What is Omnichannel Distribution

Omnichannel distribution refers to the seamless integration of a business’s operations, inventory, and product flows across all sales channels to enable customers to purchase products through any channel of their choice. This approach aims to provide a consistent shopping experience for customers across channels while optimizing operational efficiency behind the scenes.

With the rise of ecommerce and mobile technology, customer purchasing behavior has fragmented across multiple online and offline touchpoints. Retailers must adapt their distribution models to meet rising consumer expectations for omnichannel convenience.

Key Components

An effective omnichannel distribution strategy relies on core capabilities across four key areas:

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The Critical Role of Inventory Visibility in Omnichannel Distribution

Inventory visibility refers to a retailer’s ability to access real-time data on inventory levels and product availability across their entire supply chain network. This includes stores, e-commerce fulfillment centers, warehouses and more.

For omnichannel retailers, inventory visibility is absolutely essential for providing accurate product availability information to customers and fulfilling orders efficiently. Without end-to-end visibility, omnichannel operations break down.

Why Inventory Visibility Matters

Inventory visibility powers key capabilities that enable omnichannel distribution:

• Display accurate product availability for customers across all channels
• Efficiently fulfill orders from the optimal location
• Proactively prevent out of stocks with replenishment

“Inventory visibility is the foundation on which all other supply chain processes are built”

Without real-time inventory data across the network, retailers face major pitfalls:

• Inaccurate availability – Overselling product online that is out of stock in stores
• Missing omnichannel opportunities – Unable to ship items from stores to fulfill online orders
• Customer disappointment – Orders canceled due to lacking inventory
• Higher costs – Expedited shipping to cover stock-outs

Achieving End-to-End Visibility

Traditionally inventory data has been limited to individual channels, stores or warehouses. But in omnichannel, retailers need visibility across the entire network.

Core capabilities for enterprise-wide inventory visibility include:

• Centralized inventory database accessible enterprise-wide
• Integrated systems capturing & updating inventory data
• Mobile devices like RF handhelds tracking store inventory
• Automated data collection like smart scales & barcode scans
• Real-time analytics dashboards & alerts

This technology ecosystem provides comprehensive visibility that enables efficient omnichannel distribution.

Use Cases for Inventory Visibility

With enterprise-wide inventory visibility in place, retailers can execute key omnichannel use cases:

Inaccurate availability

• Accurate product availability across channels
• Ensure inventory allocated to online orders is subtracted from availability

Missed omnichannel opportunities

• Identify in-store inventory available to fulfill online orders
• Ship from store capability

Preventing stock-outs

• Monitoring inventory levels & trends in real-time
• Proactively trigger replenishment orders
• Reduce costly emergency transportation

Informed order promising

• Make delivery date commitments based on actual inventory status
• Set rational expectations with customer

Enabling Flexible Fulfillment for Omnichannel Success

Flexible fulfillment refers to a retailer’s ability to fulfill orders from any location across their network, not just a central warehouse. This includes capabilities like ship from store, buy online pickup in store (BOPIS) and more.

For omnichannel retailers, flexible fulfillment is essential for delivering on customer expectations and optimizing supply chain efficiency. However, effectively implementing flexible fulfillment poses major operational and technical challenges.

The Rise of Flexible Fulfillment

The traditional retail fulfillment model of centralized distribution centers breaking bulk to stores is outdated in the era of omnichannel commerce.

What is driving the need for flexible fulfillment?

• Ecommerce growth – Meeting rising online order volumes which vary significantly
• Customer experience – Enabling fast, convenient fulfillment options
• Supply chain resilience – Adapting to disruptions like COVID with network flexibility

Leading retailers are evolving to distributed fulfillment networks leveraging stores, dark stores and in-transit hubs to enable flexibility.

“Flexible fulfillment capabilities allow retailers to turn their store networks into strategic assets fulfilling omnichannel demand.”

