Did you know that the term "supply chain" was first used as recently as the early 1980s? While the concept of a supply chain — the sequence of processes involved in the production and distribution of a commodity — is as old as commerce itself, the specific term "supply chain" began to appear in academic and business literature around this time. The need for a new term to describe the interconnected systems of organizations, people, activities, information, and resources involved in creating a product or service and moving it from supplier to customer was due to the rapidly increasing complexity of global trade and manufacturing characteristic of the late 20th century.
In the 40-something years since, the term has become de rigueur in operations management, logistics, and business strategy. So you might assume that all the major thinking about – if not the optimisation of – supply chains had already been done. But this is not the case: critical thinking about the future of the supply chain and its processes is still, very much, going on. And, in fact, where else it can be applied.
One strand of thinking that can be explored is how new supply chain thinking can be applied to help organizations deliver the very best customer experience. And this is smart: everybody wants to provide the very best customer experience for every customer – but in some circumstances this can be very expensive to achieve. Thankfully, there’s a way to get better at it at a lower cost - provided that you’ve already made a shift to real omnichannel. If not, it’s an opportunity to kill two birds with one stone.
The route to omnichannel and removing silos
Starting in the 1980s (with the addition of mail-order to bricks-and-mortar operations) the journey to today’s omnichannel retailing was driven by technological advancements, changing consumer behaviors, and the increasing complexity of managing multiple retail channels. Over time, retailers shifted their focus from simply offering one channel – say, a store – to multiple channels, to providing a seamless, integrated experience across all customer touchpoints.
It's worth noting that, despite this goal of providing a seamless, integrated – a single – experience, we still use the term omnichannel. And, even though we’re fully in the omnichannel era, channels are frequently considered separately from one another – that dreaded word, “silos” – when uni-channel might better summarize the aim.
Retailers have in recent years come to understand what overcoming the silos often associated with an omnichannel business brings to the party. It will provide a unified view of all stock, dynamically and correctly determining stock allocations; and expose stock to channels in accordance with both these determinations and the real-time capacity of the supply chain. These functions, that can all be performed by an Order Management System (OMS), transform a retailer’s ability to adapt to overall demand and eliminate any constraint along the lines of “but this inventory is dedicated to this channel”.
And, of course, the benefit of this agility is any or all of a reduction in both overstocking/excess inventory and out-of-stocks, resulting in fewer “lost” sales, and reduced waste – all of which improve profitability.
The future “client perspective”
If we consider your supply chain to be “upstream” from you then, downstream, we have your customers.
It’s hardly news that a client-focused approach is the best way to deliver great customer experiences. Achieving 100% service can, however, come at a high cost. For example: if a customer from London wants a pair of jeans that’s only in stock in a warehouse in Nevada, and a t-shirt that’s only in stock in a Beijing store, the picking and shipping costs paid by the retailer are likely to exceed the price paid by the customer for the products. An extreme example, sure - but 100% order fulfillment “at all costs” does come with unignorable costs.
Suppose, though, you were able to apply a supply chain management perspective to your clients, by categorizing them? What if you could decide which stock, or how much of it, you want to expose to each ‘category’ of customer, rather that to each channel?
Some of the ways in which this might manifest and contribute to inventory optimisation are:
- if you know, through calculation, or can estimate the typical return rate associated with each category of customer, for each type of product, you can calculate with greater accuracy the probable rejection rate for their current order. From this, you can estimate your “virtual stock” for that product, comprising actual outstanding stock plus stock that will be returned (or, in the case of wholesale for instance, not even picked up).
- such virtual stock may add flexibility to your supply chain, extending the time before you next need to re-order new inventory intake. Virtual stock – at least, that portion of it that has been shipped but will likely be returned – needs no storage while it is with the customer or in transit, freeing up warehouse space and reducing costs.
- you might even (re-) sell items that are, physically, out of stock, in the knowledge that you will have a returned item to ship to meet the new order. This may also result in freed-up warehouse space and reduced costs, as well as increased revenue through more sales.
A further benefit is better - more personalized, more granular - customer service. You might, for example, decide that the “virtual stock” mentioned above is reserved for VIP clients, so they are less likely to see an ‘out of stock’ notification for any item.
So far, so good. How do you do it? Actually, it’s far more straightforward than you might think.
Step 1: create appropriate client categories
The work starts with categorizing your customers or clients on the basis of characteristics that you determine are important to you. These attributes will inevitably vary according to your industry, priorities, customer base, etc.
Typically, you will consider attributes and metrics associated with their known behavior: loyalty, return rate, Net Promoter Score, for example. Some luxury brands have a VIP client category, reserved for those customers that buy most often or with the biggest average basket.
Note that you might categorize a customer not for the metric that customer currently has – for, say, NPS – but by what you want to achieve with such customers, i.e., where you want that metric to improve to. For example: to improve loyalty, you might categorize clients with a low loyalty score and, when they buy again, you’ll take the opportunity to display all stock to them – maximizing the chance of further sales and ensuring their desire to buy is fulfilled. Making a previously unhappy customer happy is a great way to improve loyalty. (In this example, the most loyal customers are actually treated slightly less well in this regard, since they’re statistically less likely to be frustrated by a bad experience.)
Note too, that the channel dimension does not disappear: you still have granularity options. Within the category “loyal customers”, you’ll still be able to show different stock/stock-levels depending on whether they buy in store, on e-commerce, on social networks, etc.
Step 2: employ the right technology
Achieving most projects depends on employing the right technology. That you need strong analytics capabilities to categorize and, thereby, prioritize customers appropriately… well, that’s a given. But, clearly, this is a strategy most likely to be successful when you already have the data on which to base analytical decisions. (Your alternative is to risk making mistakes with both customers and stock levels, in which case you should implement the strategy cautiously, with a suitable margin for error.)
And here is the good news: if your business really is omnichannel, then the chances are high that you already operate a unified OMS. And, within your OMS, you can implement client prioritization quite simply, by ‘replacing’ channel categories with client categories.
Your OMS will duly take into account all clients and all stock, and – based on the rules you set, which reflect your priorities – will make the best decision with all the data in hand. And the analytics capabilities you need? All part of your OMS.
To discuss how Kbrw can help you with client prioritization across your omnichannel business, contact your Kbrw account manager or get in touch via our form.