Post-Pandemic Retail and Omnichannel Logistics

2021-03-11

Post-pandemic retail and omnichannel logistics

The pandemic has significantly affected consumer behavior. Most obviously, anti-epidemiological measures have shuttered brick-and-mortar stores, but they have affected e-shops as well. Although their share of purchases grew globally, online shops also had to innovate new processes and adapt their operating strategies to the "new standard".

From the point of view of maintaining operational and business continuity, the omnichannel sales model has proved its worth. At a time when the boundaries between online and offline shopping are blurring, omnichannel sales can already be considered the norm not solely in e-commerce industry, but also in the case of brick-and-mortar shops. This is expected to remain the new standard beyond the pandemic. It will obligate logistics industry and warehouse operators to become more flexible and resilient enough to meet the ever-changing demands of markets and alternating consumer preferences.

COVID-19 AS A CATALYST FOR THE DIGITAL TRANSFORMATION OF THE DECADE

The COVID-19 pandemic has been identified as a catalyst for the digital transformation of the decade. The impact of the pandemic has been felt in almost all sectors of the economy, especially in retail and services. The circumstances of the new normal have changed the patterns of consumer behavior, especially the mass use of online shopping. Online shopping had already been regarded as fast, widely accessible and comfortable, but the pandemic added two additional attributes: safe and inevitable.

E-commerce remains on the steady rise both on the domestic markets and global ones. In the shadow of the e-revolution, both retailers and brands began to close their brick-and-mortar shops. However, the purpose of e-commerce is not to eradicate the traditional forms of shopping. Recent innovations have actually generated new approaches to the “offline“ purchase, in terms of meeting individual customer preferences, and optimizing the operational processes.

Thus, although the dominance of e-commerce has strengthened during the pandemic, brick-and-mortar stores will not become obsolete anytime soon. However, they are going to be integrated into a hybrid sales model. The boundaries between online and offline shopping are being gradually erased, and the organic interconnection of the physical and digital customer experiences will become a post-pandemic new norm.

As business strategies are being adapted, operating strategies naturally need to be tailored to meet them. This primarily refers to logistics, and warehouse and inventory management. These are the spheres which will be most impacted by the changes resulting from the hyper-personalization of the shopping experience. The transformation does not exclude wholesale procedures either, which have also had to revise their operating models as a result of the pandemic, in particular by switching to picking and packing smaller orders.

Rise of new retail

The fourth industrial revolution has been primarily associated with manufacturing, due to the widely celebrated concept of Industry 4.0. However, digital transformation and intelligent automation have actually become global phenomena across all economic sectors and industries, not least wholesaling and retailing.

Warehouse management systems (WMS) have already become standard tools for inventory management and warehouse logistics, just as enterprise resource planning (ERP) systems have become a natural part of financial and administrative processes in firms. The Internet of Things (IoT) connects devices, people, data and systems, giving warehouse logistics unprecedented flexibility and operational agility. In addition, machine intelligence technologies have brought a new level of autonomy to logistics processes, resulting in an improvement in companies’ overall operational intelligence.

Regarding retailing, wholesaling and e-commerce, digitalisation unfolds on two levels simultaneously:

  • for customers (customer experience)
  • for warehouse management and logistics

The purpose of digital transformation is to create synergies between sales and order fulfillment in order to ensure smoothness, promptness and customer comfort in both processes.

For customer experience, important roles are played by technologies such as:

  • social networks,
  • mobile applications,
  • chatbots,
  • recommendation algorithms,
  • and user interfaces of shopping platforms and portals.

Meanwhile, inventory and warehouse procedures, together with order fulfillment strategies, must be adequately adapted to sales channels and business models. Inventory handling and order dispatching need to be dynamically managed either directly in the seller´s warehouse or at a partner’s distribution center providing order fulfillment services.