Key Capabilities

Deploying flexible fulfillment at scale requires significant technology enablement across key areas:

Inventory Visibility

• Real-time view of store, DC and transport inventory levels
• Ensure inventory allocated to online is subtracted

Order Management System

• Logic to route orders to optimal fulfillment location
• Integrations with stores, warehouses, 3PLs

In-Store Picking

• Fast pick-and-pack options for stores
• Handheld RF devices for store associates

Transportation Management

• Dynamic routing of inventory across nodes
• Visibility of in-transit inventory

Returns Management

• Process returns at any node
• Route returned stock to optimal location

With this ecosystem in place, retailers can unlock various flexible fulfillment use cases.

Flexible Fulfillment Models

There are various models for leveraging stores, dark stores, distribution centers and transport for omnichannel fulfillment:

Ship From Store

Fulfilling online orders directly from existing store inventory. Provides inventory closest to customers.

Dark Stores

Dedicated micro-fulfillment centers housed in former stores optimized for online order processing.

In-Transit Hubs

Temporary staging facilities to handle returns, exchanges and order sorting.

Curbside Pickup

Online orders picked up by customer at a nearby store location.

Each approach has pros and cons retailers must weigh based on volume, cost and customer experience. Many leverage a combination of models.

Challenges to Overcome

However, significant barriers across technology, operations, and organization must be addressed:

• Integrating disjointed legacy systems
• Lack of store-level inventory visibility
• Enabling fast and accurate store picking
• Store labor constraints and training
• Managing store-to-door transportation

The retailers that overcome these hurdles to offer flexible fulfillment provide a major competitive advantage in customer experience and supply chain resilience.

Delivering Seamless Returns for Omnichannel Success

For omnichannel retailers, providing a seamless returns experience is essential for customer satisfaction, loyalty and repeat purchases. However, efficiently processing high volumes of returns across multiple channels poses major operational and technical challenges.

What constitutes a seamless returns process?

• Easy for customers to initiate and track returns
• Clearly communicated policies and expectations
• Quick refund turnaround time after receipt
• Options to return by mail or at store locations
• Free return shipping and pre-paid return labels

Getting returns right pays major dividends for retailers focused on profitability at scale.

The Rising Tide of Returns

Product returns are inevitable in retail, but the growth of ecommerce has amplified return volumes to staggering levels. Consider:

• Average online purchase return rate ranges from 20-30%, over 2X higher than brick-and-mortar retail
• U.S. customers returned over $100 billion in online purchases in 2020 alone
• 67% of customers review a retailer’s return policy before making a purchase

Accommodating these volumes poses major cost and operational challenges for retailers. But offering a seamless returns experience increasingly provides competitive differentiation in customer experience.

“Returns must transition from a back-office problem to a front-of-mind customer experience priority for retailers.”

Enabling Seamless Returns

So what are the must-have capabilities for delivering seamless returns?

Returns Portal

A self-service web portal for customers to easily initiate a return or exchange and print prepaid shipping labels. This prevents calls to overwhelmed service reps. Customers can also track status through the portal.

Flexible Return Options

Choices in how to return – by printable mailing label, dropping off at a store location, via courier pickup or locker drop-offs. More options provide convenience.

Quick Refunds

Prompt refunds, issued as soon as an item is received back at the warehouse rather than waiting for inspection. This improves cash flow for customers.

Free Return Shipping

Providing pre-paid return labels removes barriers for customers to send items back. Retailers eat this cost in exchange for customer goodwill.

With the right systems and processes, retailers can make returns essentially “self-service” for the customer. This reduces overhead costs while providing convenience.

Operational Impacts

While critical for customers, accommodating seamless returns introduces operational challenges for retailers including:

• Managing transportation costs for high volumes of returns
• Quickly processing returns through intake, restocking and refunds
• Preventing fraud – ensuring returned items match what was shipped
• Redistributing returned inventory back to saleable channels

This requires investments in transportation management systems, return processing labor, restocking capabilities and analytics against fraud.

