Making omni-channel fulfillment processes profitable is imperative for CEOs, says JDA report

While keeping customers content is clearly responsibility number one, the objective for every business is turning a profit, and that is where myriad challenges and issues pertaining to being in the black lie. That is a major takeaway in a report entitled “The Omni-Channel Fulfillment Imperative,” which was prepared for JDA Software Group Inc. by PwC.

Data for the report was based on a global survey of more than 400 global retail and consumer goods CEOs, which was conducted in late 2014.

One of the biggest data points in the report–in terms of margin erosion for retailers selling and delivering products across multiple channels–has to do with the high cost of fulfilling orders related to omni-channel selling, including
-71 percent of respondents citing handling returns from online and store orders;
-67 percent of respondents citing shipping directly to the customer; and
-59 percent of respondents shipping to the store for customer pick-up

In an interview with LM, JDA SVP for Retail Wayne Usie said that these findings are interesting, especially when considering that the surveyed CEOs, on average, plan to invest 29 percent of their respective 2015 capital expenditures on improving omni-channel fulfillment performance, with more than half of them expecting to increase spending on that area in 2015.

“The margin pressure here is surfacing at the top,” he said.  “There is a gap between what the CEO’s thought they were not delivering as a capability to customers versus what they thought was the highest priority. Logically, they would surmise that inventory visibility for customers across any channel was key and then being able to provide an inventory experience to support that and be able to fulfill from anywhere was also critical.”

Taking that a step further, he said there is now a need to deal with the volume of frequent transactions everyday that now need to be optimized, especially as it relates to transportation.

In transportation and warehouse management some of the logic included in optimized variables for those processes also need to be part of the customer experience for ordering processes. The reason for that, he said, is that the retail model is built for moving goods from the manufacturer to the store, and now with parcel emerging due to gains in omnichannel, many networks are not built to support that.

“The same kind of optimization that has been in the supply chain for decades now has to go into optimizing orders, which also includes returns,” he said.

What’s more, the report found that a mere percent of CEO respondents-and 19 percent of the top 250 retail CEO respondents-say they are profitable while delivering on omni-channel demand, which it said drives home the point that it is still from a seamless process.

Nearly 90 percent (88 percent) or CEO’s in the report said that the area where they most need to pay the most attention is transportation and logistics. The report explained that the reason for this is it goes back to the “basic blocking and tackling of supply chain.”

This is due in part to a mindset by retailers to use stores as fulfillment centers and serve online orders out of these locations, as opposed to a productive parcel facility, which is more optimal, according to Usie.

“It is a pick, pack and ship product in a store, where labor is very different than it is in a warehouse in regard to productivity,” he said. “Shipping out of a store also has to do with parcel shipments via FedEx or UPS or USPS, whose costs are higher for last-mile delivery.”

Another area in need of more attention, according to JDA, was improving inventory availability while controlling costs at 52 percent. The report said that surveyed CEOs realize that positioning the right inventory and assortments close to customer delivery points is critical for achieving customer satisfaction and profitability.

Being profitable while being actively involved in omni-channel fulfillment was viewed as a high or top priority for 71 percent of survey respondents, with 34 percent saying it is a number one priority. And these CEOs plan to spend 29 percent of their total capital expenditures on improving their omni-channel fulfillment capabilities, with top 250 retailers accounting for a 61 percent increase in investment compared to last year.

“It has been taking a while for us to help them understand what an important issue this is,” he said. “And now they are moving like crazy on it. So it was a surprise to us in how fast they are acknowledging the level of investment here.”