By Gopi Krishnan and Arun Channakrishnaiah
Retailers such as Best Buy and Nordstrom are focused on using multiple channels to provide their customers the ability to transact with them across these channels. Most retailers, however, have set up the various channels as independent entities, with each channel having its own operating strategy. This translates to a set of disparate, standalone business process flows around order capture, order management and fulfillment workflows. Even infrastructure that supports the channels is sometimes native to a specific channel.
Such fragmentation leads to inaccurate order promising and poor fulfillment rates. Whether the fragmentation is because the channels are independent entities or because the retailer has acquired a new channel partner (and inherited incompatible processes/systems), the net result is an inefficient supply chain and inability to service customers well.
Over the last decade, customer behavior too has changed significantly. Today's customers, empowered by easy access to information, are increasingly "channel agnostic" with their buying behavior and leverage multiple channels for each buying cycle. The consumer today is likely to encounter a product in a store but, rather than buy right away, may research it online, comparing features and prices, proceed to buy through the retailer's call center and finally pick up the product from the local store.
Separation of channels leads to inconsistencies in business practices and policies, leaving customers frustrated and confused. For instance, customers may be forced to pay more at the call center if a coupon that is accepted at the store is not accepted by the call center agent due to lack of cross-channel information visibility. Similarly, if the supply chain is designed to be channel-specific, there will be greater inefficiency and hence dissatisfaction for both the retailer and customer.
On the other hand, the multi-channel behavior of today's customers also is an opportunity for retailers to increase their revenue. For example, store pick-up is a good opportunity to upsell/cross-sell while the customer is already in the store to pick up what was bought online.
Absence of Cross-channel Leverage
Unfortunately, quite a few retailers remain oblivious to these changing realities and formulate their multi-channel strategies with serious policy limitations around the integration of process, data and technology. This not only creates process silos but fragments the supporting structures as well. Typical issues of fragmentation include: inconsistent customer experience; duplication of data, processes and information systems; inability to gain a single view of the customer; inability to gather and share data across channels for analysis/decision-making; weak fulfillment percentages; and duplication of physical infrastructure.
Thus, the primary need is to eliminate channel-specific silos by seamlessly connecting them to ensure that information flows across channels are enabled in near real time. Effective fulfillment of orders transcending channels requires total synchronization, that is, the integration of all core functions involved in the order receiving and completion process, as well as the decision-support functions that make business and process/policy decisions. While achieving this level of synchronization is no easy task, there are significant rewards for organizations that manage to do so, as both customer experience and supply chain efficiencies improve.
MCI: The Integrating Glue for MCO
Merely operating multiple channels does not imply that the full vision of multi-channel commerce (MCC) is realized. This is just the first infrastructural or operational step towards achieving that goal. A state in which multiple channels operate in isolation and converge only in the accounting books (financially) is just multi-channel operations (MCO). True MCC is achieved only after the various channels (both buy and sell side) are completely integrated, which is where multi-channel integration (MCI) comes in.
With MCI, the supply chain functions that help capture and fulfill orders are integrated such that each channel is aware of the fulfillment rules/policies/processes followed by the other channels. When MCI is achieved, customer experience is seamless. The customer can transact with the retailer through any channel, over any part of the ordering process. Whether the customer researches the product online and then places the order through the call center, or whether the product received is returned at a store, the customer will be able to move from channel to channel and yet receive the same service level. On the supply side, the retailer gains a unified view of the supply chain to consistently apply business rules and policies. It can weigh the various fulfillment options available before choosing the most cost-effective and efficient option.
More importantly, with MCI, organizations are able to use data gathered to answer questions about customer behavior: Which channel is used by customers to research products and which one for order placement? What are the relationships among products bought by the same customer across channels? Which promotions attract target customer segments? These insights provide a glimpse into not just "what" customers buy but also "why" and "where." Such information can be used to design focused, personal offerings or services.
Additionally, integration enables intelligence gathering on internal aspects of the supply chain to verify the ability and readiness to service customers. For instance, by obtaining a consolidated view of cross-channel demand, planners can manage supplies better and eliminate wasteful inventory. In the event of a stock-out at a store, sales personnel can quickly check the inventory status and save the sale by offering to ship the product from another location to the customer directly.
