Omni-channel Retailing. Impacts and challenges on the supply chain


Term Paper, 2017
26 Pages, Grade: 1,0

Excerpt

Table of Contents

Table of Contents

Table of Abbreviations

List of Illustrations

List of Tables

1 Introduction
1.1 Issue Statement
1.2 Goal and Approach

2 Case Description
2.1 Omni-Channel and Omni-Channel Services
2.2 Traditional Supply Chain versus Omni-Channel Supply Chain
2.3 Impacts and Challenges on the Omni-Channel Supply Chain

3 Solution Approach

4 Conclusion and Critical Reflection

Bibliography

Appendix

Appendix A: Example of an Omni-Channel Customer Experience
Appendix B: Gartner Analytic Ascendancy Model
Appendix C: Solution Table

Table of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Illustrations

Figure 1: Different Channel Strategies

Figure 2: Traditional Supply Chain

Figure 3: Omni-Channel Supply Chain

Figure 4: Distributed Order Management

List of Tables

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

1.1 Issue Statement

"When I was shopping recently, I saw shoes in the shop window that caught my eye. I went in the store and asked a shop assistant about this shoe in my size. Unfortunately, the size was no longer in stock. At that moment I wished the assistant had offered to order the shoe for me and have it delivered to my home address or to reserve the shoe for me as soon as the next delivery arrives. However, this did not happen. So I used my smartphone to see if the shoe was available in the online shop or in another store nearby. Regrettably, this was not possible as well. Not even a hint when the shoe will be available again or if there will be a follow-up delivery. After this experience my shopping day was over and I wondered why such simple things are not possible in today's digital world."

This is not an individual experience of the author of this case study. Many retail compa­nies are far away from timely customer orientation although the effects of digitization and new technologies have changed the world of retailing in the past decades.1 Sales via internet are booming and simultaneously, the mobile technology usage is purchasing and growing even more rapidly leading to a big change in the customer behavior. While the consumer used to go to the nearest retailer and seek advice there in order to make the subsequent purchase at this retailer, the process has changed considerably. Today, purchasing decisions are increasingly being made outside of shops and are accompa­nied by digital devices.2 This confirms a study by Deloitte, which shows that 92% of all consumers already research information online before or during their shopping trip.3 Moreover, customers aren't just digital. They are always connected via the internet and expect a consistent buying experience across all retail channels, independent of place, time, used technology or channels. This means, for example, that the customer wants to return online ordered purchases in the store or that unavailable goods in the shop are ordered by the seller from another warehouse and delivered directly to the customer's home.4

These expectations do not correspond to the multi-channel approach, which is largely implemented in the retail sector. In a multi-channel approach the channels operate inde­pendently and are often in competition with each other.5 Perceived as an evolution of multi-channel retail is omni-channel retail. Omni-channel is rated as a top driver of the digital transformation in retail and enables new interactions with the customer in selling and delivering goods.6 The customer has the possibility to order goods anywhere, any­time and on any device. Simultaneously, the customer can move freely between different channels within a single transaction process.

However, implementing an omni-channel business model is more than opening an online store. The transformation to omni-channel confronts the retail with lots of challenges and has a major impact on their supply chain. Therefore, it is important for retailers to under­stand these impacts on the supply chain and to address the challenges they face.

1.2 Goal and Approach

The issue statement explains the fact that omni-channel is becoming more and more important and the retail is facing the task of becoming more customer-oriented. Accord­ingly, the aim of this case study is to identify impacts and challenges of an omni-channel business model on the retail supply chain. Based on this, recommendations and possible solutions will be presented which the retail should adapt along its supply chain in order to respond to the identified challenges. On one hand the solution approach should be based on extensive literature research and on the other hand the solution should be developed by the author on the basis of the knowledge from the lecture "International Operations Strategies ".

In order to fulfill this goal, an omni-channel business model and omni-channel services are explained at the beginning. After that, the omni-channel supply chain is compared with the traditional retail supply chain. Based on this, impacts and challenges are identi­fied before possible solutions are worked out in the third chapter.

2 Case Description

2.1 Omni-Channel and Omni-Channel Services

Om η ¡-channel is a business model across all available sales channels which - whetheronlineor offline - are networked in terms of information technology and form asingleunit. The purchasing process is characterized by multi-channel and cross-channel, with a focus on information procurement and product information.

