ITLC Corner: Omnichannel Networks Demand Flexibility

This story appears in the March 14 print edition of iTECH, a supplement to Transport Topics.

Retailers are working to identify technologies that will help them build better omnichannel networks, with everything from warehouse distribution systems to mobile devices for in-store staff included in the mix.

This increasing focus on serving customers both online and in store while expanding product delivery options has created a need for more flexible transportation services as well.

Joe Howard

“On the technology side, retailers have invested in a lot of bright, shiny objects [such as] kiosks and online dressing rooms,” said Su Doyle, a market strategist for Checkpoint Systems, a provider of technology for the retail industry. “Now they’re investing more on the less glamorous side: How do we deliver rather than how do we sell?”

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Some companies have viewed their brick-and-mortar stores as mini-distribution centers, but staff in these locations must have the technological and professional capability to handle an influx of online order fulfillment, said Brian Gibson, professor of supply chain management at Auburn University.

“It’s still early in the game, and retailers are building store-based fulfillment on the fly,” he said. “The situation only gets more complex as more options come onboard. It’s not just about having the right product; it is about speed to market. How fast your supply chain can fill demand is a differentiator.”

But with these and other online gains will come the need for additional last-mile delivery services, Gibson said. “If you’re using your stores for pick-up, that means you have to increase deliveries,” he said.

“Flexible last-mile delivery” is vital to the success of this evolving omnichannel model, Jess Dankert, senior director of retail operations for the Retail Industry Leaders Association, said during a recent conference call hosted by Stifel, Nicolaus & Co. transportation analyst John Larkin.

“Things used to be more linear — distribution centers and ports,” Dankert said. “That was easy to plan for, compared to what we have now, which is store-to-store, distribution center to customers, and fulfillment at stores. You’re trying to optimize all of these modes and planning for different eventualities.”

Technologies such as route optimization can help, said Doyle, of Checkpoint Systems. “With all of these tiny shipments, we are seeing more trucks that are not quite full,” she said. “Technology can come into play to ensure that [routes] are optimized or prioritized. It makes the process of inbound processing much easier.”

And carriers may soon need the help, as scheduling and managing deliveries will only become trickier as consumer options expand, Gibson said. “I think the real potential for change is in that last mile,” he said, “either from stores to customers or from distribution centers to relatively local stores. These are the areas where we may see some change and challenges.”

He added, “I think we are going to continue to see common carriage to the distribution centers, a lot of dedicated contract carriage from distribution centers to stores, or private fleets from distribution center to stores, like we have historically.”

With so much activity, retailers are increasingly willing to work more closely with carriers to solve shipping challenges, Dankert said.

“I think there is a lot of focus on the part of retailers and other cargo owners to make themselves more attractive to the common carriage and trucking companies,” she said. “There is more of a willingness to view it as a partnership where they are working together to achieve a goal, versus a strict order-taking approach to things. It’s a more collaborative relationship.”

One important element of a nimble omnichannel supply chain is the capabilities of retailers’ in-store staff.

“The labor piece is a lot of the challenge,” Dankert said. “You have to get people in the store to do what are traditionally supply chain functions. Retailers are making big gains, but there is a lot to be done.”

Developing technological tools with which workers are familiar — such as mobile applications — can help, Doyle said. “If you make something an app, it makes it less arduous,” she said. “They can use a smartphone to find things for customers. It is more in line with how they like to work.”

But Doyle added that experienced employees also can add a lot of value. “Store operations is dependent on institutional knowledge,” she said. “If you bring in temporary labor to fulfill omnichannel demand, they don’t know how to find something. This is a training issue and a cultural issue, but you cannot take time away from serving customers.”

Stores can bring in supply chain experts to help transition into the “mini-fulfillment centers” some retailers envision, Gibson said. “The supply chain has to provide some support as these responsibilities are seeping into the stores,” he said.

There are some success stories. Major retailer JCPenney credited its strengthening omnichannel capabilities for holiday sales that outpaced expectations and bested the results of key rival Macy’s, despite the latter company’s similarly strong online sales toward the end of the year.

“Our strengthened omnichannel capabilities enabled our supply chain network to process millions of jcp.com orders this season, supported by 250 stores across the country that helped fulfill online orders using in-store inventory,” JCPenney CEO Marvin Ellison said in a press release. “With this level of selection, we saw more online customers take advantage of our in-store pickup option available at over 1,000 JCPenney stores nationwide.”

Macy’s CEO Terry Lundgren said holiday declines in the retailer’s in-store results were offset by online gains.

“We are buoyed by a very strong performance in our digital business, with continued double-digit increases in online sales,” he said.

He noted that, toward the end of 2015, the company filled nearly 17 million online orders at macys.com and bloomingdales.com — a record and an increase of about 25% from last year. He credited new fulfillment capacity, site functionality and aggressive digital marketing for these gains.

Joe Howard, information manager for ITLC, is a former editor at Transport Topics. He can be reached at jhoward@trucking.org.