Given today’s fierce market competition, all retailers face a daunting challenge to stay afloat. Market inflation continues to outpace prices, squeezing margins and putting businesses in bidding wars against each other. Modern markets are characterized by stagnant demand, surplus retail space, and the ever-present threat of low-cost rivals.
Unfortunately, the problems don't stop there. While inflation has come down from 8% to 3.7% (as of August 2023), it's still higher than the historic average and is continuing its upward trajectory. Consumers are (rightly) becoming more discerning and are searching tirelessly for value.
Traditional cost-cutting strategies like downsizing, discounts, reducing office spaces, etc., no longer suffice and yield paltry returns. We contend that today's fragmented and inefficient logistical network is one of the most powerful drivers of price inflation. Unfortunately, it's also one of the most overlooked.
This article discusses why omnichannel supply chains have become non-optional for businesses looking to cut costs without sacrificing customer experience. We also reveal three strategies to help you make your supply chain leaner and more productive.
Why cost-cutting is so vital today
Retailers face relentless challenges from incumbent giants today. Cost-cutting has become a survival imperative. Large-volume, low-price retailers like Amazon and Walmart dominate virtually every sector.
Being the leaders, they've already invested in the latest supply chain technologies to trim costs while maintaining profit margins. Established players' scale and bargaining power also enable them to keep prices lower than their peers. And they're already looking to the future. Walmart, for example, has invested heavily in omnichannel technologies. The company also added grocery pickup capabilities and acquired Indian e-commerce giant Flipkart and jet.com to further its capabilities.
The results are telling. For example, as Amazon has grown, small independent businesses have disappeared. Between 2007 and 2017, the number of small businesses (less than 500 employees) fell by 65,000 in the US. Around 40% of apparel, toys, and sporting goods brick-and-mortar stores and one-third of small bookstores have also gone under. The message is clear. Small businesses move to platforms controlled by Big E-commerce or risk extinction.
To thrive in this environment, retailers must embrace cost-cutting (at all levels) as a strategic necessity. Small retailers might be unable to invest like Walmart's omnichannel expansion. But they can reduce costs by adopting lean omnichannel supply chains and building independent ecosystems driven by unique value propositions.
Bain research has shown retailers that successfully implement sustained cost-cutting measures can reap substantial rewards, including superior stock performance. However, many retailers fall into the trap of thinking too small. They fail to adopt an enterprise-wide approach to cost reduction. Instead, they focus narrowly on small cost-saving opportunities, yielding insignificant results by today's standards.
Unfortunately, the challenges retailers face extend beyond cost-cutting. They also need to adapt to evolving consumer behaviors, technological shifts, and economic pressures. Upgrading digital capabilities, investing in analytics, and modernizing IT infrastructure are essential but costly endeavors. Factors like labor, supply chains, and inflation further add to the cost managers must consider.
To transform their cost structures, retailers must look at every aspect of their operations with fresh eyes. Cost savings opportunities should be identified quickly using data-driven insights and customer-focused strategies. Cost of goods sold (COGS), traditionally approached with simple discounts, now requires an analytics-driven category strategy that segments customers by buying patterns.
Cost-cutting measures and omnichannel strategies in logistical operations no doubt carry a higher upfront price. But their long-term benefits, including improved customer experience, make them essential for survival in today's retail market.
Omnichannel is the new normal
The transition to the new normal in multichannel supply chains has been transformative. Once a growing trend, e-commerce has surged in prominence, driven even further by the challenges of the COVID-19 pandemic.
However, it hasn't marked the end of physical stores and distribution centers. Forward-thinking consumer-product companies have harnessed brick-and-mortar stores as strategic assets to educate consumers, bolster brand identity, and support online sales.
This trend is primarily why omnichannel supply chains are becoming so vital today. While footfall in stores may decrease, they can still support omnichannel models like Buy Online, Pickup in Store (BOPIS), curbside and locker pickup, and ship-from-store.
Additionally, traditional fulfillment methods are unsuited for modern shopping patterns. 24/7 ordering, unpredictable demand, smaller orders, and increasing product variety result in higher fulfillment costs. Building an omnichannel experience is valuable as it bridges the gap between online and in-store purchases.
This transformation's core is the customer-centric supply chain strategy as its foundational building block. This strategy requires three essential elements:
- Advanced networked logistical ecosystems
- A data-driven operating model
- Process automation
To achieve omnichannel excellence, companies must ask fundamental questions about each. For example, how can the supply chain adapt to rapidly changing consumer expectations by seamlessly integrating physical and digital touchpoints?
However, as retailers pivot toward omnichannel, they face the challenges of aligning their backend systems, processes, and operations to meet an ever-shifting goalpost. The move will require capital investment, structural changes, and a reevaluation of traditional success metrics and profitability analysis.
Companies can thrive in this evolving environment with a strong customer-centric strategy and a focus on critical elements of fulfillment center networks, operating models, and digitization. While the future presents challenges, it also offers substantial growth opportunities for those willing to adapt and innovate. Here are some strategies to cut costs without sacrificing the customer experience.
Omnichannel strategies to consider
Facilitate data capture throughout the supply chain
Unpredictable disruptions mark the post-pandemic world, causing companies to navigate the supply chain landscape cautiously. Shortages and excess inventory are prompting a shift toward conservative planning and a focus on established products. To thrive in this environment, companies need agile decision-making, which requires frequent and detailed updates from their supply chain partners.
