DC Velocity - IdeaBook 2016

and returned merchandise has to be routed to the appropriate location, whether for full-price sales, markdown, repair, or disposal. Both forecasts and visibility to actual returns, including their final disposition, should be incorporated into material buying plans so that buyers are netting orders against returned items.

Information about an individual customer’s history of returning items should also be captured. This data can be used to determine whether there is a correlation between certain customer segments and their propensity to return merchandise. “Propensity to return” can then be used as a factor in shopper- and segment-specific personalization. For example, promotions and offers can be tailored to shoppers with a historically high rate of returns to improve their overall profitability.

9 Create a “learning loop” among fulfillment, planning, and strategy. Capturing fulfillment execution data provides useful information about the profitability of sales transactions. For instance, items that could not be sourced locally and were shipped from other locations represent margin erosion; this information should be fed back to assortment and demand planning so those functions can adapt assortments and stocking levels to ensure higher profitability in the future.

Fulfillment statistics can be quickly analyzed and compared against target and optimal numbers. Gaps can be identified and planning and policy administration advised accordingly. This information can also be fed to a cost-to-serve “data warehouse,” where it can be analyzed to help companies understand how to adapt business strategy and structure. This CTS data is also critical for making ATP and associated supply-source decisions.

10 Use orchestration dashboards to automate policy management for strategy, planning, and execution. Omnichannel strategy and associated decision making must be driven by overall business strategy. This can be done through a combination of process and technology. An “orchestration dashboard” provides the means to input business strategies (such as growth, profitability, and operational measures like customer service and inventory) and then translate them into operational policies (for example, always fulfill from the fastest source or from the most economical source, or vary it based on the historical customer profile). These decision rules are then distributed to business processes and supporting systems across the end-to-end value chain.

Omnichannel has an impact on most core areas of supply chain management, including planning and fulfillment. The policies associated with these processes, therefore, need to be synchronized with the business goals of the enterprise.

For example, companies may want to operate at various points along the spectrum between growth and profitability, particularly for e-commerce sales during the period when brand development is important to long-term success. A growth-at-all-costs strategy would result in significantly different fulfillment policies than a profitability-only strategy. Furthermore, the dashboards should be set up to provide statistics from the learning loop to understand gaps between the business strategy and actual fulfillment.

TECHNOLOGY: THE INDISPENSABLE ENABLER

Omnichannel has become a tidal wave in retail in the past five years, as consumers in mature markets have increasingly used the Web and mobile devices to interact and transact business. It is an exciting, disruptive development that is pushing supply chains and the practice of supply chain management toward “supply chains of one.” In other words, the end customer or consumer is gaining increasing power, requiring supply chains to provide a perceived personalized experience to each customer, based on a specific value proposition.

Omnichannel intersects directly with segmentation, another important topic in supply chain management. Both involve tailoring supply chain responses to specific customers while preserving or increasing profit margins. It is simply too expensive, however, for retailers and manufacturers to reconfigure their physical assets for the purpose of tailoring service to individual customers. Instead, companies must tackle the omnichannel challenge with the very weapon that created the challenge: information technology.

Technology is a key enabler of the 10 steps to profitable omnichannel commerce identified in this article. With the right tools, policies, and processes, companies can enable virtualization of supply chain assets, including inventory, providing the ability to view these assets as an integrated whole and orchestrate them to profitably fulfill demand. c

Notes:

1. “Quarterly Retail E-Commerce Sales 4th Quarter 2014,” U.S. Department of Commerce, Bureau of the Census, http://www2.census.gov/retail/releases/historical/ ecomm/14q4.pdf.

2. Suzanne Kapner, “How the Web Drags on Some Retailers,” The Wall Street Journal, December 1, 2014, http://www.wsj.com/articles/how-the-web-drags-on-some- retailers-1417477790.