Kewill White Paper - Omni-channel Optimization for Retailers. Fulfillment Best Practice to Deliver on Customer Promises and Drive Down Returns

White Paper

July 2013

Omni-channel Optimization for Retailers: Fulfillment best practice to deliver on customer promises and drive down returns

Contents

1. The omni-channel revolution 3

2. Omni-channel by numbers 4

3. Speed is of the essence 4

4. Protecting the brand

5. The rules of diminishing returns

6. Fulfillment best practice: recommendations for omni-channel success

A successful omni-channel retail strategy requires multiple customer order touch-points

For further information please visit: www.kewill.com

Kewill White Paper | Omni-channel Optimization for Retailers 3

The omni-channel revolutionFor many years, first multi-channel and later omni-channel was touted as the business model of the future and evolved as the successor to the often disjointed post-internet boom retail strategies. Following a slow build in popularity with customers, online retail has now well and truly taken hold, and much wider omni-channel strategies increasingly at the heart of retailers strategies.

From major high street brands to household mail-order names and niche internet start-ups, omni-channel is bridging the gap between traditional retail and pure e-retailers, and, driven in part by the popularity of smart phones and tablets, forcing the issue of customer choice. More and more retailers are allowing customers to choose how, when and where they interact and purchase, by offering a combination of websites (fully functional and mobile-enabled), catalogues, call centres and stores, with increasing convergence of channels, for example through click-and-collect and in-store internet ordering points.

Not only is omni-channel here, but its proving very successful. Recent years have seen well-known retailers, including Office Depot and Macys, reporting omni-channel sales growth far outpacing that of individual and in particular traditional channels, such as bricks and mortar department stores.

In order to rise to the opportunity omni-channel undoubtedly presents, more than ever before, retailers need to be truly joined-up in their customer-centric, demand-driven supply chain response. With customers increasingly likely to check out a retailers website before visiting stores to examine goods first-hand, then price-checking the competition before ordering over the phone - and of course skipping or adding several stages depending on the price, complexity and familiarity of the purchase, consistency of experience is paramount.

Yet disjointed channels and unresponsive supply chains risk an inconsistent customer experience rather than reliably delivering goods. The key to ensuring consistency of customer experience across multiple channels is a well-though out, cohesive fulfillment strategy that focuses around the customers demand and desires.

Websites

Store Purchase

Direct Mail

In-store kiosk

Smart Phone / Tablet

Customer OrderTouch-Points

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Omni-channel by numbers:

e-Retail sales are forecast to increase by 62% to $327 billion in 2016 from $202 billion in 2011 (Source: Forrester Research January 2012)

Retail sales made on smartphones are forecast to hit $27 billion, or 8% of e-retail sales, by 2016 (Source: Forrester Research January 2012)

Cyber Monday November 26 2012 the culmination of the peak period around Thanksgiving saw a record 8.52 million page views of e-retailing site per minute (Source: Akamai)

53% of searchers purchase as a result of a smartphone search in the U.S (Google/OTX, The Mobile Movement, U.S, Apr 2011).

70% of smartphone users use their device while shopping in-store (Google/OTX, The Mobile Movement, U.S, Apr 2011).

Over half of all online toy shoppers research on online retailer or mass merchant sites (Google/Compete, The Role of Digital in the Toy Shoppers Journey, US Dec 2011).

Speed is of the essenceWhile customers would once have been satisfied with a lead time of a few days, now it must be next day, or even same day, or they will take their business elsewhere. Free shipping is frequently not even appreciated its expected as standard, and different shipping options (e.g. express) are increasingly becoming a point of differentiation and a marketing campaign feature. Yet with the huge increase in online sales, customers are increasingly located nationwide, in Canada or even internationally, instead of within neat state boundaries. This makes shipping charges and timescales tricky to calculate, with retailers, or their fulfillment partners where this is outsourced, needing to be able to stay on top of multiple carriers service options and pricing structures. Ultimately, this new complexity and pressure for shorter delivery lead-times makes customer delivery promises increasingly difficult to offer and to keep.Further complicating the situation, retailers are increasingly finding they have to offer more product lines, often from more suppliers, but without increasing already rising logistics costs and tying up cash in inventory with the associated risk of obsolete inventory. The answer for many is adopting a drop ship model, where customer orders are sent directly to the retailers supplier to despatch the order, effectively removing traditional links in the supply chain. While this cuts logistics costs as goods do not have to be shipped to the retailers DC and stored, managed and processed, it also cuts the retailers control over the execution of the fulfillment process. This is a benefit in terms of reducing their costs and allowing them to focus on their core competencies merchanidising, selling and customer interactions but also introduces risk to the customer experience and brand perceptions.



