Omnichannel fulfillment: Definition, benefits, strategies
Retailers: prepare for the unexpected. See how omnichannel order fulfillment can help you adapt quickly to sudden market changes.
How to increase the profitability of a businesses is a key factor on the mind of most execs and managers, as it’s the indicator for growth, longevity, and success.
Over the last couple of years, new business models have been introduced hastily, often driven through digital commerce as a lifeline to meet the needs of consumers and customers alike amidst a slew of restrictions driven by the pandemic.
A couple of notable examples are marketplace adoption, which grew 43%, and fresh direct-to-consumer rollouts that went up by 23%.
Other models already present pre-pandemic flourished too, such as offering Buy Online and Ship from Store (BOPIS – a BOSS move!). We saw this approach growing with only 16% of respondents in our recent survey having it pre-pandemic, to 54% of respondent supporting it during the pandemic and to this day.
Even if we’re now getting into a phase where traditional sales and service channels are picking back up again, most of these business models will continue to exist and gain further adoption as consumer and customers across all industries have learned to use and to rely on these self-service models. It’s easier than ever for them to interact with their favorite brand or suppliers digitally.
Now it’s undeniable that digital revenue growth exploded, but not all growth is created equal. New channels and business models in many cases fueled a variety of variable costs that eroded margins.
Profitable growth: Omnichannel is the new way of doing business
Responding to the urgency and the speed at which new models were introduced much was left unoptimized during the pandemic.
Moreover, with Revenue Growth Management business units being introduced more ubiquitously across companies, also came the breathing down the neck of commercial, sales, and marketing teams to show the desired type of growth.
Profitable growth is becoming a top priority for enterprises to address.
Some of the biggest variable costs impact:
Omnichannel marketing: McKinsey expects a 15-30% growth in consumers who will purchase online for most categories post COVID-19. However, with a return to offline channels, marketers have allocated an equitable mix of 56% of spend on online channels and 44% on offline.
With journeys recalibrated post pandemic, it’s not evident what portion of the budget should be allocated to owned or paid social, search, and commerce channels. This is further exacerbated by strategic gaps identified by CMOs in marketing data and analytics (26%) and understanding of customers and their journeys (23%).
Fulfillment and delivery: With increased demand for last-mile providers and the rising price of fuel, costs are going up. Add-in service fees for storage, picking and packing, kitting for special attention products, and more, it all adds up quickly.
Many are also introducing special packaging for online sales with reduced weight, more compact shapes, and increasingly opting for sustainable materials. Even logistic champions like Amazon are feeling it. Their shipping and fulfillment costs as a percentage of their revenue grew from 18% in 2011 to 32% in 2021.
Returns: Post-purchase care is a big part of the customer experience. Free returns is the second top of mind factor after free shipping when making a purchasing decision with 79% of surveyed shoppers saying it was important.
Online returns however are anything but simple. It requires to offer or partner with reverse logistic providers, employees to verify the item condition and take a decision on how it gets integrated back into the supply chain or if it needs to be disposed. If the product is in a good condition, distribution back to online or offline channel marked as new or refurbished product will additionally increase the overall cost.
Enhanced customer experiences driving cost savings and connecting teams, data, and processes
Beyond product price increases and advertising goals adjustments, other levers may be available to protect profit margins. The starting imperative would be for commercial teams to have a holistic view of the end-to end cost of selling from advertisement to fulfillment to identify mitigation strategies for cost drivers. The good news is that most already have the tools to do so, and a connected enterprise plays a key role.
How to increase profitability: 5 strategies for growth in a connected enterprise
There are five key strategies to increase profitability across your brand or business:
- Keep your brand promise: Don’t disappoint customers with great campaigns that you can’t deliver on
- Inventory alignment and oversight: Technology to give you oversight from supply to demand will keep customers happy and coming back for more
- Simplified returns processes: Making returns easy for customers can increase loyalty and bottom lines
- Omnipresent technologies to power your enterprise from pre- to post-sale, and everything in-between
- Analyze channel partners shared data to build intelligent sales forecasts and customer profiles
1. Fulfill on your promise
Launching a campaign can be daunting work, from identifying your audiences, crafting the right narratives, highlighting the benefits of products, getting the content identified and adapted per channel together with creatives, and launching the messaging at scale. Afterwards, KPIs are monitored, and the consumers start on their awareness journeys, with marketers ready to pause campaigns or change direction if the metrics gathered through the marketing channels aren’t hitting just right.
When the stars align, all the money that has been poured into this effort will generate more traffic and get great conversion rates.
Throughout this process it’s also important to also have a view on inventory levels since a successful marketing motion will sell-out your stock faster. There isn’t much worse for loyal customers having gone through your well-crafted journey than to be disappointed when they finally decide to convert because of a stockout. That last email or ad should not have been sent if there was no way to deliver on the dream communicated.
