Manufacturers need to collaborate more closely with retailers to satisfy the challenges of omni-channel distribution.
Many manufacturers, and their retail customers, are still sitting on the fence, waiting to determine if all the talk about omni-channel distribution is just a fad or if it's something they need to get serious about. The consumer goods sector in particular is curiously slow to react, even though these are the companies most directly impacted by the rising consumer demand for same-day delivery, which requires a much more flexible and responsive supply chain.
According to a recent survey of 400 consumer goods and retail CEOs, 71% say that omni-channel is a top priority for their companies, yet only 16% say their companies can fulfill omni-channel demand profitably today. There's also a disconnect between what the CEOs say is the biggest threat to profitability -- the high cost of fulfilling orders -- and what they consider their top initiative for improving operations -- creating new customer experiences.
A similar study of consumer goods and retail executives conducted by global consulting firm Ernst & Young and the Consumer Goods Forum points out that 81% of respondents believe their current supply chain is not ready for omni-channel. "Reengineering the omni-channel supply chain must be a priority for consumer goods companies and retailers if they are going to remain relevant to both the consumer and their shareholders," says Andrew Caveney, EY's global supply chain and operations leader. And that will require both a higher level of collaboration, as well as a stronger focus on logistics and technology.
"You need collaboration to close the loop between manufacturer and retailer," states Chris Tyas, group head of supply chain at consumer goods giant Nestlé. "On a day-to-day basis, this could be letting retailers know when they're continuing to order lines that are discontinued. Taking it to the next level, collaboration means working with the retailer. In an online environment, this means manufacturers and retailers reviewing on a weekly basis the products that have changed to make sure they are correct on the retailers' systems."
Retailers are exploring various transportation options to meet the "I need it now" demand of consumers, such as having product shipped directly from local stores, centralized warehouses or even from the manufacturer. Achieving that kind of last-mile capability, however, hinges on how your end-to-end supply chain network is designed, and how your inventory is deployed, postponed, configured and distributed across channels, observes Burton White, vice president, industry supply chain with consulting firm Chainalytics. And it could mean looking at alternative delivery options.
"New, small experimental entrants like Uber, Instacart and Deliv are emerging at the forefront," Burton notes. "However, as we move away from traditional carrier delivery models, there is a need to provide more extensive tracking and beefed-up package security to meet customer expectations, perception, consistency and quality. As a result, route auctions and technology that offers increased visibility into network options will become extremely important over the next few years."
"We are at the early stage of a journey that's going to be as revolutionary as the introduction of supermarkets 60 years ago," Tyas says. He then adds, "I have to convince the rest of the organization what is required by omni-channel, which means spending a lot of time with manufacturing, packaging and procurement teams."
One difficulty for companies like Nestlé, he explains, is designing packaging that meets the needs of both online and brick-and-mortar channels. "I am convinced," Tyas says, "that the right thing to do is have a certain number of dot-com SKUs. For volumes where a large enough portion is being sold online, you should have a specific SKU for that channel."