Omni-channel retail often falls apart at the fulfillment stage, with the following common pain points:

Slow order processing: The quicker orders are shipped, the faster customers receive them and the fewer calls to customer services the better customer satisfaction is. It also means customers have less time to change their minds and cancel their orders, which is particularly important where free shipping and returns are offered to entice customers through flexibility and choice. Processing orders in real time mean they are completed and

ready to go immediately, while batch processing slows things down because there are intervals between batches. This requires a rethinking of core operational processes.

Integration between order management and shipping management systems is essential to avoid a time lag between orders being placed and the fufillment process starting, adding to the overall delivery timescale.

Where fulfillment is outsourced, or orders are fulfilled on a drop-ship basis, further delays are automatically introduced if retailers order management systems are not integrated with those of their suppliers or fulfillment partners, or suitable access provided.

If the retailer is managing fulfilment, purchasing must be closely tied to demand and forecasting must be accurate to avoid stock outs.

Lack of Visibility: It is impossible to handle customer enquiries if staff do not have accurate visibility of where a customers goods are in the fulfillment cycle.

Customers will not accept outsourced fulfillment or drop-ship as an excuse for lack of information. They purchase from the retailer and the fufillment model is not their concern, but they do expect delivery promises made to be met and that the retailer can provide up to date information on the status of their delivery.

Queries cost time and money - badly handled queries cost customers. It is therefore imperative to minimize the number of queries received and the time taken to resolve them. Its usually much cheaper to keep a customer than to have to win new customers or persuade a lost customer to return..



Poor carrier intelligence: Is it better to use a method thats faster and more expensive or slower and cheaper? Thats an individual decision for each retailer, and one that may change in line with seasons and demand. However lower-cost shipping methods can results in fewer orders due to longer delivery times and higher numbers of calls to customer services from customers chasing up delivery, higher numbers of cancelled orders and even negative comments posted on social media. [Is there a stat? E.g. one bad comment can impact 20 people considering buying?]

Carriers change their rates and services frequently, in response to market demand and frequently as a competitive move.

Retailers who opt for a drop-ship model need to consider how they will implement and monitor shipping policies with regard to carriers and services used, to ensure customers receive the same value regardless of fulfillment model.

Retailer places bulk order with supplier

Drop Ship Order Process Flow

Traditional Order Process Flow

Retailer passes order to supplier

Supplier deliversbulk order to Retailers warehouse

Customer places order(by phone, online, at in-store kiosk, by post)

Carrier delivers order direct to customer/ tostore (click and collect)

Retailer picks order

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Customer places order(by phone, online, at in-store kiosk, by post)

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Carrier delivers order direct to customer/ tostore (click and collect)



Protecting the brandOne of the most convincing arguments against outsourcing fulfillment is protecting the retailers brand. Yet fulfillment is easy to get wrong and can create brand damage, regardless of how and by whom it is executed.

Retailers are sensitive to any negative or damaging stories in the press regarding customer deliveries and service levels. And the popularity of social media ensures that customers who are unhappy, be that with delivery times, service or the goods themselves, will tell their network of friends, relatives, neighbours and colleagues, who will in turn tell their network Before retailers know it, news of one delayed delivery or out of stock item causing a minor inconvenience can spread like wildfire and erode a prized brand reputation and negatively influencing consumer buying decisions.

With more and more consumers shopping online, its critical for retailers to execute shipping flawlessly to get the right product, to the right customer, at the right time the first time, every time. In fact, just one shipping error or delay will cause many consumers to stop shopping with a particular retailer online as well as in physical stores according to research by Voxware published in an article in Internet Retailer.

Results from this survey on fulfillment and delivery errors indicate that 29% of respondents will stop shopping with a retailer entirely if they receive even one incorrect order, while only 45% would continue to make purchases from that company if their orders were consistently delivered late, according to the survey conducted by Voxware Inc. in November 2012.

Results of the survey indicate that:

62% of respondents are much less or less likely to shop with a retailer online or by phone in the future if items they buy via those methods are not delivered within two days of the date promised.

68% of respondents note that their expectations for correct and on-time delivery of items that they purchase online or by phone are higher during the holiday shopping season.

30% of respondents intend to have more or significantly more purchases delivered directly to them during the holiday season.

