Multi-channel Supply chain

The development of new technology has created multiple ways for customers and prospects to select and acquire products and services. Supply chains need to be multi-channel focused to position for future profitable growth.

Companies have invested in supply chain technologies and business process improvements. Large scale ERP and Planning systems together with developments in logistics, CRM and Procurements software with middleware integration between these systems has started to bridge gaps been data and information flows. Lean production techniques have focused on cost reduction and on-time performance improvement. But the affect on the customer was been more significant than first anticipated. Web technology and Mobile channels has grown significantly to a point where alternative channels for customers and supply chain services are possible.

The overall effect in recent years has become a series of initiatives and systems now presenting multiple channels for customers to access company products and services.

• 10-50% revenue is now through other channels other than the direct main supply chain via multi-channel acquisition. For example, 20% of Argos sales are from direct delivery.

• Many business processes have potential for self service and associated cost reduction benefits to support multi-channel service.

Consumers and prospects experience company brands and products through multiple channels including web, media, associated outlets and services increasing choice and convenience.

Multi-channel

• Web – channel providing online contracts, negotiation, catalogue and billing management are increasingly common features, as is on-line stock visibility, branding , marketing and sales activities. Advances in B2B Trading exchanges and B2C Consumer web sites have raised the level of interaction with customers, prospects and suppliers to a point where a growing significant percentage of revenue and customer support services are through this channel.

• Affiliation – customers can use alternative outlets and suppliers to receive products as seen for example in the growth of supermarkets categories into clothing, cosmetics and electrical.

• Direct/ Field – the ability to reach customers and prospects directly from manufacture and distribution through direct ordering and delivery channels often with self service.

• Mobile IT – the use of alternative methods for communication and collection of customer requirements and product flows as seen in Sales Force Automation tools, POS, RFID. The use of multi-media in marketing and promotions including IVR, SMS, email.

Dynamics of the market are driving this:

• Proliferation of product choice and generic alternatives from commoditisation of products.

• Increasing acceptance and use of new media technology by consumers and suppliers increasing expectation of self service and choice - “the Amazon effect”.

• Changing lifestyle demands and demographics driving increased segmentation in markets and product needs towards specialist/premium differentiation and bundling associated products and services.

• Increased cost and pricing pressures in economically flat markets yet growing shareholder performance expectation.

What are the key features to Multi-channel Supply chain responding to these challenges?

• Consumer interaction – targeting what the consumer wants is key particularly so with changing supply chain and customer channel environment. Encouraging consumer spending behaviour may not be from pricing and promotions management alone. Targeting consumer information collection through real-time analytics and mobile IT through the supply chain and gaining a single customer view.

• Consumer Demand - developing demand forecast models needs to consider the multi-channel aspect. Balancing supply and demand across multiple channels and the affects of promotions and individual channel needs, it is about understanding and shaping demand.

• Product Lifecycle development – managing product portfolios to meet multi-channel needs. For example, differentiation of Premium Drink products is key to Diageo products; and Unilever Home and Healthcare products have strong lifestyle and regional needs. In Biomedical sector with competing generic products, managing the product life cycle to market is critical in timing for revenue realisation.

• Infrastructure – understanding the strategic assets of outlet location, distribution network and information systems infrastructure to support alternative channel delivery. For example, UK food retailer Tesco has developed successful on-line and off-line specific services and types of outlet. Bayer Diagnostic medical devices using B2B links to provide European service.

• Real-time logistics – constructing supply lines and SKU levels to meet multi-channel needs. Aiming for near real-time information for consumers and suppliers as well as supply response. How to configure products to support up-sell and cross-sell opportunities across multi-channels. The use of real-time event collection and communications including EPC/RFID tracking, POS.

• Analytics – development of enterprise data warehousing to exploit customer and event information. New technology can monitor web site behaviour and usage by prospects and customers enabling greater insight. Combining this with product and service profiles can improve targeting of demand plans and KPI Dashboards focusing on multi-channel metrics.

• Branding and Marketing – development of multi-channel marketing to manage brand awareness of customers and prospects to build loyalty campaigns and building a customer audience. Use of web channel to deliver other channel promotions/suggestions and service responses such as returns management, logistics control and billing.

• Common Services – Identify how services can be shared across multi-channel. Focus on self-service and transaction costs through the supply chain are essential to maximising cross-channel services.

Arguably areas of cost reduction and supply optimisation are now being addressed; Major companies like Dell and Wal-Mart are reporting significant movement forward in component cost reduction, inventory day’s safety stock cover and on-time delivery lead-time.

The question for companies is where will further cost improvements and profitable growth occur? – Through better service and development of all channels to market and the acquisition and development of the customer segments.

What are the barriers and issues to consider in Multi-channel Supply chain?

