Results of a recent survey show that retailers believe omnichannel commerce can increase revenue and improve customer satisfaction. But they're still trying to figure out what that means for their supply chain operations.
Omnichannel commerce is one of the most powerful trends to sweep through the retail world in recent years. More retailers than ever are getting involved in this strategy, which not only allows customers to order anywhere, any time, and on any device, but also lets them take delivery when and where they want.
But building a profitable omnichannel commerce system can challenge nearly every function in a company, from supply chain management and information technology to marketing, store operations, and order fulfillment. In search of more efficient ways to control the flow of inventory, companies in nearly every corner of the retail industry are experimenting with various distribution strategies, whether that's filling both e-commerce and store replenishment orders from a single distribution center (DC), running separate fulfillment operations, or filling online orders directly from the shelves of brick-and-mortar stores.
To get a better understanding of how companies are meeting the challenges of omnichannel distribution, ARC Advisory Group, a research and consulting firm based in Dedham, Massachusetts, USA, has teamed up with Supply Chain Quarterly's sister publication, DC Velocity, to conduct an annual survey on retail fulfillment practices. Respondents to the 2015 survey answered some 30 questions about their approaches to meeting current challenges in omnichannel commerce and their plans for the future.
The results show that retailers are moving toward omnichannel operations with a goal of gaining customers and boosting revenue. Asked to list the top three reasons their company was participating in omnichannel commerce or building up those capabilities, survey respondents appeared to be squarely focused on revenue, saying they did it to increase sales (57 percent), increase market share (56 percent), and improve customer loyalty (55 percent).
Although the survey respondents clearly shared a common goal, that's where the commonality ended. The research results also showed that respondents are employing a wide variety of strategies and methods to omnichannel efforts.
The mechanics of omnichannel distribution
One of the biggest challenges of fulfilling orders in an omnichannel world is that picking and packing smaller, single-line-item orders that will ship directly to the consumer requires much different processes and automation than the traditional method of picking and packing pallets and cases for brick-and-mortar stores. For this reason, there has been some debate among industry experts about whether it is better to fulfill e-commerce orders from the same facility as traditional orders or through a completely separate operation. The majority of respondents to the ARC/DC Velocity study (69 percent) indicated that they were following the combined approach, with only 31 percent handling e-commerce orders separately.
Many companies are not locking themselves into one method of fulfilling omnichannel orders. Nearly two-thirds (63 percent) of respondents said they fulfilled orders through a traditional DC that also handles e-commerce. Forty-seven percent used an Internet-only DC, 43 percent fulfilled orders from the store, and 36 percent said they filled e-commerce orders directly from the manufacturer or supplier. Respondents were allowed to select more than one response, and as the percentages indicate, a number of them are using multiple methods. (See Figure 1.)
Many respondents have opted to outsource the fulfillment end of their e-commerce operations to a third-party logistics service provider (3PL). More than half—55 percent—of respondents said they relied on their own corporate (internally managed) distribution centers to perform that function, while 22 percent used sites operated by their outsourcing partners. Another 23 percent said they are using both.
Within the warehouse, workers are using a wide variety of tools and methods to select items needed to fill e-commerce orders. Survey respondents said order pickers in distribution centers were using the following technologies: warehouse management systems (WMS) combined with radio frequency technology (53 percent), voice-recognition systems (33 percent), pick-to-light technology (22 percent), paper-based WMS (35 percent), and goods-to-person automation (20 percent).
Their managers also use a range of tools to support omnichannel commerce initiatives. When asked what technologies they currently use, respondents' top three answers were high-end warehouse management systems (91 percent), demand management software (72 percent), and basic bar-code scanning on the store floor or in the backroom (61 percent). (See Figure 2.)
Delivering the goods
A crucial link in any omnichannel fulfillment operation is the final step: getting e-commerce orders into customers' hands. Here, the options range from in-store pickup to home delivery. The survey delved into current practices in this area as well as respondents' plans for the future. The responses suggest that e-commerce delivery is an area that's very much in flux.
The most popular method for handling "last mile" deliveries was delivery services such as FedEx, UPS, and the U.S. Postal Service (84 percent), followed by drop shipping directly from partners' DCs (61 percent), 3PL delivery partner (50 percent), and store fleet (40 percent).
It was a different story altogether when it came to respondents' plans for the future. When asked which shipping methods they "do not use, but plan to use," their responses pointed in some interesting directions. For instance, they showed particular interest in crowdsourced delivery services such as Deliv or Instacart: 0 percent use them today, but 28 percent plan to use them in the future. (See Figure 3.)
Meanwhile, back at the store ...
One of the more distinctive aspects of omnichannel commerce is that many purchases are never processed or shipped from warehouses or DCs at all, but are handled directly through retail stores. As previously noted, currently 43 percent of respondents use store-based fulfillment.
To better understand how retail outlets fit into the picture, we asked that group of respondents which fulfillment-related activities they carried out at their store locations. In keeping with omnichannel's focus on flexibility, respondents are taking multiple approaches. Sixty-eight percent said e-commerce orders were both picked and shipped from the store, while 64 percent said orders were picked at the store and then held for customer pickup. A smaller percentage—46 percent—said they shipped e-commerce orders from a distribution center to the store for customer pickup.
That raised another issue: whether the retailers' employees picked the items from the stockroom or the showroom. For many respondents, the answer is "both": 71 percent said they picked orders from the back of the store and 64 percent said they picked from the front.