The results of the survey indicate that as consumers online spending increases, they expect more from retailers. Although online shopping has exploded, retailers havent thought enough about optimizing their demand-driven supply chain networks for omni-channel distribution, as a number of companies are still managing many aspects of their shipping processes manually. This increases the possibility for errors and delays, according to the results of Kewills 2012 parcel shipping survey, Best Practices Survey: Parcel Shipping/LTL Freight.

Results from this survey on fulfillment and delivery errors indicate that 29% of respondents will stop shopping with a retailer entirely if they receive even one incorrect order

29%



For example:

44% of the 730 companies surveyed are still manually entering data for all of their shipments

30% manually review their paper invoices to prepare for carrier rate negotiations

33% are managing trade compliance manually More than one third of respondents are using a manual process to

screen for restricted/denied parties and embargoed countries Entering data manually can cause a number of problems: it increases the likelihood for errors, requires more staff, and slows down processes while lowering productivity. According to our survey, distribution center workers are spending much too much time locating and entering this data. In fact, more than a quarter of respondents (28%) say their distribution center workers spend more than a minute per shipment. Another 37% of respondents say their distribution center employees spend 10 to 60 seconds per shipment. Even if you ship fewer than 100 shipments a day, thats still a lot of time.

Another key factor to consider is the look and feel of packages; outer and inner packaging, labelling and documentation. Where goods are purchased online or over the phone, this tangible reflection of the brand takes on a greater significance, as customers have had more limited interaction via a website or telephone call than when purchasing from a store. Where goods are fulfilled directly by the supplier (drop-ship), you need to ensure consistency in the customer experience.

The rules of diminishing returnsA growing headache for omni-channel retailers is returns, which represent the weakest link in the supply chain for many, eating away at profits and customer satisfaction. An obvious downside of increasing sales via non-direct channels is the practicalities of returning unsuitable or unwanted goods, coupled with customer expectations and of course legal requirements under distance-selling regulations, covered by federal and state law. Customers who havent physically seen or touched the goods they purchase, or experienced the all-round experience of selecting them in a store, handing them over at the till, having them wrapped and bagged and then taking them home are naturally more likely to return goods. Apart from the practicalities of not getting what they envisaged or wanted, there just isnt the same level of personal engagement.

Apparel retailers and their suppliers have historically borne the brunt of customers ordering multiple items and sizes. However, retailers of other types of goods are increasingly finding that other categories are more frequently bulk ordered with more than one model, color-way or specification, by customers who are now used to the generous free delivery and returns policies of pure play internet retailers. Apart from the higher shipping costs that are usually absorbed by the retailer and

Customers ordering online generally expect to receive their goods quickly and frequently free of delivery charges often next or even same day depending on location



greater value of inventory in the supply chain, the more time goods spend in transit the more likely they are to be lost or stolen. Theft in this area are becoming a more and more significant problem and the cost again directly impacts on retailers (and also carriers) profits.

The crucial role shipping policies play in successful omni-channel retailing is well-documented. Customers ordering online generally expect to receive their goods quickly and frequently free of delivery charges often next or even same day depending on location, and certainly within the period specified at point of order. Even previously satisfied customers will often order elsewhere for a saving of only a couple of dollars, or to get their goods quicker, with free delivery and increasingly, the comfort factor of free returns should they need it.

Returns processes are becoming a key differentiator. Returns are an important part of the omni-channel experience and came out second to free shipping options in a 2012 customer poll on the aspects shoppers wanted to see improved by Retailers. What customers wanted was an easier returns/exchange process (Source: May, 2012, comScore, Inc.).

Ultimately, its about ensuring customer promises are met as well as goods are delivered. Customers who have received the goods they expected, within the timescale promised at point of order, and in the condition they had anticipated (including packaging) are significantly less likely to experience dissonance and return the goods, saving retailers and their suppliers on return costs and refunded revenue. And those who do need to return goods, perhaps due to sizing anomalies, where the returns process is made straightforward due to clear returns labelling, are more likely to order again

Crucial to operating an effective and cost-efficient omni-channel retail business is minimizing the pain and cost of returns:

Clear, Accessible Returns Policy: Analyze your returns so that you understand which items are typically returned, by which types of customers and why. Draw up a policy that firstly complies with all applicable laws, but that is practical (e.g. doesnt expect customers to take large items to a post office) and then make it accessible post it on your website and include clear links to it in order confirmations.

Be realistic about charges and neither charge customers far more than the return costs nor ignore the impact of returns on the bottom line. Also keep a watchful eye on the competition if you are the only retailer in a category charging for returns, or charging a re-stocking fee, it may harm your business in the long term. If you want to gain competitive advantage by offering much more favourable returns then thats your decision, but dont enter into it blind calculate and monitor the cost and profit impact.