In summary, multi-channel commerce is attained when:
- The entire set of order management processes and supply chain functions across all channels are completely integrated, and all ordering/fulfillment channels have access to data needed to execute all transactions.
- Organizational and customer data aggregated from these functions and processes are leveraged to make intelligent decisions around customer offerings, for order fulfillment and for making decisions pertaining to business policies and operational processes.
Implementation: 3 Steps to MCI Excellence
Achieving multi-channel integration is a lengthy, complex process that involves not only your organization but also customers, suppliers, third-party logistics providers and other partners. Considering its sweeping span, success can be ensured by dividing the journey into small, manageable steps. This allows organizations to derive MCI benefits progressively. Current business operating models, multi-channel readiness, number of channels to be integrated — all these factors play a role in how the journey is undertaken. A commonly used approach is to focus on a subset of channels or functional areas with which to begin. Another approach is integrating by product lines. A third approach is integrating by locations or geographies. An organization can even mix and match these options if it makes the most economic sense — or if it's necessary to demonstrate the benefits of MCI to the relevant stakeholders.
The approach notwithstanding, improving customer experience and increasing supply chain efficiency will necessitate a journey across three distinct phases, as illustrated in Figure 2, which depicts the three phases and a retailer's state of MCC readiness in each. It starts with creating a roadmap and planning the integration of the various channels (Realization Phase), continues on to undertaking the steps needed for channel synchronization (Evolution Phase), and finally transforming the channels through integration (Transformation Phase), thus giving organizations the capability to engage in true multi-channel commerce.
The Road to MCC
These are some of the other factors that retailers should consider when implementing multi-channel integration:
Big Bang or Incremental: Attempting to complete MCI in a single iteration is not always practical. It is best to prioritize the entities that the retailer wants to integrate across channels and take an incremental, evolutionary path to MCC.
Single Source of Truth: A precursor to MCI is building a unified data warehouse for all critical information that is generated across channels, for data such as orders, customers, inventory, etc.
Information Systems: Point systems, legacy or new, should have appropriate handshakes and specific roles to play. Legacy systems should have the ability to handle future requirements, and new applications introduced should have the capability to integrate with existing applications seamlessly.
Channel Conflict: If a customer places an online order, but picks up from store, which channel gets the credit for the sale, in what proportion? Stores may want to protect inventory for store customers, but the online channel may want to offer store inventory to its customers, too. Policies to handle such potential conflicts should be clear to all stakeholders concerned.
Channel Independence: The MCI strategy should allow for channel differentiation. "Cyber Mondays" usually have online-only deals, for example. Of course, retailers routinely sell some products or product categories through a specific channel as a way to calibrate demand. However, the other channels should recognize such orders, too.
Channel proliferation continues to drive up customer expectations about seamless interactions, while also providing organizations the opportunity to increase revenues and profits through MCC. Corporations have largely viewed multiple channels as independent businesses and accordingly set up channel-specific infrastructure, business processes and workflows. This MCO way of working has created silos leading to inconsistent customer experience, duplication of processes and infrastructure, and lowered operational efficiency.
In order to realize their MCC goals, organizations should look at coupling MCO with MCI. Beyond being a "customer experience"-oriented initiative, MCI also helps achieve collaboration across the entire organization and its processes or interactions with fulfillment partners. Broader multi-channel goals can then be achieved via tighter integration of the sell-side and buy-side channels and the addition of customer and operational analytics to enable intelligent, proactive and fact-based decision making. This, to us, is the true MCC end-game.
About the Authors: Arun Channakrishnaiah is a principal in the SCM Practice with Infosys Technologies. He has more than 13 years of experience spanning supply chain functions such as distributed order management, logistics, merchandize planning, procurement and product development. He has architected and managed several large multi-phase Sterling Commerce and i2-based business and IT transformational programs for clients across the Retail, Manufacturing and Logistics sectors. For more information on Infosys Technologies, see www.infosys.com.
Gopi Krishnan is delivery manager and lead with the SCM Practice at Infosys Technologies. He has more than 14 years of IT and industry experience, and he heads the Supply Chain Management practice within Enterprise Solutions, delivering best-of-breed package solutions. He blogs on supply chain management issues that drive operational excellence and enterprise performance at www.infosysblogs.com/supply-chain. For more information on Infosys Technologies, see www.infosys.com.