New Retail and Omnichannel Distribution

2020-07-21

new retail omnichannel distribution order fulfillment ecommerce supply chain

An omnichannel distribution strategy is becoming a necessity for the e-commerce industry. New logistics technologies have contributed to streamlining material flows and creating a more comfortable consumer experience when shopping online.

Digitalization has fundamentally affected businesses and how people do their shopping. According to a study, up to 74% of consumers rely on social media for their buying decisions, and about 71% of consumers are more likely to buy a product based on a recommendation they found on social media. Another study found that up to 31% of consumers use social networks to find new products to purchase. If these statistics are anything to go by, social networks have significantly influenced and altered consumers' shopping behavior, and retailers must adapt and adopt new business strategies.

The speed, availability, and convenience of online shopping have contributed to the sharp growth of e-commerce, and the industry has begun to threaten established brick-and-mortar stores. The massive shift to this new business model plus the scale of the changes initiated by the e-commerce industry have resulted in a phenomenon referred to as the “e-revolution”.

Now more than ever, logistics processes require speed and availability. While social media connectivity has been most affected by consumer pre-purchase behavior and decision-making, the interconnectivity enabled by digital technologies has no less significant impact on the delivery process itself – from successful order acceptance to inventory management, and order fulfillment, i.e., picking, packaging, dispatching, and delivering orders to customers.

global retail sales e-commerce order fulfillment

Retail e-commerce sales worldwide 2014-2021 (source: Statista)

 

Digitalization of Retail and the Arrival of a New Retail

Digitalization and new technologies have been adopted by all industries. With the onset of the fourth industrial revolution, the resulting innovative possibilities exposed the features and capabilities traditional technologies were incapable of – potentials that were previously inconceivable. The Internet of Things (IoT) has connected people, devices, data, and systems, thereby giving manufacturing and logistics processes unprecedented flexibility and operational agility. Moreover, machine intelligence technologies brought a great deal of autonomy to business processes, leading to an increase in the overall operational intelligence of companies.

The same applies to wholesale and retail segments. The fourth industrial revolution presented novel tools for manufacturing, and the entire material flow and supply chains experienced digital transformation.

Logistics, as with the manufacturing industry, has gained a degree of intelligence thanks to new technologies, such as the Internet of Things (IoT), Internet of Services (IoS), and the digital twin technology. Regarding retail, wholesale, and e-shops (e-commerce), digitalization unfolds toward customers and processes.

Social networks, mobile applications, chatbots, and the user interface are primarily concerned with communication, interaction, and the seller’s platform, directly with customers.

Intelligent and dynamic inventory management systems, last-mile delivery digitalization, and digital twin technology concern logistics processes that ensure the most efficient order fulfillment. Both areas are organically interconnected and are part of the concept of new retail (Retail 4.0).

retail order fulfillment supply chain warehouse inventory management new technologies

                                                                   (source: BDO)

Omnichannel Strategy as Retail 4.0

Digital technologies ensure complete integration of processes, from the ordering system on the store's website and the accounting system (ERP) through inventory management (WMS) to shipping and delivery (TMS).

The integrability allows retailers and stores to adopt the omnichannel sales strategy that is becoming essential in today's highly competitive environment. An omnichannel strategy is a form of sales and customer care available on various channels, including online shopping on mobile devices and computers; telephone ordering, or shopping directly in a brick-and-mortar store.

Integration and automation by new technologies are the means to interconnect, network, and coordinate individual components and assets throughout all channels. In practice, this means that a customer has access to advanced functionality that lets them:

  • Verify the availability of items in the seller’s stores or distribution centers in real time
  • Make purchase online
  • Then pick up the goods in a brick-and-mortar store

This hybrid model is known as "click & collect."

Alternatively, they could shop directly in the brick-and-mortar store and have the order delivered by courier to a provided address. Sellers strive to ensure the best and most comfortable customer experience, including the customization of consumer preferences regarding the browsing, payment, and delivery of orders.