• Disaggregated data and knowledge about customer – information about customers and suppliers are spread across different channels (multiple web sites, CRM, Forecasts, 3rd party channels). How to get a single view of customer requirements and demand.

• Fragmentation of service. Individual services for channels have developed with the result that duplicate or disconnected experience can occur for the customer. Duplicate services – customer account and procurement are activities that can occur for a number of channels to market. How can these be optimised?

• Lost sales opportunities. The proliferation of products across online and off line channels increases the difficulty in promoting and building brand loyalty. Yet it also increases opportunities to improve service and growth in sales. Competition is through multi-channels and how to position the infrastructure for growth and cost effectiveness. Multi-channel growth may also come from the ability to reach and exploit country specific markets as well as developing multi-channel services for products and brands.

• Identification – the ability to identify and validate customers and demand profiles for products and services. The current status can often lead to inconsistent information and the inability to combine the information into a single view of the customer behaviours or the supply chain.

• Awareness and learning - Customer behaviour is now spread across many locations and media. It is not limited to the geographical location of outlets. Organisations need to learn how to maximise supply chain events and consumer behaviour to best respond to multi-channel needs.

• Organisational Structure and Skills - current organisational structures are typically single channel and customer\product category with their own budgets. Programme management and skills will be challenged to work in a multi-disciplinary team way. Supply Chain Manager Role will need to move from availability management to understanding the full supply and demand and consumer requirements.

Multi-channel increases the tensions potentially between pushing growth through spend per consumer and improving further cost reductions and pricing pressures. Future profitable growth will need multi-channel supply chain strategies in order to maximise channel performance and leverage product availability to multiple channels.

What Actions to take?

There are a number of IT and Business initiatives to consider in building a multi-channel supply chain:

• Integration and infrastructure – the establishment of IT and Business infrastructure is key to gaining visibility of operations across the supply chain. – establishing a services based architecture across disparate systems remains a key element of being able to record and coordinate logistical and business information activity. This is essential to a multi-channel experience being able to follow the customer across channels but to also enable architecture to be open to affiliates and collaborative initiatives. Initiatives including Service-oriented-Architectures (SOA) and enterprise content and data warehousing are important in getting visibility of data and information about supply chain events

• Identification, Verification, Registration – (ID&V) is a key strategy for enabling multi-channel as the ability to recognise who the trading partner is or customer is key to tracking but also profiling their needs and behaviours. Recent events in the UCCnet registration are an example of how critical it is to building awareness of trading partners. This becomes a critical issue when the same customer can interact across multiple channels and being able to track and respond to the customer. Developing portals and collaborative services helps build this.

• Customer Oriented demand measures – Supply chain metrics need to consider not just demand and range profiling and safety stock levels but also the split of customer behaviours and service needs across multiple channels. Measures need to become customer centric:

• On-time delivery à speed of customer response

• Sales targets à faster response to market trends

• Cost of supply à Transaction cost per channel

• Identification of the common products and services – Identify the current products and services and the supply chains that serve these. Identify operational efficiencies where common products and services can be supplied to multiple channels. Identify how to use new technology to improve connectivity and interaction with suppliers and consumers at every stage of service. Automate processes for multi-channel. How to link with logistics and B2B, B2C to support multi-channel delivery and provide two-way inventory order and delivery status information. Focus on how business processes in supply chain could respond to self service and multi-channel demand management.

• Lean supply – identify configurations and agile supply lines to channels. VMI, agile planning and schedule, returns management, composite and multi-drop orders. Prioritise delivery and shipping zones for multi-channel. Leverage scale of multi-channel through sourcing and common services. Improve service and stock availability.

Lean principles are essential to multi-channel: Identification of value from product and its value stream; efficient supply flow; the customer centric value pull from product and the effectiveness in delivery and metrics are all core principles. What has changed is the basis of customer interaction and the impact on the supply chain to deliver that value and hence lean initiatives needed to consider multi-channel impact.

There is a long way to go as many service processes are manual (85% manual Purchase orders, invoices and payments in a recent MasterCard survey CFO.com) Numerous companies need to establish enterprise standards and visibility of supply processes at supplier and customer touch points.

The greatest challenge for organisations to address multi-channel operations and opportunities is Organisational Structure. Current organisational structures are typically set up for single channel and specific supplier or customer categories. Ownership, budgets, sponsorship and justification for cross functional initiatives and the ability to change current programmes towards multi-channel will be challenging. Stakeholders will need to learn to work across channel if initiatives are to move from tactical to real sustainable strategic leverage in new markets.

Multi-channel is at the heart of building competitiveness in the company and its range of products and brands. It is central to positioning the company to meet the changing consumer needs and future business trading in the marketplace.

Mark Skilton

September 2004

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