A new JDA study reveals an enormous amount of money; energy and time retailers and consumer goods manufacturers are spending to improve their omni-channel sales capabilities.
While this may not be surprising given the current business environment, the report reveals an unexpected and disturbing fact: despite these significant investments, only 16% of companies say they can fulfil omni-channel demand profitably today.
“What is eroding retailers’ margins as they sell and deliver products across multiple is the high cost of fulfilling orders says Kevin Iaquinto, chief marketing officer at JDA. A full 67% of respondents reported that these costs are growing as they increase their focus on selling across channels. Survey respondents reported their highest costs associated with omni-channel selling as, handling returns from online and store orders (cited by 71% of respondents), shipping directly to the customer (67%) and shipping to the store for customer pick-up (59%)”.
The Omni-Channel Fulfilment Imperative, a new report prepared for JDA Software Group, Inc. by PwC highlights these and other findings based on a global survey of more than 400 retail and consumer goods CEOs from around the world, conducted in late 2014.
The CEOs in the JDA study recognise that they need to continue investing in business improvements to enhance their omni-channel performance. However, reducing the associated logistics costs is not their primary focus.
When asked to rank their top initiatives for improving business operations, CEOs’ number-one choice (57%) was spending capital on creating new customer experiences. Similarly, when asked to rank strategic growth enablers for the year, reducing/reformatting physical store footprints to focus on expanding the ecommerce business were the top choice at 53%.
“Every time retailers receive an online order, they have a number of options to fulfil that demand. They can pull the product from a local store, send it from a centralised warehouse or ship it directly from the supplier. JDA’s new study demonstrates that most retailers lack the insight to make these decisions in a profitable manner – and are not sufficiently focused on this critical capability gap,” says Kevin Iaquinto.
“They need intelligent logistics and fulfilment solutions that can reveal the hidden costs, and the customer service trade-offs, associated with every delivery option. In addition, to truly win in the omni-channel marketplace, retailers need the upfront demand forecasting tools to make sure products are already distributed across all locations in a manner that supports profitable delivery.”
While they might not be focused on actions today to create profitable fulfilment and delivery schemes, the JDA study leaves no doubt that CEOs are aware of the importance of profitable omni-channel fulfilment to their future survival.
Seventy-one% of respondents says omni-channel fulfilment is either a high or a top priority and these CEOs are planning to invest an average of 29% of their total capital expenditures for 2015 on improving their omni-channel fulfilment performance.
The fulfilment capability most cited as needing attention was transportation and logistics, named by 88% of CEOs as a priority for the future. The second capability CEOs will focus on is improving inventory availability to fill orders, cited by 85%.
“Having products available, then finding the most profitable way to deliver them — are critical activities that lie at the heart of supply chain excellence,” noted Iaquinto. “The CEOs in the JDA survey clearly understand the challenges they have ahead of them with regard to fulfilment, and they know they will have to innovate if they are to be profitable while meeting customer expectations across channels. The good news is that advanced technology can help retailers and consumer goods manufacturers master omni-channel fulfilment. However, until companies fully leverage these solutions, they will fail to realise positive financial returns on their omni-channel investments.”