Efficient and effective handling of large volumes of diverse orders can no longer be done without responsive warehouse management systems and intelligent logistics solutions, which employ digital twin technology and artificial intelligence (AI). The processes of digitalising sales and logistics are organically interconnected, mutually conditioned, and they co-create the concept of the so-called new retail (Retail 4.0).

OmniCHANnEl logistics as a NEW standard

One of the consequences of the accelerating digitalisation of retail is the expansion of the number of available sales channels. Consumers' shopping behavior already takes place across several different channels:

  • customers can browse for the desired goods online,
  • try them out at the store,
  • order them via an app or by phone,
  • and finally pick them up in self-service parcel lockers near their home.

In order for customers to be able to choose the option that suits them best during each step of the purchasing process, sellers must also have those channels available.

A similar concept, where the customer can choose between the available options, and decide where to then perform the entire process of purchase (order), has been used for some time as a multichannel sale. The omnichannel model includes reverse logistics for the return of goods.

However, the acceleration of digitalisation and new technologies has broken down the barriers between these options, as well as between online and offline shopping. The growing tendency towards customer-centricity has led to the emergence of omnichannel sales model. This is an organically connected and complex sales process that includes shopping experience and customer care.

In order for an omnichannel model to achieve timely and accurate deliveries, sales and order fulfillment processes need to be integrated and synchronized. This means merging different systems and platforms into a single coherent digital ecosystem:

  • from social networks,
  • web platforms,
  • payment portals,
  • ERP systems,
  • to warehouse and inventory management systems (WMS),
  • quality control systems (QMS),
  • packaging and shipping,
  • and customer delivery (TMS systems and other types of management systems related to last mile delivery).

A new generation of customer order FULFILLMENT

The omnichannel sales model expands the complexity of inventory and order management processes. We are seeing this take place rapidly at the present time, when businesses are trying to:

  • shorten order picking cycles,
  • optimize the throughput in warehouse and logistics flows,
  • streamline warehousing,
  • and ensure the efficient packaging of goods and the timely shipping of orders.

This is why the warehouse is becoming a critical point of the retail inventory and delivery infrastructure.

Current information management systems can process product data (such as item size) and order data (order history of a particular item) in real time. As a result, warehouse management systems can make good use of warehouse spatial availability, dynamically adjust picking strategies, and automate stock replenishment according to current turnover (or based on other defined factors such as the expected seasonal peak). A dynamic warehouse can also respond flexibly to market fluctuations or sudden changes in consumer behavior (for example, in certain selected preferences).

Due to the complexity of the entire order fulfillment process, and taking into regard initiatives to streamline logistics flows and the increasing agility of order processing, logistics management systems are gradually being integrated into larger entities. In terms of WMS systems, which provide inventory management and order picking, a new sought-after solution is the Warehouse Execution System. WES system provides a comprehensive platform for warehouse, inventory and order management with extended e-commerce and retail logistics functionality as well as order fulfillment processes.

WES systems use the latest technologies such as digital twins and machine learning algorithms, which allow for a more responsive combination of diverse strategies for slotting and order picking. Innovative warehousing principles include:

  • SKU mirroring,
  • dynamic slotting (optimization of warehouse positions according to current or planned turnover of goods: the most requested goods are stored as close as possible to dispatch),
  • and the automatic selection of picking modes (e.g. zone, wave or cluster picking, or a combination of these) to best suit incoming orders (based on volumes and sizes).

Intelligent systems such as WES platforms and digital technologies make it possible to transform warehouses into multifunctional operations. Distribution warehouses can thus offer added value in the form of additional services resulting from operational agility (structural and process flexibility), as well as in the form of additional functionalities:

  • product assembly or kitting,
  • quality control,
  • packaging or repackaging services, and others.

In addition to being distribution centers (or logistics hubs), they can also become order pick-up spots.

The modularity of WES systems and the scalability of their functionality also make them a suitable solution for manufacturing businesses. When their distribution networks were partially disrupted during the pandemic, some manufacturing companies continued their operations by delivering their products directly to customers from the warehouse (or distribution center) without relying on brick-and-mortar stores or other sales and distribution partners.

