The Truth Behind Omnichannel Logistics (What is Omnichannel Logistics?)

The Truth Behind Omnichannel Logistics (What is Omnichannel Logistics?)

The term “Omnichannel” is the buzzword of our time.

It is widely used in many fields, in retail (web stores, physical outlets, marketplaces, etc.), in marketing (traditional media, outdoor, digital, etc.), amongst many other examples.

But what does it really mean? We hear you ask.

A quick google search defines Omnichannel as “cross-channel content strategy that organisations use to improve their user experience and drive better relationships with their audiences across points of contact.”

To put things into perspectives, let us take a step back and observe how traditional and omnichannel logistics interact with the touch points along a supply chain process.

Traditional Logistics 

In traditional logistics, a product is often passed through and catalogued by multiple intermediaries before reaching an end customer.

Often, organisations outsource multiple modes of logistics and shipping to serve their global customers, with inventory or product information managed across a myriad of systems and databases. Not uncommon to supply chain management (SCM), different functions in an organization perform fragmented decision making on stocks replenishment, returns management, customer service, etc. – not because they want to, but due to limited information from upstream or downstream partners along the supply chain.

Here’s where things get tricky; with an increasing consumer demand for speed, accessibility and accountability to products, a misinformed organization on either product or purchase information can make a difference between a returning customer or a one-off purchase.

Omnichannel Logistics

On the flip side, in modern SCM, organisations have begun placing emphasis on advanced planning, data analytics and integrated S&OP, all of which, demands for visibility and accountability of stocks movement.

This is where Omnichannel logistics comes into play. Simply put, it is about getting your supply chain fundamentals done right (eCommerce Order Management System, brick-and-mortars’ Point-of-Sale Systems, Warehouse Inventory Management & Transportation Systems, ERPs, CRMs, etc.) and having them all connect to an accessible and actionable

"Single Source of Truth"

Tackling the challenge of precision tracking across the supply chain enables proper communication, the ability to make quick, informed decisions, and to rapidly implement physical changes along the supply chain network.

Often, an organisations’ supply chain is complex and extensive, and the best solution to manage a Single Source of Truth is to capitalise on big data and cloud technology. Naturally, this becomes the foundation of a robust omnichannel logistics ecosystem.

Notably, a robust Omnichannel logistics network has a few characteristics traits:

1. An Accessible Single Source of Truth:
Visibility of Supply Chain

Supply chain visibility is enabling all stakeholders to know where inventory is at any given time, and the tracking and traceability of parts or products in transit (from warehouse to the intended destination).

In a 2019 retail study by Lucidworks and Retail Touchpoints, stockouts account for the lion’s share of shoppers leaving without making a purchase:

With consumers having more choices than ever before, modern customers require shorter cycle times in their buying journey, demanding for faster and easier access to products. It is also safe to assume that the modern customers can easily find alternatives to their intended purchases.

Effectively, it’s back to ‘Economics 101’, the importance of managing supply and demand. Visibility along the supply chain allow businesses and their partners to make timely and data driven insights to stock allocation, reducing the likelihood of stockouts and unnecessary delays in locating a product.

By pulling consumer demands and inventory data across the network, businesses can improve sales and operations planning by knowing which SKUs to produce, it’s production quantities and where to sell them.

2. An Actionable Single Source of Truth:
Inventory Optimisation

Having access to data along the supply chain network is great. However, it means nothing if it is not actionable. Omnichannel-driven companies should be able to effect the physical changes along the supply chain after making data-driven decisions.

At the heart of an omnichannel infrastructure usually lies an integrated fulfilment centre, with the operational capacity and back-end systems geared to cater all online and offline retail channels. These fulfilment centres have the capability to manage, store and inventorise products in bulk to loose format, bound for retail stores or direct-to-consumers.

Omnichannel inventory optimisation can be largely classified across 2 levels in the supply chain.

