Retail Trade: How Can We Prepare for Omnichannel Integration?

Operational and logistic challenges in retail in the digital era

The retail sector has undergone a radical transformation in recent years, leading to new ways of buying. Today you can visit a physical store, compare and "test" different products, return home to purchase the product online and finally pick up the merchandise in an external section of the store at your convenience. More and more companies are offering this and other options as a result of the implementation of digital technologies and the increase in electronic commerce, in what is known as omnichannel retail.

The previous multichannel model allowed companies to offer service 24 hours a day and greater purchase options, with a consequent increase in sales. Despite its success, this model gave rise to numerous operational challenges, including order consolidation difficulties, inventory control across different channels, a loss of distribution efficiency, and the difficulty of offering customers a comprehensive shopping experience when the various channels are not perceived as independent entities.

Evolution of omnichannelism

To solve these problems, retail companies and their supply chains have progressed in recent years towards schemes with a higher level of integration between different channels, in what is now known as omnichannel retail. This model is not necessarily an extension of the multichannel model, since it represents a new way of operating the entire process of buying, selling, distribution, sourcing and after-sales service.

Innovation and technology are essential elements of the new model. They enable the offering of a comprehensive experience, where traditional boundaries between different channels virtually disappear for the customer. Synchronization of the various channels requires a total alignment of a company’s internal processes, through a new centralized data management system, the use of technology to provide complete visibility of the entire chain, inventory optimization and the efficient use of various storage and transport schemes.

Under these premises, customers can now buy products online (or in-store) and receive them at home, or if they prefer they can pick up an order in the store in click-and-collect or pickup areas, or even have it sent to a particular address. The flexibility offered by this new model also extends to after-sales service: a customer who purchases online can return the merchandise directly at a store to make a physical change, or make the transaction completely online.

All these options are enabled by the omnichannel strategy, where customers perceive the experience as a single integrated service with different options aligned to their needs and requirements. The strategy seeks to obtain the greatest benefit from the virtues of the physical world (the high efficiency of networks of distribution centers and stores) and the possibilities offered by online retail, eliminating the dissatisfactions that arose between these two paradigms following the arrival of the digital age.

But this model requires a new organization of logistics operations, including storage and distribution.

Keys to omnichannel distribution

One of the biggest challenges of omnichannel commerce has to do with distribution, since different logistics processes need to be synchronized: last mile deliveries to the final customer (from stores or distribution centers - Cedis), having stock available in stores for delivery to the different areas related to online sales, and merchandise transfer between stores (or between Cedis), among other processes resulting from inventory movement and relocation requirements.

These distribution options require inventory visibility throughout the chain, a fundamental element for optimizing the different transportation schemes used in the network. In particular, last-mile delivery, which typically represents the most inefficient section of the supply chain, requires a design that takes into account aspects of service and product characteristics in order to achieve the highest level of integration and optimization across the entire network.

For example, if the variety of products offered is limited and sales volumes are also low, the company may achieve cost benefits if it outsources transportation logistics to a third party. On the other hand, for high volumes and great variety, an own logistics scheme is more suitable.

Additionally, a company with a promise of delivery to its customers in 2-4 hours must use a much more agile network design than in the case of deliveries with windows greater than 12 hours. In the first case, the design must include the possibility of having a larger number of Cedis or smaller warehouses with more limited ranges of influence, while, in the second, a network with large Cedis operating over large regions gives greater efficiency.

In practice, in the omnichannel world, we observe hybrid models with ad hoc network designs that use different configurations with high data analysis capacity to optimize the entire delivery process, depending on the different conditions that customers impose.

The future of distribution

The most advanced schemes can quickly visualize inventory availability across the network and make deliveries from warehouses or from a store, or even from a mobile warehouse such as a trailer with merchandise in transit. Some companies with advanced technology have even begun home delivery using robots or drones, as is the case of Amazon. Other delivery options use electric motor vehicles. Some companies may also have automated distribution centers to expedite the delivery process, with storage racks constantly relocated by robots according to demand conditions.

In the digital age, all possibilities are open, but vision and innovation are required to offer the market attractive and profitable options. Thus, we begin to see last mile distribution strategies anchored to the sharing economy. Transport companies with digital platforms have partnered with producers or logistics service companies to deliver to final customers. Such is the case of the recent Uber Freight alliance with SAP to offer a logistics support network to companies that seek to strengthen their omnichannel strategy. This type of service allows consumers to track orders and request a variety of delivery options.

The omnichannel model will probably evolve towards greater interaction with customers and alignment with their needs. Imagine a future (maybe not so distant) in which the Internet of things enables a system with sensors in our kitchen cupboard, which can detect when we need a gallon of milk or a can of coffee, send the order to the store automatically, deduct the payment from our bank account, receive an alert on our cell phone indicating the delivery time and receive the merchandise at the door of our house, of course, delivered by a friendly robot.

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