MuIti-channeI:Each sales channel is individually and the purchase process takes place in only one channel. The channels are not integrated. They exist side by side without interacting.
Cross-channel:This approach is similar to the multi-channel approach but the dis­tribution channels are interlinked. This means that the customer can obtain infor­mation and place orders on all available channels.
Omni-channeI:This approach is a further development of cross-channel. The differ­ence is that the customer can access the entire range of all channels at any time, regardless of the selected channel. The channels are connected and can be changed at any time. At the same time, the customer's wishes and expectations are in the center of the sales and purchase process.7

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Different Channel Strategies

Omni-channel customers can use all available sales channels (e.g. retail stores, online and mobile stores, telephone, etc.) during the purchasing process. For example, the cus­tomer can start the purchasing process in one channel, switch to the next channel and terminate the process in a third channel. As a result of these developments, customers no longer perceive the limits of the individual sales channels as such. For them, there is no difference whether you buy online or offline. Within an omni-channel business model, customers can easily switch from offline to online and the other way around at any stage of the information and purchase process without losing any information or configuration.8 In practical terms, this means for retailers that the shopping experience of their custom­ers is non-linear. Customers switch between stores, online shops, mobile devices and other channels with just one finger tap. Appendix A illustrates an exemplary omni-chan­nel customer experience. To meet this trend, various omni-channel services have been established in the retail sector:

-Click and Collect:The customer has the possibility to have his online ordered goods delivered to the shop instead of home. This is the easiest omni-channel service. This service can be subdivided into two characteristics. Atclick und buy,the goods are already paid online and then delivered to the store. Atreserve and collect,the goods are reserved online and will be paid when they are picked up in the shop. In case of reserve and collect, there is no purchase contract which means that the customer can still test and inspect the goods when they are picked up at the store.
-In-Store Return:The customer has the possibility to return products bought online in the store. The customer saves the return costs and can look for alternative goods in the store if necessary.
-In-Store Order:The customer receives on-site advice and support from local sales staff by consulting the customer with the help of a tablet. For selection on the device, not only the assortment of goods on site in the store is available, but also the complete available assortment. When placing an order, the customer can decide whether the goods are to be delivered to the store or to his home address.
- Online Availability Display:This service is the least common due to its complexity. When buying online, the availability of any distribution center or store stock is taken into account and the customer receives the most reliable possible answer about the stocks.9

For the supply chain, omni-channel means a complete visibility across channels, along with a holistic view of the path to purchase. This aspect will be discussed in the next chapters by comparing the traditional supply chain with the omni-channel supply chain.

2.2 Traditional Supply Chain versus Omni-Channel Supply Chain

A well-fu notion ing supply chain with optimized warehousing and distribution processes is of critical importance.10 The supply chain connects the various players from the sup­plier to the end customer and consists of the flow of information, materials and money that can move in both directions. In a traditional retail supply chain, to transport goodsfromthe factory to the end customer, a multi-stage supply chain is used.11 In the context of this case study, the traditional retail multi-stage supply chain is simplified and viewed generically. As shown in figure 2, the supply chain is built up of suppliers, factories, transport logistics, distribution centers and stores.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Traditional Supply Chain

Supply chains like this were traditionally regarded as a cost center built for one purpose: delivering goods to the stores with the intention to achieve internal efficiencies, speed up deliveries and reduce costs.12 However, in an omni-channel business model the supply chain has become a front-office for customers and a decisive factor in determining whether they have good or bad shopping experiences.13 Consumers expect their product however, whenever and wherever they wish. To achieve this, the various components of the supply chain must interact perfectly. For example, there is a difference whether the store, the wholesaler or the manufacturer supplies the customer. This means that the customer must be able to order from anywhere and at the same time, order fulfillment must be able to take place from anywhere as well (figure 3).14

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: Omni-Channel Supply Chain

This does not correspond to the traditional supply chain approach. Companies usually have separate supply chains with isolated supporting processes for each channel. This leads to the fact that the isolated view of stationary and online sales is a thing of the past and can no longer be defended against customers today. Because omni-channel retail customers want to be free in choosing between channels at any stage of the purchasing process, the channels must be synchronized and fully aligned. That's the only way to create a seamless and consistent shopping experience - both in sales and fulfillment -across all interaction channels.15

Omni-channel has already become standard in other countries such as the United States or the United Kingdom, and the trend is also becoming increasingly important in Ger­many. However, only a few retailers in Germany are pursuing an omni-channel strat­egy.16 Hence, the following chapters focus on the impact and challenges of omni-channel on the retail supply chain.

