REPLACE THE STICKING PLASTER
AS CROSS-CHANNEL FULFILMENT OPTIONS BECOME EVER MORE VARIED AND COMPLEX, FINDING THE RIGHT SOLUTION TO COVER ALL CHANNELS AND CHOICES CAN MEAN SOME MAJOR INFRASTRUCTURE CHANGES, REPORTS PENELOPE ODY
It worked, for a while at least: a mish-mash of retail applications stitched together to meet changing ecommerce needs with ad hoc integration to legacy systems. Today, things are rather different. “Retailers could get away with the sticking plaster approach when online sales were at most maybe four per cent of the business,” says Craig Sears-Black, UK managing director, Manhattan Associates, “but now those sales are 10, 15 or, for some of our clients, 25 per cent and sticking plaster really isn’t good enough.”
Not only are online volumes increasing but fulfilment options are proliferating. Goods can be collected at a local branch, despatched from store, transferred between branches to meet orders, delivered within 90 minutes, on a specified day, direct from the manufacturer, or to an unmanned pick-up point like ByBox, while the rejected returns may travel by post, courier, collection services – such as CollectPlus – or simply be off-loaded at the nearest real-world branch.
Such complex fulfilment options come at a price, often rather more than the customer is prepared to pay. In the early days of online grocery in the 1990s, companies such as Tesco would privately admit that the true cost of delivering an order was nearer £20 than the £5 being charged. Nowadays free delivery is commonplace – at a time when postal and courier charges are continuing to rise. Taking a margin hit on such orders could be ignored when online sales were the exception rather than the rule. Now, as sales volumes rise, profits all too frequently travel in the opposite direction and calculating that ‘cost to serve’ is becoming a preoccupation for many.
TIME TO ADAPT
It all adds up to a major change in the way e-tailers need to organise technology infrastructure. “Ecommerce has been preoccupied with the front end,” says Sears-Black, “with pretty websites and customer-facing technologies. But to be
truly omnichannel you need to make all stock available to all customers in whichever channel they happen to be, as well as ensuring that you sell those goods profitably.”
David Hogg, commerce solutions lead Europe at IBM, agrees: “Retailers need to have a strategic vision of the service levels they’re willing to provide and the costs involved if goods have to be shipped between stores to meet a click-and-collect order, for example. It may be worthwhile taking a hit on the transaction if it’s a regular high-spending customer but perhaps not for an occasional shopper who only ever buys in the sales,” he says.
While adding CRM into the mix to enable this sort of sophisticated decision taking is starting to happen in the USA, in the UK Craig Sears-Black believes it is some way ahead. “It’s on the journey, but it will take years to get there,” he says.
Before then UK retailers will need to create that ‘single stock pool’ giving real-time visibility to the entire supply chain from any touchpoint, as well as factor in the true cost of each fulfilment option into their strategic plan. Deciding whether these attributes sit within the ecommerce platform or reside on a separate entity – potentially involving some major infrastructure changes for the entire organisation – is something many e-tailers will have to face in the short-term.
IBM and Manhattan are among those arguing the case for putting an order management system (OMS) at the heart of the business. As well as keeping track of orders and customer services, the OMS provides a single master information set for product data and stock availability, which can then be accessed by store EPoS systems, call centres, warehouse management systems and so on, as well as the web front end available to shoppers. The ecommerce platform links to the OMS layer, in the same way that a CRM system could do eventually to provide personalised shopper information, or an external supplier might join the network both to collect orders and provide information about the stock availability of any of its lines which the retailer offers for direct delivery. Also on the outbound side of the platform would be individual logistics service providers or connections to MetaPack’s delivery management platform.
OMS AND ECOMMERCE
Some OMS attributes are already being incorporated into ecommerce platforms, although supply chain vendors such as Manhattan argue that these offerings are generally less comprehensive. “Our model is developed from a supply chain perspective,” says Craig Sears-Back. “Achieving real-time stock visibility across all channels can help to sell more product at full margin and improve profitability.”
IBM acquired Sterling Commerce from AT&T in 2010 while Sterling itself had acquired Yantra – offering one of the first OMS applications directed at multichannel retail – back in 2005. “OMS is becoming more common and not just in the apparel sector,” says David Hogg. “We’re seeing huge growth in the grocery sector as the order collection options become more sophisticated with shoppers ordering mixed consignments of food and non-food. Traditionally supermarkets have managed their food and non-food systems separately, so the OMS can provide the link. These days you can’t just have a web platform.”
This need becomes even more acute when you add international growth and the need to link with a plethora of logistics companies in different geographies, argues Hogg. Many e-tailers currently have very basic links to their logistics providers, which is why when shoppers want to track their parcels, they are generally directed to the delivery company’s website for status information. “If the retailer’s vision is to be truly omnichannel,” he says, “then brand image must be consistent – and that would mean offering parcel status information within the retail website. There then has to be a ‘plug and play’ approach to these connections with logistics providers so that retailers can switch carriers easily.”
