Make the change stick: Transforming your supply chain operating model for an omnichannel world

Whether they choose to be faster, more innovative, or closer to the consumer, consumer product and retail companies are finding it increasingly difficult to launch new channels or routes to market along with products and better services that react flexibly to shifting demand while still maintaining (or even improving) their profitability.

The trend of shoppers continuing to embrace online and omnichannel is a core growth driver, but it also significantly increases the complexity for the supply chain. As the world moves toward a new normal after the pandemic, omnichannel players face a complex operating challenge: remaining consumer-centric while serving their customers effectively and efficiently through both old and new channels.

Many companies have tried to optimize their warehousing and shipping processes, improve their planning, and develop other core supply chain topics—but often with only modest success. And too often, operational improvement initiatives have failed to make any real impact on the profit-and-loss (P&L) or balance sheet. Why? Organizations have neglected to evolve their supply chain operating model—its processes, structures, and people—resulting in its inability to achieve synergies among channels and to sustain changes once focus has shifted to another area.

To build a foundation for successful omnichannel operations and unlock their full potential, companies need to reshape the entire supply chain operating model. Traditional B2B operating models are outdated. A siloed organization with separate processes for each channel is not enough to create a successful omnichannel approach. A new perspective on processes, structures, and people is required.

A next-generation model goes far beyond the organizational design of structures and workflows—it defines the ways in which a company operates its supply chain (see sidebar, “A new supply chain operating model challenges all dimensions of the supply chain”).

New challenges

The expansion of digital channels such as online stores, retail apps, and marketplaces, combined with the ongoing importance of traditional channels, presents several new challenges to consumer product and retail companies.

Seamless consumer experience and consistently high satisfaction across all channels

Most consumers today use multiple channels and have a variety of touchpoints through their purchasing journey, so companies need to provide the same quality of consumer experience, responsiveness, and satisfaction throughout all channels seamlessly. This requires consistent performance targets and incentives across channels as well as fast decision making to adjust the consumer offer, react to a complaint, or pilot new services within a couple of days rather than months.

Efficient and flexible omnichannel operations

The increased complexity and the multiplicity of channels create pressure on supply chain functions in terms of cost and productivity. New market conditions frequently result in a growing number of products, warehouses, and logistics-service providers, requiring more frequent and more detailed planning. This also creates a need to scale up personnel resources in indirect functions such as scheduling and distribution management.

Moreover, the contemporary challenges of omnichannel can’t be solved by single-channel thinking in which each channel operates in a silo, managing its own inventory and measuring its own team performance. For best results, organizations must establish omnichannel structures and processes that will provide a consolidated view of demand and manage deliveries and inventories appropriately.

Data, digital technologies, and advanced analytics

Omnichannel gives companies the chance to collect more data and consumer insights, which the organization can use to improve consumer experience and align its own operations accordingly. Digital technologies enable improved and more efficient operations. For example, AI-based forecasting and advanced analytics can help companies plan and manage their inventories and organize deliveries effectively. However, innovative technologies and methods place new demands on employees, management, and IT infrastructure along the supply chain; all three elements need to be continually realigned to reflect the latest trends. Companies that do not respond to these challenges by radically reshaping the structures and processes of their supply chains will realize few of the benefits that the transformation promises.

Seven guiding principles for designing tomorrow’s omnichannel operating model

To realign the supply chain with the new omnichannel environment and related challenges, the next generation of operating models integrates state-of-the-art guiding principles for reshaping processes, structures, and people.

1. Consumer-centric, channel-agnostic culture

The key principle for consumer product and retail companies today is keeping the consumer at the center. To achieve that goal in the new omnichannel environment, companies will need to create a channel-agnostic culture in which the consumer experience is the top priority across all functions. While it sounds straightforward, putting the consumer in the center is a challenge for many players because they have a culture of designing and branding cool products or driving operational excellence. While they should not neglect their history, it will be key to start this mindset shift immediately because it is the basis of success.

They will also need to take an approach that combines multiple skills and capabilities. For example, an international furniture company strives to improve the consumer experience by acquiring the full range of capabilities needed for all-around consumer experience—the best designers, merchants, marketers, technologists, and data scientists.