2.3 Impacts and Challenges on the Omni-Channel Supply Chain

As already described in the introduction, the digital transformation leads to a major change in customer behavior. Customers expect immediate delivery of their ordered goods, increasing the pressure on retailers and their suppliers as well as on logistics partners. In order to meet the customer's expectations regarding availability and speed of delivery, the products must be available at short notice everywhere and be delivered quickly. The challenge is toshorten lead timesby optimizing and changing the supply chain. In order to achieve shorter lead times, the rapid processing of orders and the delivery of goods to the customer are an essential success factor. Many companies al­ready offer the same day delivery. A pioneer in this respect is Amazon. According to a supply chain leader in a survey conducted by the auditing firm Ernst & Young, is "Amazon [...] defining the delivery standards to which every company will have to aspire."17

Besides that,flexible logistics networkswith dynamic good flows and integrated in­ventory strategies are needed, because the coordination of logistics and fulfillment is another important success factor. Inventories must be available across all channels and the information on products and stocks must bevisiblein real-time on the various chan­nels. Often online stores and stationary stores are managed separately and therefore, the integration of physical and information flows is a major challenge.18

Omni-channel embraces the vision of merging different and often separated supply chains into a single entity. The retail logistics, which aims to make goods available at the point of sale (PoS), is fundamentally different from the logistics in end customer delivery. For example in retail logistics, order picking is carried out using assets such as pallets on which products for the wholesale and stores are transported. A small number of dif­ferent goods are transported in large quantities. Meanwhile in the end customer delivery, many different goods are put together in a small number of packages. This example shows that there is no common process. The products are either designed to be stored on a shelf or to be shipped. If the customer is served both - in the store and via the online shop - packet and pallet deliveries need to be efficiently combined andpackagingneeds to fulfill the needs of both, which proves to be a major challenge.19 But it is not only the packaging that presents a challenge. Also the decisionfrom where the customer is suppliedhas a big impact. For example, the order can be fulfilled and the customer supplied either directly from the store or from the distribution center.

The challenges described in the previous paragraphs can be assigned to the omni-chan­nel services from chapter 2.1, which also include various challenges.

Click and Collect:The challenge here is to decide whether the goods are to be sent directly from the distribution center to the customer or to the store, or whether the goods are to be withdrawn directly from store stock. If the store is supplied, it has to be decided where the delivery comes from. From the next store, which may not be far away, or from the distribution center, which is probably further away. When the servicereserve and collectis selected, transaction processing is another major chal­lenge. The retailer must put the goods aside after receiving the reservation to avoid prior sale. Additionally, there must be a clearly defined time frame for the reservation and in case of a non-purchase, the goods must be returned to normal stock.
In-Store Return:Accounting and processing returns is a challenge here. It is to de­cide whether the goods should be posted and transported back to the distribution center or whether they should be included in the store stock.

[...]


1 Cf. Peter  Verhoef et al. (2015), p. 174.

2 Cf. TechDivision GmbH (2017), p. 6.

3 Cf. Andreas Harting et al. (2015), p. 6.

4 Cf. Hans Kourimsky et al. (2014), p. 4f.

5 Cf. Pang M. Yee et al. (2015), p. 4.

6 Cf. Wolfgang Kersten et al. (2017), p. 24f.

7 Cf. TechDivision GmbH (2017), p. 26.

8 Cf. Ibid., p. 27.

9 Cf. Zukunftsinstitut (2015), p. 42f; TechDivision GmbH (2017), p. 28f.

10 Cf. Deloitte(2015), p.15.

11 Cf. Narendra Agrawal etal.(2015), p.13f.

12 Cf. Deloitte(2015), p. 15.

13 Cf. Ernst and Young (2015), p. 8.

14 Cf. Hans Kourimsky et al. (2014), p. 11.

15 Cf. Pang M. Yee et al. (2015), ρ 4; Deloitte (2015), p. 21.

16 Cf. Hans Kourimsky et al. (2014), p. 5f; Gerd Bovensiepen et al. (2017), p. 15f.

17 Ernst and Young (2015), p. 18.

18 Cf. TechDivision GmbH (2017), p. 43; Wojciech Piotrowicz et al. (2014), p. 8.

19 Cf. Ernst and Young (2015), p. 13.

Excerpt out of 26 pages

Details

Title
Omni-channel Retailing. Impacts and challenges on the supply chain
College
European School of Business Reutlingen
Grade
1,0
Author
Year
2017
Pages
26
Catalog Number
V454110
ISBN (eBook)
9783668868953
ISBN (Book)
9783668868960
Language
English
Series
Aus der Reihe: e-fellows.net stipendiaten-wissen
Tags
Omni-channel retail, Retailing, Supply Chain, omni-channel
Quote paper
Cindy Schröder (Author), 2017, Omni-channel Retailing. Impacts and challenges on the supply chain, Munich, GRIN Verlag, https://www.grin.com/document/454110

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