A functioning, smooth customer experience necessarily means the integration and coordination of diverse processes of order fulfillment. These processes take place at the micro level of the warehouse and distribution center and the macro level of supply chain management – most notably, order receipt and processing, inventory management, management of order picking and packaging technology, human resources in the warehouse and dispatching, as well as transport management and last-mile delivery.

retail order fulfillment supply chain ecommerce

                                                                       (source: BDO)

New-Gen Intelligent Management of Order fulfillment

Securing smooth and fast order flows means integrating the e-shop platform with the ERP system, followed by compatible integration with inventory and labor management systems, usually through warehouse management systems (WMS).

The pressure to accelerate order-picking processes, increase warehouse throughput rate, and compete for shorter delivery times means that the functionality of transport management systems (TMS), as well as loading and unloading management systems (YMS), are integrated into the companies larger digital ecosystem.

Due to the complexity of the management process of entire logistics and the need to streamline logistics flows, management systems are gradually being integrated into larger infrastructures. For WMS systems, warehouse operators are increasingly moving toward a new generation of management systems – i.e., warehouse execution systems (WES). These systems represent a comprehensive platform for dynamic management of warehouse and order fulfillment operations based on manufacturing execution systems (MES).

Personalization in e-commerce is not only about identifying and forecasting customer preferences – it’s also about managing inventory, warehouse, and material flow. Modern warehouses no longer serve solely as temporary transshipments. Given the potential for new technologies and process integration, they are also providing added value via services such as final assembly, quality control, packaging or repackaging of materials and orders.

Digitalization, automation, and vertical integration of processes transform warehouses into multifunctional spaces capable of providing additional on-demand services. Besides serving as distribution centers, they can also become points of order collection or even a brick-and-mortar store where customers can purchase products via a mobile application (i.e., browsing products available in the warehouse in real time) to have them collected in following minutes (dynamic management of order-picking). Warehouses can also act as transshipment points (logistics node) in the supply chain and collection and procession points for reverse logistics flows.

The multifunctionality, traceability, and visibility of logistics movements across the entire supply chain contributed to the crossing of the omnichannel strategy from the environment of e-commerce (focused on the end user, i.e., B2C) into manufacturing industry (B2B model).

warehouse automation management order fulfillment supply chain innovation retail manufacturing

Warehouse automation singled out as the top investment priority for retailers and manufacturers (source: eyefortrasport)

Digital Retail in 2020

The flexibility and personalization of intelligent logistics management systems not only allow for an individual approach to customer preferences. They also give warehouse operators and e-commerce companies the space to experiment with business and process strategies. They can test new procedures, which, thanks to traceability and immediate access to data, can be simulated and evaluated almost immediately, and thus let them choose the most effective procedures.

Increasing the amount of available data also makes it possible to prepare reliable forecasts and models. On the other hand, machine intelligence tools are no longer used only in advanced analytics prediction. They are also gaining traction in order-picking processes and dynamic warehousing strategies, both of which are also driven by product seasonality (trending) and turnover rate.

Thanks to new technologies, the trends of the new retail for 2020 include an extended personalization of the shopping experience. Customers will be able to have products tailored to their preferences upon purchase. Customers can, for instance, have their shoes custom-built such that they can have a one-of-a-kind pair from Nike. A similar service has already been rolled out by clothing manufacturer, Levi’s.

The omnichannel shopping experience will continue to dominate the 2020s – a period in which the boundaries between online and offline shopping will gradually dissolve. Online retailers (e-commerce) will also find it easier and more flexible to move around the physical space with pop-up stands and kiosks, mainly due to the dynamic management of inventory and order flows.

Furthermore, pop-up stands allow retailers to flexibly employ a strategy of decentralized sales – temporarily placing collection points as close as possible to the end user (for example, during the Christmas season in selected malls or close to relevant points of interest and gathering).

Shortening delivery times in 2020 remains a priority for online retailers and e-shops. To buttress this, PwC found that up to 88% of consumers are willing to pay extra for delivery of order on the day of purchase.

The shortening of delivery times (and order-picking lead times and cycles) is becoming a strong competitive tool in e-commerce. Businesses will, therefore, focus more on streamlining and automating last-mile delivery, as well as decentralizing their supply network and supply chain. They can effectively plan and manage logistics flows here, thanks to intelligent management platforms like WES systems.

technology trends innovation digital transformation automation e-commerce retail trends

                                                             (source: SearchNode)

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