2. Integrated omnichannel teams

Improved performance requires an organizational shift from single-channel or multichannel teams to integrated omnichannel teams. Changes to P&L management are also required to correctly account for new sales channels; for example, store managers become fulfillment managers. In other words, stores are not merely serving customers who are visiting and shopping traditionally; through the “click and collect” concept, stores are also supplying customers who shop online.

These new integrated teams have an end-to-end responsibility from supplier to consumer and work together to manage inventory, delivery, and consumer experience of a particular consumer group. For example, a leading apparel and footwear player established “city teams.” Each team took responsibility for the omnichannel supply to a certain city, handling everything from supply management to cross-channel inventory management. Other organizations have combined their online and in-store merchant operations to create a larger purchasing team, enabling the less experienced online merchants to learn from the store merchants.

3. Omnichannel key performance indicators and aligned incentives

To build a successful omnichannel model, organizations should establish performance measurements based on key performance indicators (KPIs) that incorporate the omnichannel dimension and reflect joint performance—not individual channels. They can provide incentives for employees to improve performance across appropriate channels and teams. For example, an American luxury department-store chain rewards store associates and merchandising teams for online sales that originate in stores. Aligned incentives eliminate siloed thinking and ensure optimum performance for the whole company, not just a single channel.

4. One-inventory concept

An integrated one-inventory concept is crucial for efficient omnichannel operations. Inventory shouldn’t be dedicated per channel but rather managed in a way that ensures fast and timely restocking through all channels. In this approach, allocation of supply and inventory is based on clear segment priorities, not on channels. This requires an integrated, cross-channel, real-time understanding of availability at each step of the value chain. Companies can use this understanding, combined with AI-driven forecasting, to actively manage inventory levels.

5. Agile ways of working

The short product-introduction life cycle in the consumer industry, combined with complex demand forecasting on new products, demands an agile way of working to ensure that new products are successfully introduced through all channels. This agile approach is based on the principles for test and learn and empowers teams to make fast decisions. One model is the “fast-track” model, in which new offerings are piloted very fast but teams are agile and learn fast as well. Fast-track procedures are typically based on business cases or risk assessments with a reduced number of criteria. Thereby, agile principles are associated with continuous oversight of progress along with clear decisions about whether to continue or abort the project.

6. Process digitalization and automation

In tandem with rising numbers of digital and other channels, the number of transactions has increased drastically. Consumer lead time has dropped, especially in e-commerce, and improving operations depends on automatization and digital technologies. Digital technologies can help to simplify and automate new processes and algorithms. For example, by combining product data and real-time tracking, a single data set can be created and used for integrated, improved inventory planning. Digitalization enables transparency and real-time visibility of product inventory across all locations and channels, empowering teams to make the right restocking decisions. Furthermore, with automated no-touch and distributed-order management, companies can establish automatic store restocking and thereby avoid stock-outs and oversupply.

7. Intense collaboration with value chain partners

To remain consumer-centric and improve the consumer experience, consumer product and retail companies that operate in complex omnichannel environments should consider establishing strong partnerships within the ecosystem. Downstream operations in particular have a variety of dynamics that can be managed successfully with good partner integration. For example, serving individual clients who shop online requires individual last-mile delivery of just one or a few pieces, combined with well-organized, highly responsive operations. To enable this, organizations need to partner with third-party logistics providers and transportation companies that specialize in small-lot deliveries. But they also need to fully integrate these partners’ IT processes and governance into their own systems to avoid creating additional silos. All partners should have visibility of the full inventory and use this as one pool for suppling their consumer.

The COVID-19 pandemic has had a dramatic and long-lasting impact on consumer behavior. The rise of digital channels, combined with the continued importance of in-person shopping, increases the pressure on consumer product and retail companies to serve customers seamlessly and effectively across all channels, not just a few.

To meet these accelerating demands, companies need to rethink traditional operating models and siloed approaches. Organizations that reimagine the entire supply chain operating model by reshaping processes, structures, and people across all channels will be poised to overcome challenges, maintain profits, and succeed in an ever-changing world.

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