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September 25, 2015
Omni-channel and supply chain strategy
By: Nipun Mundoor

The growth of internet-enabled commerce, mobile devices and social networks has led companies to be more digitally driven since the turn of the century. The symbiotic interaction of mobile devices, cloud services and big data analytics is allowing companies to adopt the omni-channel: a multichannel approach to sales that seeks to provide the customer with a seamless shopping experience whether the customer is shopping online from a desktop or mobile device, by telephone or in a brick and mortar store.

Image Source: SCDigest from webinar "Conquering the Omni-channel Challenge"

Creating an omni-channel business is about making your business omniscient, able to understand and perceive everything and make the right choices for your business. An omni-channel customer experience shouldn’t be (as it usually is) solely associated with retail. It is a way of buying and being served that feels natural to customers today regardless of the type of industry.

In fact, Business to Consumer(B2C) customer experiences are driving Business to Business (B2B) buyers to expect the same level of omni-channel service from their suppliers for work-related purchases. Even professional B2B buyers’ expectations have changed dramatically, driven by the simplicity and efficiency of online consumer sites. Buyers routinely look up products online to ensure their suppliers are maintaining price consistency.

While many companies are embracing the change and adopting omni-channel strategies, the change is hard and requires significant investment. One of the main challenges is to marry the physical and the digital supply chains. The brain that orchestrates the seamless transition between channels and facilitates transparency is Distributed Order Management (DOM) technology. DOM has emerged as the defining application of omni-channel commerce.

Simply put, DOM is a central orchestration hub which maps the Points of Interaction (POIs), Points of Fulfillment (POFs) and Points of Return (PORs) and provides:

  • A consolidated view of inventory for companies with Enterprise Resource Planning (ERP) systems;

  • The ability to designate how an order should be fulfilled even for orders with complex flow paths and lifecycles;

  • Visibility into whether orders are being, or will be, successfully fulfilled;

  • A center to resolve issues for orders that have run into problems.

The traditional order management systems were order processing centric whereas DOM is order fulfillment centric. The DOM system presents an opportunity to leverage analytics to capture omni-channel opportunities.

What opportunities does an omni-channel business present?

  1. Supply chain segmentation:
    Applying analytics to historical data allows a company to better understand, and address specific customer requirements. A clear understanding of the customer is necessary to differentiate and align strategies to the customer being served. These techniques of supply chain segmentation will replace the "one size fits all" concepts of the past. Using Machine Learning algorithms, a company can develop new models that better match customer needs while improving efficiency and risk mitigation for a firm.

    The DOM system can be used to create a logic powered engine which creates segments within a company’s supply chain and automatically apply sourcing strategies to each of the segments to create an optimized supply chain. For a detailed approach to this, read about the work done by Dr. David Simchi-Levi in [Name Redacted] .

  2. Multi-Echelon Inventory Optimization (MEIO):
    There are many advantages to modeling the entire supply chain in order to analyze the network and total costs. In addition, the ability to optimize inventory across all the channels can lead to significant efficiencies and improved customer services. MEIO takes a holistic view of the supply chain and delivers the best possible tradeoff between service levels and inventory for each SKU at each inventory stocking location, from raw material supplier to final consumer. For a retailer, MEIO can also help in planning & assortment: determining the right products to store at the right locations. For an example of how MEIO can help in identifying inventory drivers and identifying the right inventory for a location, read about the work done at Pepsico.

  3. Network Optimization:
    For an organization to enhance the omni-channel experience, it has to optimize both its store and Distribution Center (DC) locations. In an omni-channel environment, products can be delivered to an online customer from a DC or from a store. There is also an option for an order can be placed online but can be picked up from the nearest store. Not to forget, the traditional brick and mortar business model. A network optimization study is necessary to address this complexity. A network model can identify the best DC and store locations, while minimizing transportation costs or reducing the distance for a customer to travel to a store.

Omni-channel is no longer just a buzzword. Companies must prepare for omni-channel commerce not as something special, but as simply the way business gets done. Regardless of industry, businesses that successfully exploit new communication channels and unprecedented sources and quantities of data to optimize their supply chains for the omni-channel world will emerge as the true winners.

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