Why omni-capable supply chains are needed in a changing customer world

In the fallout from the pandemic, organizations are asking challenging questions about the nature of how they fulfill expectations from customers — even if they don’t sell products directly to them today.

The latest customer preferences include dramatic increases in home delivery or in-store pickup for online orders, adding supply chain complexity for retailers, whose inventory management systems may not be up to the task. Separately, brands and manufacturers are reconsidering whether they should sell directly to consumers online, alongside their traditional sales partners — or even open their own stores and grapple with retail inventory management.

These brands and manufacturers, even in sectors such as chemicals or medical devices, realize that they are surrendering vital data to middlemen about their customers — hobbling efforts to innovate and better meet their needs through new products, services and enhancements. Even worse, they may be gaining a short-term boost in sales on leading global online marketplaces but potentially losing their business entirely, as the data gives sellers a blueprint to offer their own private labels.

For all these enterprises, the solution lies in becoming “omni-capable,” an evolution of the omni-channel fulfillment strategy: to be able to deliver a product and accept it as a return, whether from brick-and-mortar stores, regional distribution centers, e-commerce sites, third-party networks or any other node in the journey to the end customer. Achieving this, with ambidextrous flows, will be table stakes for delivering optimal customer experiences. Retailers and manufacturers interested in direct-to-consumer share the same goal, even if they’re approaching it from different angles.

While many hurdles exist in building agile and omni-capable supply chains, new tactics and technologies offer methods for moving forward more confidently.

The business case for change

Many organizations struggle with inventory management. Distribution centers typically have a level of rigor around tracking how products move from one place to another, but those controls are loose in retail locations. Without this visibility into inventory, companies struggle to leverage their network effectively and efficiently across domains — leading to stockouts and split orders for customers, and creating pressure to build e-commerce fulfillment facilities that can cost tens of millions of dollars. Some networks also lack adequate coverage and remain too distant from end customers.

Meanwhile, the lines between retailers and the brands they sell have become less distinct. Some brands, particularly in apparel and home appliances, have been opening their own flagship stores and e-commerce sites, sometimes pursuing M&A and partnerships to gain needed customer-facing capabilities. It’s an opportunity to gain more information about their shoppers, particularly as the web increasingly becomes the go-to source for purchases.

This data is an asset in its own right, and e-commerce giants can use it to pick off low-hanging fruit for themselves: the underserved or simple, high-margin product categories where manufacturers may be struggling to meet basic customer service expectations. Today, manufacturers high up in the value chain that never marketed directly to end customers are seeing data-driven e-tailers strip off such business for themselves.

Regardless of their starting points, organizations today must be relentlessly focused on shaping a cost-effective supply chain that meets consumer expectations and offers regularly updated inventory visibility. In doing so, they can also potentially spend less on fulfillment while better understanding how to orchestrate their ecosystem of suppliers and partners, as well as how to adjust operations to ensure business continuity.

Making the change

Today, some retailers have split their inventory between e-commerce and brick-and-mortar channels, without integration. Some brands making their initial direct-to-consumer steps are putting products up for sale just through e-commerce. While these could be useful as stopgap approaches in difficult circumstances, they are not fit-for-purpose over the long term for optimal customer experiences or operational agility.

In the short term, retailers can gain more visibility by carrying over inventory-tracking controls from their distribution centers into their stores, which are the primary blind spots. Without such controls, products are sold in person, and inventory levels fluctuate without the clear, frequent updates required for agile and omni-capable supply chains.

But today, all organizations — whether they’re building out new capabilities or optimizing existing ones — should be considering more transformative efforts:

1. Adding distributed order management (DOM) software to your systems

Such software brings together internal and external data sources and looks through your network when each order comes in, from any channel. It examines where existing inventory exists and how close it is to the customer, and the most efficient method for fulfilling that order according to customer preferences, factoring in shipping and labor. For example, splitting an order between two locations may be the fastest option, but it likely isn’t cost-effective, and the DOM software can pinpoint the best options based on multiple variables.

This is the real-time integration lacking at many organizations today, with inventory tracked and adjusted and the impact on key performance indicators reflected in dashboards. That said, the software is only as good as the data: creating the connections between product material descriptions and IDs, linked to where they are stored, across networks of vendors and others in the ecosystem. The DOM software sits atop that system.

2. Optimizing your network

Truly delivering an optimal and cost-efficient customer experience, with agile order fulfillment, likely requires organizations to scrutinize the locations in their network so they are as close as possible to their end customers. Organizations should first assess where their demand comes from. How accurate is your forecasting process, and are you capturing the right demand signals — at a state or regional level, for your varying customer segments? Again, software can help.

That should guide your strategy on putting the right products in the right locations, and companies should be regularly revisiting that process, perhaps annually or more frequently, as the landscape changes and as new products are introduced. Organizations should also determine where they want to fall on the cost spectrum, whether it’s to minimize expenses to the greatest extent possible or to deliver a better, but more costly level of service.

3. Exploring a control tower and radio frequency identification (RFID)

Control towers are the ultimate tool for enhancing inventory accuracy and visibility across all nodes in a supply chain. They use analytics along with artificial intelligence and machine learning to optimize supply chain resources, with a self-correcting workflow that detects issues, assesses alternative actions and makes recommendations on managing the event. And through radio frequency identification (RFID), organizations can use tags, readers and software for real-time tracking without costly labor requirements. These are powerful tools for those seeking the advanced maturity of the leading omni-channel players in the market today.

Regardless of which strategies your organization decides to pursue — or whether it’s beginning to develop a direct-to-consumer model or sharpening it — it’s best to think of the options within long-term sales and operations planning, over the next two to five years. How big are you hoping to grow, and in which markets? Defining the vision and the infrastructure to sustain it is critical, as that should guide the supply chain from the beginning, rather than attempting to improvise later. 

Companies that thoughtfully build a scalable architecture with robust technology enablement and software up front and then expand footprints will likely position themselves for success. Otherwise, retailers will find themselves struggling as the patchwork of legacy solutions creaks under the weight of expanding e-commerce needs, and manufacturers will continue to work within arrangements that can limit their ability to innovate and meet customer needs on their terms.