Cracking the Omnichannel Supply Chain Code
Omnichannel is a term that is top-of-mind for many consumer goods companies of late, but are supply chains really equipped for this emerging trend? Here, CGT asks Gary R. Godfrey, Americas Consumer Products & Retail Supply Chain leader for Ernst & Young, to weigh in on this challenge. Godfrey reveals the many issues facing the omnichannel supply chain, as well as strategies to help consumer goods companies achieve complete visibility across channels, and crack the omnichannel supply chain code.
What does the growth of omnichannel in the consumer goods industry mean for supply chain?
Godfrey: It used to be simple for consumer goods and retail businesses to keep their customers happy: People saw an advert, went into a shop to look for the product and, if it was in stock, bought it. It was a neat, linear process. But those days are long gone, and the way we shop has changed completely. Now we’re in an omnichannel world, where consumers may hear about a product through social media, research it online, and then buy it in store; or look at a product on the shelf, and then buy it on their mobile. And it doesn’t stop there: They may want to click and collect, or to get the item delivered to their home, office or drop-box. They also expect the option of returning or exchanging an online purchase at a brick-and-mortar store. Meeting these multi-faceted demands means spiraling costs and unprecedented pressure on supply chains, so it’s not surprising that many manufacturers and retailers are finding it harder and harder to grow profitably.
Are companies equipped to handle this challenge?
Godfrey: The short answer is no. Brick-and-mortar stores won’t disappear, but future growth is going to come mainly from omnichannel. In some emerging markets, manufacturers are exploring going direct to consumers and bypassing retailers altogether, so it’s vital that retailers up their game. Yet, in a recent survey conducted by E&Y and the Consumer Goods Forum Supply Chain Committee, only 38 percent of senior supply chain executives said they believed omnichannel growth would help their bottom line, and 81 percent felt their company’s supply chain was no longer fit for purpose. Many businesses are aware they need to make radical changes, away from a linear supply chain model to a networked one, but they haven’t yet grasped the nettle. This is for a variety of reasons, including a lack of dedicated resources and capabilities, the level of investment required to succeed, the challenge of supply chain complexity, and a lack of senior leadership support.
So what should businesses be doing?
Godfrey: An omnichannel strategy is one that provides a seamless and consistent shopping experience across different channels and devices. From a supply chain perspective, this means complete visibility across channels, along with a holistic, unified view of the path to purchase. The strategy must be built into the entire value chain, starting with product design — businesses have to develop products that are cheaper and easier to ship individually. Another vital element is to understand what customers really want. For example, providing an accurate view of delivery times may be more important than offering same- or next-day delivery. Companies must invest in IT and analytics, and collaborate to ensure a single view of the customer, respond quickly to changing patterns of demand, and understand the true cost to serve the customer. Finally, they must balance efficiency, agility and resilience. This means deciding whether to use existing stores, existing warehouses, or completely new facilities such as ‘dark stores’ to fulfill customer orders. It means calculating how much stock to hold, and where. And it means exploring new ideas, such as predictive fulfillment, where everyday products are delivered without the need to place an order. There’s no doubt that achieving all this is a difficult balancing act, but the potential rewards are great.
*To find out more, read E&Y’s report, Re-Engineering the Supply Chain for the Omni-Channel of Tomorrow [http://www.ey.com/GL/en/Industries/Consumer-Products/ey-omni-channel]
What does the growth of omnichannel in the consumer goods industry mean for supply chain?
Godfrey: It used to be simple for consumer goods and retail businesses to keep their customers happy: People saw an advert, went into a shop to look for the product and, if it was in stock, bought it. It was a neat, linear process. But those days are long gone, and the way we shop has changed completely. Now we’re in an omnichannel world, where consumers may hear about a product through social media, research it online, and then buy it in store; or look at a product on the shelf, and then buy it on their mobile. And it doesn’t stop there: They may want to click and collect, or to get the item delivered to their home, office or drop-box. They also expect the option of returning or exchanging an online purchase at a brick-and-mortar store. Meeting these multi-faceted demands means spiraling costs and unprecedented pressure on supply chains, so it’s not surprising that many manufacturers and retailers are finding it harder and harder to grow profitably.
Are companies equipped to handle this challenge?
Godfrey: The short answer is no. Brick-and-mortar stores won’t disappear, but future growth is going to come mainly from omnichannel. In some emerging markets, manufacturers are exploring going direct to consumers and bypassing retailers altogether, so it’s vital that retailers up their game. Yet, in a recent survey conducted by E&Y and the Consumer Goods Forum Supply Chain Committee, only 38 percent of senior supply chain executives said they believed omnichannel growth would help their bottom line, and 81 percent felt their company’s supply chain was no longer fit for purpose. Many businesses are aware they need to make radical changes, away from a linear supply chain model to a networked one, but they haven’t yet grasped the nettle. This is for a variety of reasons, including a lack of dedicated resources and capabilities, the level of investment required to succeed, the challenge of supply chain complexity, and a lack of senior leadership support.
So what should businesses be doing?
Godfrey: An omnichannel strategy is one that provides a seamless and consistent shopping experience across different channels and devices. From a supply chain perspective, this means complete visibility across channels, along with a holistic, unified view of the path to purchase. The strategy must be built into the entire value chain, starting with product design — businesses have to develop products that are cheaper and easier to ship individually. Another vital element is to understand what customers really want. For example, providing an accurate view of delivery times may be more important than offering same- or next-day delivery. Companies must invest in IT and analytics, and collaborate to ensure a single view of the customer, respond quickly to changing patterns of demand, and understand the true cost to serve the customer. Finally, they must balance efficiency, agility and resilience. This means deciding whether to use existing stores, existing warehouses, or completely new facilities such as ‘dark stores’ to fulfill customer orders. It means calculating how much stock to hold, and where. And it means exploring new ideas, such as predictive fulfillment, where everyday products are delivered without the need to place an order. There’s no doubt that achieving all this is a difficult balancing act, but the potential rewards are great.
*To find out more, read E&Y’s report, Re-Engineering the Supply Chain for the Omni-Channel of Tomorrow [http://www.ey.com/GL/en/Industries/Consumer-Products/ey-omni-channel]