Effective data management is key here. By capturing data at every point in the supply chain, companies can leverage machine learning for predictive insights. Analyzing data can help anticipate product flow, optimize fulfillment, and enhance the entire delivery process. This is particularly useful in ensuring a seamless customer experience from order placement to last-mile fulfillment. An omnichannel supply chain can also cut costs, especially when dealing with complex returns or cancellations.
Additionally, companies need to tackle three types of waste in their supply chains:
- Inadequate data capture and warehouse management
- Fragmented process optimization
- A lack of integration between all supply
Manual data handling, outdated master data, and underutilized information hinder efficiency. Organizations must align structures, governance, and incentives internally and in their supply chain partnerships to achieve integrated processes.
Also, with their decentralized inventories and multiple sales channels, omnichannel operations present a new level of operational complexity. Companies must reimagine forecasting, inventory management, and information flow to meet consumer expectations. Forecasting should be granular and channel-specific. Inventory can be pooled across channels with algorithm optimization at every level.
Adopting an omnichannel supply chain strategy in a post-pandemic, disruption-prone world is imperative for enhancing the customer experience. Companies can effectively cut dead weight from their supply chains by prioritizing data capture, addressing digital waste, and streamlining operations.
Enhance customer experience with tailored supply chains
Retailers today leave a lot of money on the table by using traditional one-size-fits-all supply chains to address all consumer demands. Advanced cloud-based analytics and machine learning can help businesses predict and optimize their workflows. For example, imagine a customer placing an order for a high-end laptop. Data-driven insights can help you pre-empt potential bottlenecks in the supply chain and provide a smooth, timely delivery process.
Additionally, value can mean different things to different customer groups. Instead of treating all customers as one, companies should Identify key consumer segments and focus resources on the most significant group(s). Omnichannel strategies can play an important role in helping companies tailor their services to each specific segment.
Take, for instance, a fashion retailer which just switched to an omnichannel supply chain. Rigorous data analysis helps them discover that their younger, tech-savvy customers prefer online shopping with fast delivery options. On the other hand, their older clientele values in-store experiences and personalized assistance. By aligning supply chain resources accordingly, the brand can deliver more personalized experiences where they are needed.
Besides a better post-purchase experience, effective data-driven segmentation and targeted services can remove unnecessary complexities in supply chains. For example, a retailer offering customized furniture can optimize their supply chain by focusing on a select range of high-demand customization options rather than trying to cater to many choices. Reducing complexity brings down operational costs and ensures customer preferences are met efficiently.
Finally, an omnichannel supply chain with robust data collection can help companies offer targeted customer loyalty programs. Let's consider the fashion brand example above. The company can offer younger, tech-savvy customers exclusive discounts for fast delivery orders and early access to new collections. Programs like VIP in-store events and special discounts for in-store purchases can be offered to its in-store clients.
Use omnichannel strategies in your reverse logistics to drive down return costs
Returns are an inevitable cost of doing business. Consumers also see them as a natural part of a modern shopping experience. The return process remains plagued with delays, inefficiencies, and errors, impacting the bottom line and customer service. This is largely due to its high-touch nature, where personnel handle merchandise, interact with customers, inspect products, and make disposition decisions. Since processing returns can cost up to 65% of a product's value, there's massive scope for savings here.
The integrated supply chain management systems that omnichannel strategies institute can help unify data and improve the return experience. Businesses can overcome the challenge of identifying the original processing channel by using a single database for all transactions.
Omnichannel systems enable swift transaction information retrieval as all supply chain parts are connected. This capability streamlines the reverse logistics associated with returns, benefiting customers and businesses. A simplified return management process also guarantees accurate reconciliation of the purchase price (including discounts) with the refund amount.
Moreover, the integrated nature of omnichannel systems prevents fraudulent returns. It does so by synchronizing inventory data with real-world availability, facilitating the efficient movement of merchandise in the reverse logistics supply chain. Aligning data reduces returns processing costs and enhances the overall customer experience.
Automation is key in enabling a swifter, leaner reverse logistics supply chain. The omnichannel approach leverages deep learning to improve real-time decision-making throughout the supply chain, reducing the need for manual intervention. Besides cost savings and a better customer experience, a smarter return process minimizes carbon emissions and diverts items from landfills.
Adopting intelligent reverse logistics management platforms can help retailers make the return process more efficient. Players who go omnichannel first stand to increase profits and set a responsible corporate example for their peers.
Conclusion
While omnichannel supply chains hold tremendous potential for cutting costs and enhancing the customer experience, they're also challenging to execute effectively. The complexity of managing multiple channels, integrating technology seamlessly, and meeting the ever-evolving customer demands can make it difficult for businesses to get it right.
One of the most significant concerns with omnichannel supply chains is that if implemented with the wrong strategies, they can backfire and lead to losses. Successful implementation of omnichannel supply chains demands a commitment to agility, data-driven decision-making, and a customer-centric mindset.
Brands that can navigate the intricacies of an omnichannel approach are poised to reap the benefits of reduced costs, increased efficiency, and enhanced customer satisfaction. However, those who underestimate the complexities involved may find themselves in a costly and unproductive struggle.
We at DeliverySolutions understand the opportunities and challenges omnichannel supply chains present. Our unified omnichannel orchestration technology can help you integrate all aspects of your supply chain and offer a unified retail experience to your customers.
Book a demo today to find out more.