Finally, respondents were asked what methods their stores used to communicate order information to the workers who picked those orders. The answers showed that stores lag well behind warehouses and DCs when it comes to the adoption of fulfillment technology, since the most popular reply was a paper-based method, with 56 percent. Trailing far behind were radio frequency (RF) gun with textual display (26 percent), RF gun with graphical display (also 26 percent), and some other mobile device (15 percent).
The economics of omnichannel
The survey results also revealed that despite the rapid growth of omnichannel commerce, e-commerce revenue has a long way to go before it eclipses brick-and-mortar sales income.
ARC asked survey respondents what percentage of their direct retail revenue—that is, revenue from items sold to consumers through their own sales platforms, as opposed to being moderated by a retail partner—currently came from each channel. The average for brick and mortar was 63 percent, far above online and mobile (24 percent), and call center and catalog (15 percent).
Despite the modest revenue generated through online, mobile, call center, and catalog sales, a solid majority of respondents had sales operations up and running in every channel. When asked to list all the channels in which they currently receive direct retail orders, respondents cited online (84 percent), brick and mortar (76 percent), call center and catalog (57 percent), and mobile (46 percent).
Taken together, the survey results indicate that omnichannel retailing is here to stay, but that fulfillment practices remain in flux. In particular, the study points to changes ahead in the area of parcel delivery.
These results seem to indicate that companies' fulfillment strategies are still trying to catch up with the new retailing reality. Figuring out the nuts and bolts of fulfilling the omnichannel promise remains a key issue for retailers. But these practical issues must be resolved quickly, or retailers risk losing the customers and revenues that are the very reason they are involved in omnichannel in the first place.
About the study
The 2015 omnichannel study was conducted by ARC Advisory Group in conjunction with DC Velocity. ARC analyst Chris Cunnane oversaw the research and compiled the results. This year's study builds on research conducted last year in this area, which found that significant opportunity gaps exist among companies when it comes to technology deployment.
This year, the study explored the details of distribution center operations that support omnichannel initiatives, as well as how companies are handling the last-mile dilemma. The findings reported here are based on 120 responses.
As for the demographic breakdown, the majority of respondents (57 percent) sold goods through a combination of direct and indirect sales channels. Another 31 percent sold through direct retail only, and the remaining 12 percent through indirect sales channels only.
A report containing a more detailed examination of the omnichannel survey results is available from ARC for a fee.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
Jason Kra kicked off his presentation at the Council of Supply Chain Management Professionals (CSCMP) EDGE Conference on Tuesday morning with a question: “How do we use data in assessing what countries we should be investing in for future supply chain decisions?” As president of Li & Fung where he oversees the supply chain solutions company’s wholesale and distribution business in the U.S., Kra understands that many companies are looking for ways to assess risk in their supply chains and diversify their operations beyond China. To properly assess risk, however, you need quality data and a decision model, he said.
In January 2024, in addition to his full-time job, Kra joined American University’s Kogod School of Business as an adjunct professor of the school’s master’s program where he decided to find some answers to his above question about data.
For his research, he created the following situation: “How can data be used to assess the attractiveness of scalable apparel-producing countries for planning based on stability and predictability, and what factors should be considered in the decision-making process to de-risk country diversification decisions?”
Since diversification and resilience have been hot topics in the supply chain space since the U.S.’s 2017 trade war with China, Kra sought to find a way to apply a scientific method to assess supply chain risk. He specifically wanted to answer the following questions:
1.Which methodology is most appropriate to investigate when selecting a country to produce apparel in based on weighted criteria?
2.What criteria should be used to evaluate a production country’s suitability for scalable manufacturing as a future investment?
3.What are the weights (relative importance) of each criterion?
4.How can this methodology be utilized to assess the suitability of production countries for scalable apparel manufacturing and to create a country ranking?
5.Will the criteria and methodology apply to other industries?
After creating a list of criteria and weight rankings based on importance, Kra reached out to 70 senior managers with 20+ years of experience and C-suite executives to get their feedback. What he found was a big difference in criteria/weight rankings between the C-suite and senior managers.
“That huge gap is a good area for future research,” said Kra. “If you don’t have alignment between your C-suite and your senior managers who are doing a lot of the execution, you’re never going to achieve the goals you set as a company.”
With the research results, Kra created a decision model for country selection that can be applied to any industry and customized based on a company’s unique needs. That model includes discussing the data findings, creating a list of diversification countries, and finally, looking at future trends to factor in (like exponential technology, speed, types of supply chains and geopolitics, and sustainability).
After showcasing his research data to the EDGE audience, Kra ended his presentation by sharing some key takeaways from his research:
China diversification strategies alone are not enough. The world will continue to be volatile and disruptive. Country and region diversification is the only protection.
Managers need to balance trade-offs between what is optimal and what is acceptable regarding supply chain decisions. Decision-makers need to find the best country at the lowest price, with the most dependability.
There is a disconnect or misalignment between C-suite executives and senior managers who execute the strategy. So further education and alignment is critical.
Data-driven decision-making for your company/industry: This can be done for any industry—the data is customizable, and there are many “free” sources you can access to put together regional and country data. Utilizing data helps eliminate path dependency (for example, relying on a lean or just-in-time inventory) and keeps executives and managers aligned.
“Look at the business you envision in the future,” said Kra, “and make that your model for today.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.