In prior Supply Chain Matters postings, we have commented on how retailers are actively positioning online fulfillment practices for the current holiday fulfillment period and how industry watchers anticipate that shoppers will likely initiate purchases earlier in the holiday period. We further believe that technology and informed decision-making will play an important role in which retailers successfully navigate their Omni-channel strategies and achieve or exceed their profitability goals.
JDA Software recently sponsored and released a new 2015 Consumer Survey consisting of a polling of more than 1000 likely online consumers. An important finding was that 50 percent of the respondents indicate that they will be unforgiving of retailers who provide less than satisfactory online home delivery experiences. Once more, nearly one-third of these consumers reinforced that convenience is a major factor when placing an online order with nearly one in four of the survey respondents indicating a preference for “Buy Online, Pick Up in Store” as being more convenient than direct to home delivery. General news media adds to concerns by reporting on the so-called “porch thieves” who shadow parcel delivery vans and steal delivered merchandise from doorways. Other survey data from previous years generated by independent market research firms consistently reinforce that higher Free Shipping threshold policies sponsored by online retailers also have a strong influence for consumers opting for “Buy Online, Pick Up in Store.”
The latest JDA survey data is an indication that online retailers who cannot meet expectations risk losing a considerable percentage of customers to a competitive retailer that can offer a more seamless online shopping experience. According to the JDA release: “While shoppers expect convenience throughout the retail experience, most are outright not willing to pay for it, leaving retailers searching for ways to respond to consumer demand and still remain profitable.” Amazon’s Prime fulfillment program is the best example of how an online retailer can buffer consumer perceptions for having to pay for convenience by spreading such costs across an entire year..
In a JDA survey of retailers released last December, only 16 percent of retailers indicated that they can make a profit on online demand. That report concluded that: “Profitability is the biggest challenge because costs are rising faster than revenue.” The holiday surge period is the make or break quarter for many retailer’s financial performance.
As Supply Chain Matters and others in the industry have observed, in-store, local pickup and other shipping strategies will be tested once again during this upcoming holiday season. Target and Best Buy Co. have indicated they would provide Free Shipping on all online orders, while Wal-Mart has thus far opted to continue charging shipping fees on orders under $50, but is promising to make shopping easier every single day.
Online fulfillment costs are exploding and retailers can become more and more blindsided by such costs. Positioning inventory to support multiple fulfillment channels is now a necessity to insure margin goal performance, yet only 40 percent of retailers have network-wide visibility to such inventories. Logistics, transportation and service cost factors are now a critical input toward insuring overall business profitability. As noted in our previous commentaries, this is especially becoming evident with the latest round of expected parcel fuel surcharge, logistics and transportation cost increases.
Augmented technology will certainly play an enabling role in overcoming such challenges. However, technology selection teams will need to assess that such technology has the ability to span supply chain planning, network-wide inventory and Omni-channel fulfillment information streams in supporting more informed decision-making and to contrasting service segment needs with cost and overall profitability impacts. During last year’s holiday surge period, some retailers had the opportunity to test Omni-channel fulfillment processes including pick-up in store, with mixed results. Some were seamless, others experienced problems as noted in the recent survey results. The upcoming Black Friday and Cyber Monday promotional period will provide an added test not only to the ability to manage surge volumes, but in retailer’s abilities to determine expected impacts on costs and profitability.
Inventory, distribution, fulfillment center support and transportation management systems can no longer exist as stand-alone information sources. Root cause analytics that offer recommendations and simulation modeling as to the cost impact of various fulfillment scenarios are now important table-stacks in a constantly dynamic Omni-channel world.
Once again, retail teams need to insure that your organization takes a cross-functional and cross-channel perspective to the overall process, decision-making and technology support implications of Omni-channel fulfillment.
Disclosure: JDA Software is one of other sponsors of Supply Chain Matters.