Winning the OmniChannel

Winning the Omni-Channel Profitability Challenge

It’s no secret that companies are rapidly evolving their vendor, distribution and store networks to adapt to market forces brought on by the growth of online shopping. Revolutionary changes are occurring across the end-to-end fulfillment process: • Home Depot recently announced over $1.2B investment to add 170 distribution locations to reach 90% of the US population within one day. 1 • Nordstrom tries new store format with no inventory. 2 • 40% of retail respondents expect more drop shipping next year. 3 Retailers are overhauling their fulfillment processes to maintain market share and gain customer loyalty. They are increasing speed, offering delivery options and trying to improve the customer experience, all of which is costly. The biggest questions for retailers are: The Issue: Net Profitability In an earlier post we referenced a 2017 study by PwC which deserves repeating: in a survey of 351 global retail CEOs, only 10% thought they could fulfill omni-channel orders profitably . Net profits are tough because picking individual items and delivering small packages to customers is expensive – they are by far the most costly components of the order fulfillment process. A vast majority of online shippers spend at least $8 to pick and ship small orders – many several times that. So, if you think about adding $8 or more to a small order of, say $40, then you’ve just added 20% cost to the order. Moreover, these costs are increasing much faster than other logistics costs. The 2018 State of Logistics Report, sponsored by the Council of Supply Chain Management Professionals (CSCMP), reports the highest growing logistics cost is parcel with a 5-year CAGR of 7.9%, roughly three times the most recent Consumer Price Index (CPI) of 2.8% (May 2018). The Solution: Net Profitability Analysis, or Margin Management We think the quickest path to profitability is through direct net profitability analysis that allows users to isolate winners from losers and implement new merchandising and operational policies to find more net profitable outcomes. Why? Different order types have vastly different net profit margins . Price, size, weight, service level, distance, fulfillment channel, fulfillment location and number of split packages all factor into net profit. Given the variety of assortments, inventory and flow path options available to satisfy customers, almost any option is a possibility. What if the business could examine its offerings and knew the underlying net profitability by any desired dimension: by SKU, by shipping program, by flow path, by category, by customer type, by channel, etc.? Given this information, merchants could manage the business based on…margin. Promote the big winners and restrict losers. Fulfillment channels or locations could change. More targeted vendor negotiations could occur. Imagine the possibilities, some of which could be quick wins. • “How do we engage the customer?” • “How can we do this profitably?”

By Bill Loftis

Senior Director, Integrated Solutions Transportation Insight 2018 Supply & Demand Chain Executive Pro to Know

2018 Food Logistics Rock Star of the Supply Chain

More than 35 years of supply chain experience that includes consulting to some of North America’s largest companies across a wide range of industries Known for his ability to focus on the underlying business problem to help clients integrate supply chain data to better support business processes and improve performance Specialties include strategic network design and flow strategies; transportation cost, practices and systems benchmarking; transportation planning assessments, network modeling and business intelligence; and collaborative distribution solutions

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