Harnessing Integrated Data to Enable Omnichannel Success

A key pillar of omnichannel distribution is integrating data across all sales channels to achieve a unified view of customers, orders, inventory and more. Stovepiped channel data severely limits a retailer’s ability to deliver consistent personalized experiences.

So why is integrated data so critical for omnichannel commerce?

• Provides complete view of customer purchase history across touchpoints
• Powers personalized recommendations and marketing across channels
• Enables order fulfillment from optimal inventory location
• Supports visibility into network-wide inventory availability
• Allows retailers to identify their most valuable customers

Integrated data connects the dots of omnichannel distribution.

Achieving a Single View of the Customer

Traditionally, customer data has been fragmented into channel-specific datasets that fail to relate interactions and purchases across touchpoints.

• Online behavior data stays in the ecommerce database
• In-store purchases reside in the POS system
• Call center interactions tracked separately

This severely limits visibility into total customer value.

“Retailers must connect data across channels to identify their best individual customers.”

Enabling an integrated single customer view requires:

• Unique persistent customer ID across systems
• Data integration across technology systems
• Cloud-based data platforms with analytical capabilities
• Data governance and privacy protocols

With these foundational elements in place, retailers can unlock omnichannel use cases through integrated data.

Omnichannel Use Cases

Here are key ways retailers leverage integrated data for omnichannel success:

Personalization

• Targeted promotions across any channel based on purchase history
• Consistent product recommendations across web, mobile, email

Fulfillment Optimization

• Identify closest in-stock inventory to customer for fast fulfillment
• Ship from store capability

Loyalty & Retention

• Whole view of customer lifetime value
• Identify top customers for high-touch service

Fraud Prevention

• Connect data points of suspicious activity
• Shut down fraudulent accounts enterprise-wide

Implementation Challenges

However, achieving integrated data presents sizable technology and organizational obstacles:

• Integrating fragmented legacy systems
• Inconsistent data formats, structures and taxonomies
• Organizational silos and data ownership mindsets
• Privacy regulations and data governance considerations

The retailers that can overcome these barriers will gain unmatched capability to know their customer and deliver personalized omnichannel experiences.

Benefits of Omnichannel Distribution

Deploying omnichannel distribution capabilities provides advantages for both customers and the business:

• Meets rising consumer expectations for seamless, integrated shopping across channels. Research shows Gen Z and Millennial customers increasingly expect this level of experience.
• Increases customer satisfaction through convenience, faster deliveries, and consistency across touchpoints.
• Improves operational efficiency through better inventory allocation and reduced out of stocks.
• Enables faster overall delivery speed by leveraging inventory closest to the customer for fulfillment.
• Increases customer loyalty which directly translates to higher sales and profitability.

“Omni-channel distribution has become the ultimate solution to simplify the logistics process”

Challenges with Implementation

However, reorienting company operations to achieve true integrated omnichannel distribution poses major challenges:

• Significant technology investment required for systems, data integration, and inventory management.
• Organizational change management to break down channel silos (e-commerce vs stores for example)
• Logistical complexity of managing fulfillment, inventory, and transportation across a network of nodes.
• Difficulty anticipating customer demand across channels making inventory planning complex.

The Path Forward

Retailers aiming to stay competitive and meet rising customer expectations need an omnichannel distribution strategy. However, haphazard efforts can destroy value rather than create it.

Companies must focus foundational investments on the key components outlined above as the core enablers of omnichannel distribution. From there, retailers can look to scale and expand capabilities over time.

Additionally, a cross-functional team combining e-commerce, store operations, and technology leadership is essential to align on strategy and priorities. What omnichannel capabilities will drive the most value? This helps inform phasing of the rollout.

While challenging to implement, successfully leveraging omnichannel distribution as a core operational strategy can significantly boost customer loyalty, sales growth, and profit margins over time.