have separate ways of interacting with
customers and separate supply chains
with their own physical assets and supporting processes for each channel. In
omnichannel, the digital e-commerce
and physical-store worlds meld together, creating a seamless, personalized
customer experience across the various
channels a company uses to interact
with its customers. As shown in Figure
1, channels can come in the form of
information paths for communication
(customer interaction channels) and physical paths for
delivering goods (customer fulfillment channels).
The challenge for companies engaging in omnichannel
commerce is to provide a seamless customer experience
across the information paths while simultaneously carrying
out a rapid, flexible, and profitable response for the delivery
and return of goods across the physical paths. Consumers
would have the same experiences and capabilities available
to them whether they placed their orders via a smartphone,
via a Web browser on a tablet or computer, or in a store.
That is part of what makes omnichannel both exciting and
challenging: the number of fulfillment permutations, each
of which may have a different economic outcome in delivering the desired product, at the desired price, location, and
time window. For example, some retailers are transforming
their stores to function not just as shopping locations, but
also as distribution points. Consumers can buy products
while they are physically in the store, order online and have
the product shipped from the store to their home or other
desired location, or order via the Internet and pick up the
merchandise in the store (“click and collect”).
Consumers also expect to get a product from wherever it
is stocked, at the same price they would pay for that item
in their local store. This is often referred to as “the endless
aisle,” which means that a customer can view and buy the
complete range of products that a company sells, irrespective of where the products are physically stocked.
The extent to which companies enable endless-aisle
capability depends on a number of business factors, such
as growth and profitability. For example, a retailer has to
decide whether it will allow a customer in one city to view
the inventory that is located in another city thousands of
miles away, and whether it will support shipping from one
place to another. Complicating matters is that the customer
may want the order shipped to a local store, to his or her
home, or to some other location, such as an office. (Or
perhaps even to an automobile: Volvo recently introduced
an electronic service that allows a car to be turned into a
delivery drop point.)
With more customers expecting to have access to any
product, shipped from anywhere, at the same price as if it
had been sourced locally, the costs incurred as a result of
incorrect inventory and assortment planning are soaring.
Moreover, the rapid growth in the use of always-on smart
mobile devices for browsing, comparison-shopping, and
buying has led to price transparency, increasing the need for
companies to compete on range, availability, service, innovation, and other factors. Unfortunately, many companies
continue to make decisions about business policies and supporting strategies that focus on capturing revenue, without
giving consideration to the profitability of such decisions.
THE BIG QUESTION: HOW TO DELIVER PROFITABILITY
E-commerce sales are growing significantly faster than
are sales through traditional brick-and-mortar stores. In
2014 in the United States, e-commerce sales grew by 15. 4
percent, while traditional brick-and-mortar sales grew by
roughly 3 percent. 1
Few companies break out e-commerce results from their
overall numbers to provide visibility to segment revenue
and profitability, but it seems clear that e-commerce has
been unprofitable for most companies and dilutive to
margin for almost all of them. A December 1, 2014, article in The Wall Street Journal titled “How the Web Drags
on Some Retailers” stated that very few companies make
money on e-commerce sales; profit margins of those that
do are significantly less than the profit margins for traditional store sales. 2 In short, the major beneficiary of e-commerce has been the consumer. The challenge now is for
companies to figure out how to turn e-commerce growth
Third-party Logistics
Customer
Customer
Fulfillment
Channels
Web
Manufacturers Carriers and 3PLs* Stores/Warehouses Partners/
Distributors
Service providers
Sale/Stores
Call center Mobile Social
networks
[FIGURE 1] EXAMPLES OF INTERACTION AND FULFILLMENT
CHANNELS
