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If Your Supply Chain Isn't Working, Omni-Channel Will Only Make Things Worse

Feb. 10, 2015
Many companies lament that their omni-channel ROI is DOA.

Omni-channel is probably the most frequently discussed yet least implemented strategy right now within the supply chain community. And in an odd twist, part of the blame for that is the supply chain itself.

According to a recent study conducted by Ernst & Young and the Consumer Goods Forum, 81% of respondents (senior executives at large consumer products manufacturers and retailers) say that their current supply chain isn't fit for omni-channel. Rather than developing new and integrated processes, many companies are simply annexing existing e-commerce systems, and somehow expecting things to work just fine. Needless to say, this "sticking a band-aid on the problem" solution isn't working well at all.

"The traditional supply chain is about shifting large brown boxes to big boxes," says David Jones, supply chain director of UK supermarket chain Waitrose, as well as co-chair of the Consumer Goods Forum's supply chain committee. And that's just not going to get the job done. As the study points out, omni-channel growth will dilute margins unless the supply chain adapts. Only 38% of respondents say that omni-channel has had a positive impact on profit margins.

"Getting to know your consumer and striking the right balance between agility and efficiency is at the heart of omni-channel," Jones points out. "This is not an overnight process, and could require an overhaul of everything from corporate structures to IT systems."

Perry Trunick, a veteran supply chain journalist here at Penton and elsewhere, concurs with Jones' assessment that omni-channel often requires an all-hands-on-deck overhaul. "For distribution executives, who must sort through an omni-channel strategy and develop a tactical plan to implement that strategy, there are many familiar issues," he notes. "They include network optimization and facility operating plans that extend to how much automation, what type and where. Information technology will play a vital role, including data collection and communications. Inventory strategies and new systems to support better visibility and accuracy throughout the supply chain will lead from the warehouse to the retail store's back room, and even the sales floor."

Trunick has coined the phrase "store as warehouse" to help distribution executives argue the need to bring their systems and processes to the store level. "What better path to job security than to argue that the way you want to accomplish your omni-channel strategy is to bring disciplines and processes you already understand and embrace into the store operations."

Amazon's growth as an omni-retailer is certainly one major factor propelling retailers and their suppliers into strategies that will help them compete with Amazon's same- or next-day delivery model. Omni-channel offers one such solution. As commercial real estate experts Bryon Carney and Jason Tolliver observe, allowing consumers to order online and then pick up the orders in a store the same day is becoming more common among retailers hoping to keep pace with Amazon. 

But beyond that, Carney and Tolliver, executives with DTZ, point to what they see as one of the greatest industrial expansions in U.S. history—the building of vast distribution centers throughout the country to accommodate the rising swell of consumer demand. "Over the past five years," they note, "the average size of major DC leases signed has essentially doubled," with deals for million-square-foot facilities a regular occurrence. Not only is this a boom for the construction industry (to say nothing of the need for material handling and logistics equipment to service these huge facilities), but it also points to another huge challenge confronting the industry: finding talent to staff those DCs. Thirty-seven percent of respondents to the EY/Consumer Goods Forum study say that a lack of senior leadership for omni-channel is a key barrier to success.

So ultimately, devising an omni-channel strategy—just like every other challenge involving the supply chain—isn't so much about the process as it is about the people—at all levels, from the boardroom to the warehouse. Finding and developing top distribution talent is your best chance for competing and winning in the emerging omni-channel marketplace.