Omnichannel? Really?

The venture capital sharks are circling. What is old is new again.  ECommerce business models are in a renaissance. In the face of lackluster growth, companies are returning to eCommerce; and embracing new technologies, to redefine business models. Some recent news: 

1) Walmart buys Jet.com. This week Walmart announced the acquisition of e-commerce start-up Jet.com for $3B cash. The reason is simple. Walmart wants to be more competitive to Amazon.com. Walmart, known for efficiency, lacks the understanding of the shopper. The attractiveness? Jet's pricing engine to orchestrate price/mix and delivery. The mobile shopper is more sensitive: execution on price, availability and delivery is more critical. Efficiency is not sufficient. ECommerce ups the ante for supply chain effectiveness. 

2) Unilever buys Dollar Shave. In mid July, Unilever paid 1B$ for Dollar Shave Club. The company, started in 2011, offered three plans: “The Humble Twin” (two blades per razor, five razors per month, $3 per month), “The 4X” (four blades, four razors, $6), and “The Executive” (six blades, four razors, $9). In April 2013, Dollar Shave Club started selling products. First it was Dr. Carver’s Easy Shave Butter, a transparent pre-shave product for members with sensitive skin and then wet wipes termed One Wipe Charlies. It is a service model. The focus is on the delivery of cost-effective shaving. The eCommerce market is moving to the delivery of services. A supply chain focus from selling products to the delivery of services to deliver outcomes (a clean inexpensive shave).

Today, as I scan the newspaper, holding a hot cup of coffee, I reflect. Over the last decade, eCommerce redefined retail supply chains driving investments in warehouse management, inventory management, and last mile delivery. It was all about logistics and seldom about the shopper.

Retailers redefined supply chains to pick the "each." (The traditional supply chain picks cases and moves pallets/trucks. A decade ago, 40% of retailers did not even have a perpetual inventory signal in their warehouses.) Retailers now ship eCommerce orders from stores with an inventory signal at the store level. No doubt about it, eCommerce transformed retail supply chains. In the last decade, retailers made greater improvements than their suppliers. However, have we defined omnichannel? I think not. Let me pose an argument. Here I debate that we have not driven customer-centric supply chains. Most supply chains, despite a wealth of data, do not know their customer. The systems respond, but they cannot sense. There is no connection between the actions we take as supply chain leaders and the delivery of the moments of truth. I think that this needs to change.

A Look at History

Growth has slowed across all industries in the consumer value chain. In Table 1, we show the average value for the period of 2006-2015 in the first field of the table and show the net change (A percentage comparison of 2006 to 2015) on the second line of the table. For example the average growth for the eCommerce pure play retailers for the period of 2006-2015 was 72%, but 2015 is 6% lower growth than 2006. In parallel, the average growth rate for a mass merchants for the same time period was 6%, but when 2015 is compared to 2006, the growth rate is down 16%. As you look at the table, you can see that while the majority of the consumer value network industries are struggling to grow, that eCommerce is driving both growth and a more profitable form of delivery. Is it any wonder that the eCommerce discussion is not hot again?

Table 1: Snapshot of Consumer Value Chains for the Period of 2006-2015 

Delivering on the Five Moments of Truth for the Shopper 

T

oday, as the red-eye flight taxis the runway from SFO, I can order groceries from my mobile phone and have them delivered the next day to my apartment in Philadelphia. It is faster than the home delivery options of PeaPod or Green Grocer. However, let me be  honest. I have a love/hate relationship with Amazon. While, I love the convenience, I hate the fact that each item is packaged in a separate box. As I make multiple trips to the recycle bin, I shake my head. So much packaging and waste....

.  Online shopping options--lockers, home delivery, eCommerce pure plays, specialized business models enable the "endless aisle." We are no longer constrained by the issues of item complexity and keeping slow-turning items like specialized toothpaste in-stock with limited shelf space. With the addition of 38% more items to product assortment in the store, traditional supply chains struggle. The demand latency of a long-tail item (low sell-rate and high demand error) on promotion is almost impossible to keep in stock with today's replenishment systems.

At the conference, we also discussed the state of recycling and the pressure on eCommerce in states like California. The state has sufficient statewide disposal capacity to handle solid waste until 2057; but if it achieves its 75 percent statewide recycling goal, then the current amount of landfill capacity is sufficient to last into the 2080s. In 2015, the state of California is upp'd the ante on solid waste with hefty penalties for non-compliance. As result, suppliers and retailers must now focus more on product attributes and compliance across the five moments of truth--either in the stores (bricks and mortar) or eCommerce--  for the shopper. If we are to deliver on the promise of omnichannel, we need to think about the use of store and online processes to deliver for the shopper at the moments of truth shown in Figure 1. 

Figure 1. Five Moments of Truth for the Shopper

 To do this, the master data and processes of the supply chain needs to be seamless for items, attributes, availability, and promotional offers. The pace of programs and campaigns is faster and the systems need to adapt end-to-end. Less than 5% of companies are thinking about supply chain master data with this lens.

Figure 2. Rethinking Supply Chain Strategies  (Food Example)

So as you sit down and have your cup of coffee this morning, reflect. Have we delivered the experience expected for the shopper? Be honest with yourself and ask yourself seven questions:

1. Insights. Data has never been more available, yet we do not think about the mapping of master data for the moments of truth end-to-end from the consumer back to the supplier. Why not?
2. Move Into Services. eCommerce models are growing for service delivery. Yet, the innovative models are evolving in start-ups. Unilever and Walmart bought innovation. eCommerce today is not designed to be omnichannel in the traditional firm. The two businesses operate separately without a common view of the shopper. We talk the talk of Omnichannel, but we cannot walk the walk.
3. Assortment Rationalization. Not all products should be in the bricks and mortar store. Too few companies are rationalizing assortment based on demographics, volume and profitability. The strategies of assortment should be rationalized across business models based on turns, reliability and excitement.
4. Listening. Rating and review data, social data, store data.... The average supply chain is drowning in data and low on insights. I work with a handful of companies that have implemented cross-functional listening processes to understand what matters to the shopper. 
5. Test and Learn. I believe that the supply chain is the future engine of growth. The use of cross-channel learning enables quick test and learn to adapt. The order is a poor proxy signal for demand. Rethink traditional processes.... The demand signals from eCommerce happen in minutes, hours and days while the traditional order latency for suppliers in bricks and mortar stores is weeks and months. The use of new forms of analytics enables in-vitro test and learn. 
6. Build New Business Models. No longer is eCommerce limited to be only a retail strategy. Suppliers can disintermediate the channel and define new business models. 
7. Cradle to Grave. In the redefinition of these new business models, be sure to own the product flows from cradle to grave. Ecommerce is filling up landfills.... Not only is it the right thing to do, but it opens up new markets to attract the customer that cares about the planet. 

So while we have built eCommerce models, i think that our current level of innovation is very nascent. So much more to do... So many more unleashed opportunities, but to capitalize on the opportunities, we need to holistically redefine supply chain strategies to deliver on the five moments of truth for the shopper in omnichannel. I believe that we have not delivered on this promise.

What are your thoughts? I look forward to hearing from you!