Rather different is the approach from Automic, formerly known as UC4. “Retailers basically need to co-ordinate multiple moving parts of their business so that warehousing, logistics, stores, ecommerce or whatever work well together,” says Alex Jones, director for strategy and business. “You can imagine it as being rather like an orchestra – in which case we’re the conductor.”
Automic’s automation system basically sits on a server and connects to other applications using software agents. Jones describes it as “technology agnostic” and capable of linking to just about any systems a retailer may have, to create a seamless end-to-end process. Accessories and fashion company, Fossil, for example, has used Automic’s systems to link its SAP ERP system, Manhattan supply chain solutions, warehouses in Texas and Germany, and orders from both retail customers and its website, to speed up order processing especially during its peak September to November sales period.
An alternative view comes from Stefan Schmidt, director of product strategy at Hybris – recently acquired by SAP – who argues that stock information could be brought closer to the customer by adding inventory data to the ecommerce platform. “Stock availability used to be confined to the warehouse system,” he says, “but now the customer wants access to that information so it needs to be brought further forward to the ecommerce platform. The platform doesn’t manage the stock, it simple brings the information and a single view of the stock availability to the customer and customer service agents. Customers want information immediately and retailers struggle with real-time stock information – probably none has an accurate real-time view of inventory.”
Hybris has an ‘order management’ component available for its ecommerce platform, he says, although not all users implement the module. While Hybris has added OMS to its platform, it has steered clear of logistics per se: “Logistics for us means trucks and we don’t do that, “ says Schmidt. “The ecommerce platform can handle carrier selection, though, calculating attributes such as cost, promotional factors and margin, so merchandisers have the flexibility to create their own rules for ranking and selecting carriers, but retailers will still need to integrate their systems with logistics providers.”
A SINGLE PLATORM
This is another area where the sticking plaster approach is beginning to fall down. “Systems have been stitched together but as multichannel retailing matures, logistics need to be pulled together onto one platform,” says Andy Murden, business development manager with Kewill. This ‘logistics platform’, which can include warehousing, can – like other activities – take feeds from the OMS to manage all shipping issues and carrier selection. It also copes with direct despatch orders producing labels and picking lists to send to the relevant suppliers.
While it’s largely distribution companies that use Kewill’s logistics platform, the likes of Shop Direct, JD Williams and Scotts & Co use the company’s Trade (Direct Despatch) application. “Retailers are trying to grow market share,” adds Murden, “and direct despatch allows them to experiment with new products at minimal cost as there is no need for hefty investment in inventory. If the products don’t sell – it’s easy to simply take them down from the site.”
While simply passing orders on to a supplier may sound like a winner for e-tailers, ensuring consistent brand image and customer experience in the process may not be. The supplier’s stock availability needs to be added into the order management mix as does confirmation from the supplier that the goods have actually been despatched, with the retailer perhaps also being involved in carrier selection to ensure a consistent customer experience.
“Integration is far easier than it used to be and is key,” says Murden. “No retailers go out to buy a complete new system these days. Some may use all of our package and others only bits of it – vendors can no longer stipulate that someone must take the lot.”
Selecting those “bits” depends, as Tony Bryant, head of business development at K3 Retail, puts it on “what is broken”. “Maybe the retailer has a lot of legacy systems so has to use the ecommerce platform to drive fulfilment,” he says, “or perhaps their e-comm is limited to content management and lacks functionality.”
According to Bryant, an ecommerce platform may be structured as a single source of inventory information, handle online sales and link with stores, but it will also typically lack such supply chain functions as product lifecycle management, demand forecasting or warehousing. “Some are very comprehensive and make sense as standalone point solutions,” he says, “others may need to be more fully integrated with the vendor’s ERP solution. For retailers it’s all about choice and how they choose to structure their multichannel systems.”
And that, he adds, is the problem: “Retailers are confused. We have prospects we’re still talking to after a year because they really can’t decide what to do. Do they buy now and then find that a year or two down the road they need to take the business in a different direction and the system can’t cope – or do they continue patching things up and hope for the best?
Which takes us back to those sticking plaster solutions with the plaster slowly peeling off.
“Click and collect means that the picking, packing and shipping all have to be done very rapidly with a direct link to the carrier or the retailer’s own transport fleet. The key for successful multichannel activity has to be getting the goods despatched quickly and cost-effectively.”
Andy Murden, business development manager, Kewill
When to take the hit
“Maybe a retailer will budget for five per cent of orders being in that ‘difficult’ category where they could lose money, but the numbers of those orders then has to be tracked on a daily basis. If the number goes beyond five per cent then there has to be a proper assessment and decision on whether or not to fulfil.”
David Hogg, commerce solutions lead Europe, IBM
Make stock visible
“Omnichannel is where the supply chain meets the store and that involves major process change and new skills for store staff with regular stock counts, but real-time stock visibility is possible and we have users in the US who have achieved that.”
Craig Sears-Black, UK managing director, Manhattan Associates
With online forming an increasingly important part of the total sales mix, the need to manage fulfilment costs is moving up the agenda. Customers may appreciate multiple and rapid delivery options but they can significantly damage margin while many IT systems struggle to cope with the level of integration needed.