2.1 B2B2C Stock Pool for Localised Operations (Urban Logistics)

Due to the operational nature of each sales channels, online and offline stores tend to hold their respective P&Ls, which in turn results in a segregated inventory pool. This results in either an increased total stock quantity (each channel holding additional safety stocks) or insufficient stocks in the best-performing channels (faster sell-through rate).

Omnichannel logistics faces this challenge head on by offering a shared inventory, reflecting the same stock levels across all channels. Using near-real time feedback and demand forecast (from visibility across the supply chain), physical stores and ecommerce channels can benefit from Just-in-Time replenishment. Furthermore, the best-performing channels are also guaranteed sufficient stocks, reducing the chances of a stockout.

2.2 Multi-Echelon Inventory Control Systems Across Distribution Networks (Global Logistics)

For global corporations, the challenges of inventory optimisation occur on a much larger scale, having the need to maintain and restock many RDCs/DCs. Inventory optimisation is not only about maintaining enough stocks, it is also about not having ‘too much’. Ask Swedish fashion multinational, H&M, who back in 2018, reported that it had $4.3 billion in excess inventory. (That’s $4.3 billion worth of unsold clothes and accessories!)

Having to take things into a macro-perspective, Omnichannel logistics accounts for the interdependencies of each distribution centre, supply volatility, uncertainty in demand, and lead times. Inventory production and replenishment are then based on actual sell through data, rather than order batching by the local DCs (reducing the risk of over production and over stocking).

A Foundation for Integrated Reverse Logistics

An often forgotten and neglected point of SCM is in its reverse logistics, otherwise known as returns management.

Unsurprisingly, consumer behaviour tends to favour purchases with free/convenient returns – and with return rates spiking up to 8% in brick-and-mortar stores and between 15%-30% in eCommerce, this becomes a hefty component of the supply chain.

In an Omnichannel logistics network, the possibilities are endless. Notably, this allows for cross-channel returns policy, made possible through a shared inventory pool. This enable end-customers to buy online and facilitate the returns in-store, or vice-versa. Look only at Love, Bonito, women fashion powerhouse in Singapore, whose logistics and returns policy enables two key drivers that businesses aspire to achieve.

One, allowing eCommerce customers to make returns at their physical outlets – providing an added convenience and promoting repeated purchases while returning to stores. Two, encouraging customers to find their size-fit while trying clothes in-store and directing the purchase to their eCommerce site by advising stock availability (real-time inventory). As best described by Rachel Lim, Owner of Love, Bonito, “Trying clothes on to find your perfect fit, reducing (eCommerce) return rates as a result.”

With a distribution network that enables cost reduction and increased customers satisfaction, a robust returns structure then becomes the spill-over benefit of an Omnichannel logistics system.

The Truth Behind Omnichannel Logistics

For start-ups and micro-businesses, an Omnichannel logistics backend should be the foundation to business operations (to have that in mind and implemented early). Having your supply chain fundamentals done right is the first step towards an Omnichannel logistics set-up.

Whether outsourcing to a 3PL or handling your inventory in-house, consider the potential and scalability of the inventory management. A few questions that you might want to consider.

• Will the Inventory/Order Management systems be capable of handling real-time inventory updates and is it optimised for API plug-ins across channels (to enable automation in processes)?
• Are the physical operations in fulfilment centres and transportation limited to only bulk or loose handling?

On the other hand, for established organisations with intricate networks, the cost of implementing an Omnichannel logistics solution is usually tremendous. That said, we believe that this is critical and a necessary step forward to thrive in the fast-paced consumer-driven business environment.

It would be then wise to take incremental adjustments along the supply chain network. Consider streamlining the least impact channels by implementing changes at an urban logistics level, within selected sales channels. Modify best practices and provide systems/processes training to staff and users, before scaling up the other touchpoints along the supply chain.

About UrbanFox

As an omnichannel enabler, we empower homegrown and global brands to strengthen their presence in this region – through multi-channel marketplace management, real-time inventory management, integrated fulfilment for B2B2C, and through hybrid last-mile delivery – providing end-to-end seamless logistics solutions.