Make sure returns policies across different channels are



consistent having much stricter returns policies either in store or online diminishes the omni-channel experience and leads customers to feel they are being treated unfairly or inconsistently.

Consider the practicalities of returning items via different channels; how will a store process online returns, how will the distribution center handle store-bought items returned via mail?

Inventory Visibility: Depending on the item, out of stock statuses notified at point of order will probably result in a customer purchasing elsewhere, but without the processing and delivery costs incurred by retailers/suppliers when goods are received late or not at all, and without creating an unsatisfactory customer experience.

Retailers need to ensure they can provide up-to-date information on merchandise availability at point of order, including for orders which are fulfilled on a drop-ship basis via data sharing and/or system integration.

The benefits are not only increased customer satisfaction and lower returns, but reduced processing costs into the bargain, and being better prepared to meet demand next time.

Sometimes its better to sell out on a seasonal collection and inform your customers than to re-order and be left with obsolete inventory with the cost eroding away the profit margin

Documentation: Consider the documentation set you produce and issue with each shipment ensure this includes returns labels and any relevant forms, with clear instructions. Think carefully about how your packaging and documentation reflects your brand a consistent brand experience is key to customer satisfaction as well as brand integrity.

If the process is unclear, customers will need to make calls to customer services, increasing handling costs and further reducing satisfaction and the likelihood of a repeat order.

At worst, packages risk getting lost, with customers becoming further enraged as refunds are delayed.



Fulfillment best practice: recommendations for omni-channel success

Automation makes senseSupply chain management isnt going to any easier. Retailers need to move to a customer-centric demand-driven approach and those that continue to use manual processes will fall further and further behind their competitors that are using global shipping software to automate their supply chains. To remain competitive, retailers and carriers should take steps to automate basic shipment processing.

Ensure the cost savings as well as the customer service benefits of automating your parcel shipping handling will more than justify your investment. Parcel shipping software can help ensure each customer receives the right order at the right time, every time.

Visibility, visibility, visibilityAccurate, real-time inventory visibilty at point of order is key in managing customer expectations and avoiding unnecessary queries to customer services, and returns. Customer services staff need to have full visibility of order statuses, even if fulfillment is outsourced/drop-ship.

Alerting the customer immediately regarding the status of his order as it is dispatched and during its journey via status updates (e.g. by email/text message) is becoming standard practice and is a very effective way of reducing calls to customer services

Build in brandingUniformly branded, well-labelled packaging not only protects goods and ensures rapid processing through the delivery cycle, but also helps to create a good impression of the brand on opening the parcel.

Consider the documentation set you produce and issue with each shipment ensure this is consistent with your brand, in terms of logos and fonts used, but also that it includes returns labels and any relevant forms the customer needs to complete, with clear instructions that are consistent with your website.

Ensure consistency of the customer experience where drop-shop or outsourced fulfillment is used.

Keep up with the carriersCarriers change their rates and services frequently, in response to market demand and often as a competitive move.

Its essential that you stay up-to-date with what services are available and look at automating this within your shipping management system to ensure you dont become uncompetitive.

If outsourced fulfillment or drop-ship features in your fulfillment strategy, consider how you will ensure a consistent shipping policy is applied across your operations, and that you maintain good customer value.

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About Kewill

Kewill is a global leader in multimodal transportation management systems, providing organizations with a comprehensive end-to-end platform for managing the complexities of transportation, logistics and trade compliance. The Kewill MOVE platform helps companies reduce costs, manage volatility and gain greater visibility across the logistics value chain. Trade, transport, store, comply, manage and integrate the Kewill transportation management platform gives you the insight, agility and tools you need to deliver better customer service and streamline global supply chain execution for strategic advantage.

The Kewill platform supports supply chain execution activities for more than 7,000 companies in over 40 countries across 5 continents.

Learn more about how Kewill can help you achieve greater innovation in your transportation management and logistics functions at www.kewill.com.

For further information please contact us at:

www.kewill.com

Europe: [email protected] Americas: [email protected] Asia Pacific: [email protected]

Kewill Ltd 2013. All rights reserved. Kewill and the Kewill logo are trademarks or registered trademarks of Kewill Ltd. 5704

Kewill White Paper - Omni-channel Optimization for Retailers. Fulfillment Best Practice to Deliver on Customer Promises and Drive Down Returns

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