embracing new buyer behaviors is the first and most critical step in managing this transformational change.

The Change Trigger – New Shopper Generation Setting the Tone

Digitization has empowered a new generation of consumers whose access to endless information through endless online platforms has fundamentally changed their buying behaviors. They no longer confine their shopping activities to store visits. Online shopping has become a primary destination for this generation, which spends a significant time on the net. Today’s shoppers are more informed, sophisticated, and demanding than ever. This shows in their expectations for product choice, personalization, ultimate availability, flexible delivery, efficiency and speed in product ordering. In brief, the power has shifted to consumers: they have become accustomed to getting what they want, when, where, and how they want it. They demand more value and services for their money and take free delivery for granted. It is no wonder that retailers constantly fight for their attention and loyalty.

Here is a critical fact: If a retailer fails to provide the service end of the sale, it risks losing the new shopper generation. This shows the importance for retailers to rethink and evolve their offers, order fulfillment, product, and delivery services to capture and retain consumers’ attention. Fulfilling these needs demands strategic and structural changes. But where does the journey start?

Supply Chain Imperatives for Successful Omni-channel Operations

The external dynamics fostered by digitization challenge existing retail operating models, which are hardly fit-for-purpose to deliver a successful Omni-channel offering. The retail landscape is likely to require a supply chain transformation – not just incremental improvements – to succeed in an Omni-channel environment.

The transformational journey starts with the strategy setting. A clear Omni-channel strategy forms the basis for an effective and efficient Omni-channel supply chain. Whether for a premium brand focused on customer experience or a discount brand focused on maximizing sales volume, this strategy drives the supply chain configuration and operations. Delivery remains a critical driver of customer satisfaction. Retailers must find the right mix and balance of delivery options, whether for home delivery, store collection and fulfillment, or delivery to a pick-up point. Speed and cost are inextricably linked, with cost rising as speed increases. An effective delivery strategy optimizes both service and cost. The inventory strategy is another critical aspect of the supply chain retailers need to optimize or redesign to make it fit for Omni-channel purpose. In addition to delivery offerings, it determines the supply chain network design. Last but not least, the Omni-channel supply chain network is more complex than a traditional bricks-and-mortar network. As a result, retailers have a number of design alternatives to opt for, depending on their inventory management strategy and service speed they intend to deploy.

The Path to Omni-channel Profitability – Not Without a Fully-fledged Strategy

The scope of change required at retail level goes beyond the internal assessment of retailers’ own operating model. Fulfilling shoppers’ expectations requires a fundamental redesign of the overall value chain and a different approach to resource, data, and IT infrastructure management. As such, the path to effective Omni-channel operations and profitability requires sustainable change management efforts to optimize synergies and maximize customers shopping experience.

In the coming month, DHL will be publishing a content series on the topic of Omni-channel profitability with the ambition to guide retailers and their partners through the transformational change process – from strategy articulation to process definition, and decision enablement.

Omni-channel is defined as all retail channels working in concert, from merchandise planning, to assortment planning, purchasing, allocation and replenishment vs. multi-channel where each channel is managed separately, with its own demand forecasts and promotions.