Omni-Channel Strategies Changing The Warehousing Landscape

Inspired-Search | 23 October 2017

Written by: Annemieke Gelder

With the amount of innovation and digitalization around us, these are probably the most exciting times for Supply Chain professionals. In the next series we will discuss a couple of key Supply Chain trends and considerations for your strategic and organizational needs and to shape your next generation supply chain.

 

With the many possibilities of new technology allowing consumers to interact through different platforms, omni-channel has become a reality very quickly. It is now the challenge for companies to establish ‘fit for purpose’ distribution networks to fulfill the demand in this omni environment. The distribution network needs to be closely attuned to creating the best customer experience. Consumers just want to shop to their convenience and as a result we can observe a number of things happening in the market place.

Omni Channel Strategies changing the warehousing landscape

Shifting Consumer Behaviors & Buying Patterns

Shopping patterns are becoming less predictable, as consumers are having more choice on where and when to buy and the online options making the price and product research even easier.

The role of shopping malls and their offering is also changing; not only do they seem to be more empty than ever before, an increased number single branded ‘flag ship’ stores or ‘store in stores’ are competing for the attention of the consumer by offering a ‘value add’ and full brand experience. Showcasing product properties to support the overall decision-making process, especially for high end products, is becoming critical to secure the consumers attention and purchase.

With the increasing relevance and volume of sales happening online (from 10% to 20% by 2020[1] of global sales), it should go hand in hand with the offline experience in a well-defined omni-channel strategy. Omni-channel will require a company wide strategy as this requires a rethinking of how the demand will be fulfilled with the necessary digitalization.

[1] EY report: “EY-re-engineering-the-supply-chain-for-the-omni-channel-of-tomorrow”

 

Challenges for Omni-Channel Distribution

With the omni-channel environment shaping very rapidly, it is very hard for supply chain functions to keep up to re-design and align their distribution methods. The pace of change, it’s digital nature and also the ‘fixed’ nature of the infrastructure of warehouse space and locations could be seen as key challenges.

Warehousing will not disappear, however Inventory Management and the actual use of assets needs to be reconsidered. We can de-construct this by a closer look at the following:

  • Internal warehouse activity changes
  • Inventory management & demand fulfillment

 

Inventory Management & Demand Fulfillment

In a traditional distribution landscape brand owners have set up dedicated regional warehouses to optimize operations locally and to distribute goods in bulk orders to stores based on demand patterns and monthly orders (model 1).

Inventory Management and Demand Fulfillment in Omni Channel environments

Model 1 – Inventory Management and Demand Fulfillment in Omni-Channel environments

Online sales require a different treatment from the distribution point onward; unpredictable demand and individual orders with enhanced packing and labeling requirements, transported and presented to the customer by specialized (local) parcel companies with a core strength in the ‘last mile delivery’ space. The traditional 3PL does not have these capabilities and will need to partner up with local players to make this happen for their customers.

The increased competitiveness demands reduced leadtimes and flexibility to meet customer needs and related delivery costs.

To build an increasingly agile supply chain, we need to move away from the concept that fulfillment will happen from dedicated warehouses. A holistic view on inventory across the supply chain allows for better optimization and fulfillment through exchange or shared capacity. Sharing would create more distribution ‘service points’ and an improved space utilization, fulfillment on a ‘demand’ and promote improved route density for the further distribution.

Another option is to exchange goods and fulfill from a proximate service point (e.g. a retailer) to be back filled in a less urgent timeframe.

Increased transparency and tools on inventory levels by location across all channels and demand patterns throughout the day will become critical. In this new operating model, dedicated warehousing could still be utilized for larger markets, B2B supplies or for products with mandatory country product specifications and the distribution will be designed as per volume and SLA’s with the customers.

 

Warehouse activities for Omni-Channels

Omni Channel drives Warehouse Activity changes

Model 1 – Omni-Channel drives Warehouse Activity changes

Model 1 shows some key differences on the Internal warehouse activity, mostly more labor intense activities.

From a warehousing perspective, online orders will typically utilize more handling space in the warehouse, put a different need on the warehouse design, locations, and handling of inventory as a whole.

In addition to the mentioned sharing of capacity, 3PL’S can also re-think the warehousing operating model as being Inventory Service Points handling flexible volumes for online in mixed warehouses.

 

Organisational impact

If omni-channel is the strategic focus for sales and marketing, then agility and responsiveness in the supply chain design needs to be prioritized too. The rapid development of omni-channel’s front end and the lagging back end sees an imminent need for organizations to restructure and implement an holistic omni-channel strategy that goes across functions to best serve the customer.

It is time organizations get sees Supply Chain and Logistics as a critical function in the battle for the consumer and delivery of competitiveness. The assets and capital intense infrastructure for distribution, specifically warehousing is an essential part of the holistic strategy and could be supported through commercial and technology partnerships to leverage resources and accelerate digitalisation.

Accenture has also done research into the digital supply chains and recommend for the battle on the customer it is essential to leverage digital technologies where the organisation as a whole is considered. An alignment of KPI’s, introduction of new and standardized processes and technology across organizations is essential to drive this agenda forward.

 

About:

Annemieke Gelder has over 16 years experience in end-to-end supply chains across different industries. She is a certified Procurement Professional (MCIPS), Project Manager (PMP) and holds a MSc Business Administration in Supply Chain of the Rotterdam School of Management. She recently set up www.supplydirection.com to channel her learnings and views on supply chain trends, as well help business shaping and improving their supply chain operations.

 

Reading more blogs of Annemieke?

Consider reading her blog: Ready for Block Chain Supply Chain

Ready for Block Chain Supply Chain