This model of direct distribution (D2C) is beginning to take root, and not only among manufacturing start-ups. The swift adoption of D2C model also demonstrates how a truly agile company might look. Thanks to digital technologies, manufacturers are able to flexibly change their initial focus from the B2B segment directly to consumer (B2C) markets, whether for strategic or emergency reasons, and thus maintain their business and operational continuity. And firms can also benefit from the omnichannel sales concept to achieve their business goals.

Digital trends 2021 in retail

 
 

In 2020, consumers were forced to alter their shopping habits. Once the pandemic is taken care of, it is expected that customers will return to some of their old habits, but not necessarily to all of them. With the increase in online shopping, customers have started returning more goods, as they are unable to try or inspect the items prior to purchase. Therefore, sellers (and their intermediaries) have had to ensure the smoothest possible processing of complaints and returns of goods, while respecting hygiene measures. These developments in reverse logistics have facilitated the growth of the omnichannel model

While picking up return goods by courier remains a popular, if not necessarily the most economical, option, it is expected that in 2021, there will be an increase in the rate of goods returned in store, even if those goods were originally purchased online (the so-called BORIS model - Buy Online Return in Store). Ensuring the effortless operation of two-way logistics from the seller to the customer and back will be a challenge for retailers in the upcoming period. However, finding a solution will lead to long-term innovation since two-logistics is a basis for the concept of circular logistics and circular economy, which should soon become a new standard in terms of sustainability.

Reducing the cost of reverse logistics is another trend for 2021. One of the most effective solutions to cut down the number of returns is to ensure that customers are satisfied with their purchases in the first place. This means that stores are having to focus more on the pre-purchase process (customer experience) so that customers have a clear idea of what they are buying.

Preliminary experiments confirm that the use of augmented reality (AR) technologies and graphic visualization, tools that many retailers are already using, reduce the amount of returned goods in the range of 25% - 40%. The amount of video content about products is increasing as well, largely via the medium of influencers, as an alternative way of introducing goods to consumers in the virtual sphere.

Social commerce, i.e. shopping on social media platforms, will continue to be a strong sales channel, as brick-and-mortar stores remain closed due to the pandemic. Regardless of the COVID-19 emergency situation, social commerce has established itself as a common shopping channel a long before the pandemic outbreak. The growth in number and variety of social networks is leading to an increasingly precise segmentation of consumer demographics, which sellers can employ for better targeting.

The hybrid model of online and physical shopping will survive the pandemic period. Online retail and brands will gradually build a physical, not just virtual, presence. Dynamically managed order processing and fulfillment enable a flexible transition from the digital to the physical environment, as well as the integration and interconnection of online and offline shopping.

Thanks to the data available to them, retailers are increasingly well positioned to identify the locations where their potential customers are concentrated. Following the pandemic, retailers and brands will be able to accurately target their potential customers via pop-up stands or kiosks. These allow a great deal of flexibility in terms of shifting locations, and they also have lower operating costs than brick-and-mortar stores.

The omnichannel strategy includes a hybrid distribution model that combines online shopping with sales in brick-and-mortar and pop-up stores. This model leads to decentralized sales and accurate targeting of individual consumers. WES systems enable the simultaneous

  • picking and dispatching both of large wholesale shipments of goods for brick-and-mortar shops and kiosks,
  • and small direct deliveries to individual customers.

The use of machine learning and AI will continue to grow. Intelligent warehouse and automated inventory management systems will adopt algorithms, similar to those which recommend goods to consumers through sophisticated and personalized analyses, in order to optimize the total picking time.

The boundaries between virtual and physical shopping have been wiped out and logistics management must inevitably adapt to the new omnichannel paradigm. The high degree of personalization and customization that retailers offer customers in purchasing and transport methods can no longer be fulfilled efficiently and competitively without intelligent and automated logistics management.

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