By Andy Powell

In the world of the connected consumer, all retailers are having to redefine customer ‘value’ and reinvent operating models to remain relevant. Striving for a seamless customer offer and experience across all channel touchpoints is crucial. Whether you call it agile commerce, omni-channel retail or multi-channel it’s the same message – adapt and thrive or stick to the old model and risk irrelevance. Nowhere is this struggle seen in sharper focus than in the area of omni-channel order fulfilment and supply chain.

There are three things Australian retailers should know when it comes to omni-channel order fulfilment:
1.    Fulfilment is now mission critical
2.    Fulfilment models and options are getting more complex
3.    There are new services providers and systems which can help

Fulfilment is mission critical
A few years ago, I sought to address some myths which I felt were holding back multi-channel retailing in Australia. One key myth was that ‘it’s all about the front-end’ and so retailers spent much of their time and effort concentrating on fulfilling customer engagement and experience, neglecting internal operations and supply chain. This part of the overall omni-channel approach also needed to be overhauled to help deliver an equally convenient, flexible and satisfying fulfilment experience for the new, connected, demanding consumer.

Things have changed in the last two years with many retailers acknowledging the need to get fulfilment right as part of the overall package. They know the need to ensure the ‘last mile’ is as rewarding as the first impression is becoming more urgent.

The danger for those retailers who don’t act is that their competitors will and in doing so they will create a point of difference. There are a couple of telling statistics to show that fulfilment is a true differentiator in omni-channel retailing as a call to action for those still grappling with the issue.

Firstly, supply chain related issues inhibit sales conversion in digital channels. When it comes to reasons for cart abandonment, there is universal acknowledgement that supply chain issues are the single largest cause. Some analysts estimate they contribute to around 70 per cent of abandonments. Reasons include lack of inventory availability, lack of transparency to delivery costs or costs too high, insufficient delivery options or confusion over delivery options. The lesson from this is having the right merchandise at the right price no longer cuts it if you can’t get it to me in the right way.

Three hundred per cent is the number that represents the uplift in digital channel sales experienced by some when free shipping is offered as a promotional mechanism. This proves that cost of shipping is absolutely now part of the price/value equation. This makes it a fantastic way to drive conversion, acquire new customers and increase the loyalty of existing customers.

Fulfilment no longer supports the offer; it is a fundamental part of it. It extends far beyond the back door of the store and now into the customer’s lounge room. The successful ‘last mile’ is a make or break for service quality perception and loyalty. Cost and flexibility are key to demanding the right choice of models and options.

Models and options are getting more complex
There are four predominant fulfilment models each of which has multiple variations. The models differ in three dimensions:
•    The inventory used to fulfil;
•    The proximity of pick and pack operations to the customer; and
•    Whether delivered direct or via a collection point.

These dimensions are handled differently in the four models discussed below:

Centralised Fulfilment 
Pick and pack from a central location such as head office, distribution centre or flagship store and deliver it to a customer.

All online-only retailers started here and many traditional retailers have opted for this path for online order fulfilment – at least initially. It’s simple in that inventory and operations are in one place, often based on existing infrastructure and relatively easy at low scale. As scale increases however it becomes harder. This is either because infrastructure, like storage and packing areas, become swamped or because bulk order fulfilment centres cannot manage large numbers of small picks for individual items, personalised packaging and integration to parcel shippers. Freight to distant customers in this centralised model can also be very expensive.

Distributed Fulfilment 
Pick and pack from stores – typically from selected stores based on size, inventory cover, location and operational constraints – delivered to local area with customer allocated to fulfilment stores by postcode or self-selected.

This is the original online fulfilment model initiated by UK retailer Tesco and copied by retailers with large store networks that have heavy and relatively inexpensive products, such as grocery. It works because it’s local, reinforcing loyalty and community, and transport is cheaper. Maintaining accurate inventory at store level and forecasting two sets of demand – in-store and online – is the hardest part.

In the next two years, we will see many Australian omni-channel retailers move to this model and away from their initial central distribution models. This move will be driven by the requirements of scale as their digital channel sales and order volumes grow, their digital demand forecasting and inventory management capabilities mature.

Distributed Network Collection (DNC)
Wherever picked and packed, orders are shipped to and held at a network of collection points – operated by the retailer, through an alliance partner (typically a non-competing retailer) or via a third party, which aggregates multiple partners acting as collection points.

The most common variants of this model are ‘buy online, pick up in-store’ and ‘click and collect’. This is the model currently undergoing the most change. 

Tesco, for example, now offers three variants of this model, including pick-up at two discrete types of in-store collection points – dependant on merchandise ordered – or via drive-throughs in the store car park.

Amazon has created distributed physical presence by introducing collection lockers via alliance deals with shopping malls and convenience stores across the US.

ASOS in the UK has a click and collect offer via Collect +, a service provider which provides hundreds of collection points at independent stores acting as agents.

The key learning from using this model is that you don’t need a store network to have a physical presence and if you do have a store network it can be used in multiple ways to support fulfilment.

Supplier Drop Ship
The order is passed directly to a supplier who ships from a central stock location direct to the customer.

Drop ship is often offered for extended range, non-stocked items, big and bulky or specialised merchandise. It is commonly combined with other models by retailers with multiple types of merchandise. This will continue to be a strong option for retailers whose offer includes long tail, catalogue or online ‘endless aisle’ items.