Last week, RSR published a new report on the state of cross-channel demand fulfillment, entitled Omni-Channel Fulfillment and the Future of Retail Supply Chain. When it comes to fulfillment of customer orders from any of the non-store selling channels, our bottom line recommendation is something that should resonate with retailers everywhere: the biggest opportunity for retailers is to integrate store-level demand fulfillment with omni-channel customer order generation capabilities. But the devil is in the details.

First things first: why do we make that recommendation? It all in the numbers. There is a wealth of information now available that shows just how much consumers are empowered with information technology outside of the store. For example, a 2010 IBM study of over 30,000 global consumers entitled Capitalizing On The Smarter Consumer^[1] found that:

…49 percent of respondents are instrumented — a 36 percent rise in 12 months globally. The number of shoppers who are currently not willing to use any technologies has also fallen to just 14 percent. The Internet and in-store kiosks remain the most popular options: 75 percent of all consumers are willing to shop on a retailer’s Web site, while 39 percent are willing to use in-store kiosks — a year-on-year increase of 10 percent. But interest in digital TV and mobile technologies is climbing even faster. The number of consumers who are ready to use digital TV has risen 41 percent (from 17 percent to 24 percent), and the number of consumers who are ready to use mobile technologies has soared by 92 percent (from 13 percent to 25 percent). “

Simply out, consumers now routinely use technology to begin their ordering process by investigating and selecting products before going to a store. But how much of that activity gets rung up outside of the store? Again, it’s in the numbers: the vast majority of retail sales go through the stores. For example, the U.S. Department Of Commerce states that online sales represent less than 5% of total U.S. retail sales.

The logic is irrefutable: the best near-term opportunity to enhance omni-channel customer satisfaction is to integrate store-level fulfillment with omni-channel selling capabilities.

Far to Go

While Retailers and consumers agree that the stores are a great place to complete the shopping experience, and while most retailers now accept that consumers will use non-store digital channels to begin their shopping experience, there is still far to go to enable the stores to be a part of the omni-channel model and not a holdover from the uni-channel age.

But today many retailers are either in denial or in transition when it comes to the challenge. While most Retail Winners — 74% according to our survey — try to enable some form of store-level pick, pack, and pay process for non-store customer orders, half of non-winning retailers admit that they don’t enable non-store orders to be fulfilled at the store (Figure). For those retailers that do enable in-store order fulfillment, most accomplish pick and pack manually, with varying levels of interaction with the POS system for payment processing.

Currently, the most common process used by Winners is to handle pick and pack manually, and process the payment via in-store POS. For average and under-performing retailers, the most common method is completely manual (pick, pack, and pay).

If the stores need the ability to fulfill any non-store order, the next question is, where to get the inventory from? By a fairly wide margin, retailers of all performance groups most typically have channel-specific supply chains that enable some inventory sharing. Beyond that, retailers in the different performance groups are pursuing their ideal supply chain designs. Some Winners have enabled demand fulfillment from any channel out of any DC, while some of their peers have created virtual pools in channel-specific DC’s. Although almost one-fourth of the total response group has traditional channel-specific supply chains with no sharing whatsoever, the movement is towards sharing, one way or another.

In the study, we found that a difference between Winners and others is that Winners aren’t willing to sacrifice inventory efficiency to enable omni-channel fulfillment. Survey results showed that twice as many Winners as other retailers want to be able to access inventory anywhere to fulfill demand from non-store channels. But many non-winning retailers think that the ideal supply chain strategy to enable cross-channel demand fulfillment is to create pools of inventory at channel-specific distribution centers rather than fulfilling orders from any inventory location — in essence, segregating some inventory for omni-channel order fulfillment. While such an approach allow might these retailers to avoid (for the time being) creating systematic enterprise-wide inventory visibility to enable omni-channel fulfillment, it creates the risk of excess inventory in channel specific distribution centers (DC’s) and duplication of inventory across multiple locations.

What Stands in the Way?

Aside from systems challenges to enabling a buy anywhere, get anywhere strategy, the new RSR study shows that the biggest inhibitor to seizing the omni-channel fulfillment opportunity is organizational in nature. Survey respondents revealed that there is no lack of ownership when it comes to channel supply chain processes — unfortunately, few owners control more than one little piece of the puzzle. The supply chain organization tends to own store fulfillment, and to a lesser degree site-to-store transfers, as well as eCommerce fulfillment and store-to-store transfers. Merchandising clearly owns store assortment, and increasingly eCommerce assortment, but little else.

The cross-channel waters get murky after that: around a third of respondents reported that store operations manages store-to-store transfers, store fulfillment of online orders, and DC-to-store fulfillment, but only about two-in-ten reported ownership of in-store kiosk. eCommerce Operations has the least control over their destiny: less than one-third of survey respondents reported that eCommerce has clear ownership of their online assortment or ownership of eCommerce fulfillment.

With so many cooks in the kitchen, it’s no wonder that retailers have a tough time addressing the challenge and taking advantage of the opportunity.

Read the Report

RSR Research’s report, Omni-Channel Fulfillment and the Future of Retail Supply Chain benchmarks retailers on their progress towards enabling buy anywhere, get anywhere scenarios for consumers. The research finds that while retailers place a high priority on these types of initiatives, they often don’t know where to begin in order to address their supply chain challenges. The report includes analysis of the business drivers, opportunities, and organizational constraints surrounding cross-channel supply chain initiatives, as well as recommendations for creating successful cross-channel fulfillment capabilities.