An integrated marketing solution and order management system can help automatically track inventory to pause ad spend and not waste money on what will ultimately be a disappointed customer, who may turn to a competitor to fulfill on the need at hand.
2. Better inventory allocation
These days supply chain woes are plenty and demand forecasts are on the fritz. As a national home durable merchant selling patio furniture, you would be hoping not to be short on inventory during peak season.
With delays these days, you might get the shipment late and decide to store the newly received inventory in warehouses long-term. At least until the products can be sold at full price at a better time. The storage cost eats up profits and finding warehouse space isn’t a guarantee.
One way to save margins can be to use on-demand warehousing and slowly offload products.
For further efficiency, having a sense of the geographical pattern of where the demand is, supplemented by demographic data of typical buyers can help pinpoint the best On-demand warehousing locations while leveraging online channels to offload some of that inventory to late buyers.
An OMS system can keep track of inventory from contracted warehouses to optimize the order allocation, consolidate shipments, identify advantageous shipping options based on customer preferences, and keep the delivery costs lower.
The future of order fulfillment: 4 trends to watch
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3. Smarter, personalized return processes
With growth of online sales, returns are also increasing.
In the U.S alone, e-commerce returns are a $200B problem, accounting for about 20% of sales.
This can be mitigated by introducing proper deflection strategies during the return request flow and taking the right actions based on the consumer profile.
Let’s take an example of a company selling smart home devices. These may not always be straightforward to install and sometimes an installation step hasn’t been documented well; Hey it happens! Now this company may be facing a slew of RMA, but the right experience through commerce can leverage knowledge base articles usually already available to service agents to inform the customer of common problems and solve for the indicated return reason. A percentage of returns will be successfully deflected for a perfectly good device the consumer needed anyways.
Certain product categories are plagued with returns. Having a problem with serial returners buying clothes and returning them shortly after? By properly building a consumer profile and linking return transactional data, new personalized journeys can be introduced based on the person returning.
Stocking fees can be mandatory for serial returners, or they can be routed to a service agent. For VIP customers and low value items, a “Just keep-it” return tactic can be used to save on return logistics costs, but for that, the cost of goods sold, and the cost of returns must be visible and accountable per product. This information can be pulled from your back-office and embedded into the customer experience process flows themselves.
4. Omnipresent to service customers
Let’s look at a common B2B theme, where it’s often difficult for sales reps to get enough face-time with their customers to be order makers instead of order takers.
Let’s take a rep that visits a point-of-consumption location, like a pub, and in the short time there, they must get an understanding of interactions that may have happened with other representatives from the company like delivery drivers, then check on any follow-ups that may have been raised to the inside sales agent, check that inventory levels are still right, share sell sheets on new products, and take an order to ensure the pub will have enough stock.
That’s a lot, specially if the visit happens before the dinner rush and the next free hour for the pub manager will be in the early hours of the morning before closing.
With the right commerce experience, these interactions can be started in person, with more time be spent on selling, while leaving the more tactical activities to be done in a self-service manner.
Sales reps can take more time being consultative on what the right mix of products and quantities should be while collaboratively building a shopping cart in person. The customer manager can then checkout the cart and read any marketing or educational assets on their own time.
Web interactions can be captured to inform the sales rep of any products viewed by the pub manager and B2B marketing can be leveraged for personalized automated follow-ups. This effectively extends the office hours of the rep to helps boost average order values by creating proper sales orders and not just replenishment orders.
Furthermore, visits can be done less frequently, reducing the cost-to-serve while still be present digitally.
5. Insights from channel partners
Everyone would agree being the supplier of choice for your channel partners who serve, and at times fully own the relationship with your customers is crucial. But often, these partners can be non-captive to your brand and will chase the biggest rebates available.
One way CX can help is to create an overview of your customer base needs to understand better what product assortments to bring to market, and in which locations, maximizing the chance of your channel partners to be more successful in the process.
An effective tactic is to analyze channel partners shared sell-out data to build intelligent sales forecasts and customer profiles.
However, this takes effort for them to provide, for benefits they might not see right away. Offering the right incentives can help unlock the desired behavior required. Well-structured loyalty programs can be cost effective to obtain the insights needed to provide more tailored assortments, quantities, and prices.
A popular cost-effective tactic is to run contests like fully paid all inclusive trips for the top channel partner sales reps who sold the most volume, with the requirement of uploading weekly sales data to a portal for verification.
A connected technology landscape from discovery to delivery and beyond: Welcome to profitable CX
Technology and data should work for you, and help not only grow revenue but grow revenue in the right way.
To achieve this, end-to-end customer journeys and cost must be well understood. Furthermore, systems must be well integrated to help bridge various business units’ processes and consumable as “One office” providing collaborative and proactive enterprise-wide insights.
The best strategies to increase profitability include omnichannel experiences, keeping a handle on delivery and returns, and a connected CX.
User experiences, notifications, and automations should be adapted, not by job function, but crossing job functions, to address unnecessary cost drivers and protecting the bottom line.
