Rapidly accelerated by the pandemic, the unstoppable rise of ecommerce is shaping our lives every day.
According to Statista, by 2027, the global last mile delivery market is expected to grow to more than $200 billion from $108.1 billion in 2020. More and more consumers are used to searching for a product, finding it online, ordering, and then receiving it in just a matter of days; all whilst forgetting the universe that makes such actions possible. Hidden behind this process is an amazing orchestration of people, software, warehouses, actions, and data that makes it all happen day-in and day-out. But how is this done? How are sales and shipments optimized? The answer is omnichannel logistics.
What exactly is omnichannel logistics?
Logistics is made by mixing essential elements like demand, supply, and inventory. Today the physical and digital logistics worlds converge and unify in the mix of the physical supply chain, digital supply chain, and business strategic needs. What part of logistics is called omnichannel?
Omnichannel can be identified as: the way that people buy products. The name combines omni, in Latin omnis, meaning “all” and channel, here intended as a means of communication, expression, direction, or action. According to Sunil Chopra at ScienceDirect, within retail omnichannel refers to “the use of a variety of channels to interact with customers and fulfil their orders”. He continues explaining that “the interaction between a customer and a retail channel is primarily in terms of three flows: information, products and funds”. Within logistics, to be precise, omnichannel is a business strategy.
Many channels are connected to fulfil consumers’ digital orders. Even if they place their order via social media, like Facebook or Instagram, the request will still land in the same backend engine from the provider. OptimoRoute defines it as “a complex web of interconnected services and systems that work together to deliver packages to customers and clients, from the warehouse to the all-important last-mile delivery.”
Starting from the 2010s, ecommerce began to be included in business plans and strategies for companies around the globe. With brands and retailers starting to identify this channel, many of them started setting up ecommerce facilities or working with specialist ecommerce providers. So, they would start offering their products online, separating some of their products out of the wholesale product offer and shipping it off into an ecommerce fulfilment center, either for a single customer or in anticipation of many. Most of them were working on strategies for multiple inventory piles and to have separate fulfilment centers. The desire might have been to have one inventory pile (in the same place), but the capabilities weren’t ready then. The right skills in the facility weren’t there, nor a detailed process with ad hoc technology. So, many businesses back then settled for a medium-term strategy, having separate facilities.
Since then, these processes developed to a point where brands are now able to run a multichannel or omnichannel facility with greater ease.
Multichannel vs. Omnichannel
A system is called multichannel when organizations operate in a binary “online vs offline” way. An omnichannel system instead operates across multiple channels (such as web ecommerce, social media channels, the “metaverse”, physical shops, third party sites, etc) transitioning seamlessly between channels and touchpoints, for a smooth customer experience.
How is it revolutionizing logistics?
Omnichannel logistics is re-shaping enormous industries, particularly within retail and lifestyle, with both distribution and channel strategies becoming a priority for all companies that wish to reach their target consumers. All around the world, warehouses are jam packed with inventory, making a model like flexible warehouse logistics even more important to implement. One of the benefits on implementing omnichannel logistics according to Simon Oxley, Global Head of Business Development for Omnichannel Fulfilment at Maersk is that “bringing all your inventory into one place can improve service levels to customers including improving availability at a reduced overall cost per unit.”Surely, the use of omnichannel as a strategy has given businesses:
- The opportunity to minimize inventory: providing better levels of availability and service, with reduced working capital and better efficiency. Investing in only one facility instead of multiple ones allows to focus capital into upscaling areas such as handling automation.
- A better understanding of customers: the rise in use of online retail has given companies a more granular understanding of their consumers’ preferences, in all geographies.
- The chance to design facilities correctly: through the right technology, not having to increase inventory to have availability in all channels.
- A better focus on sustainability features: investing in renewable energy such as solar panels, smart power management systems and low energy consumption equipment.
What benefits is omnichannel bringing to customers?
According to McKinsey, today “about 60 to 70 percent of consumers research and shop both in stores and online”, and in both these experiences, they wish for an easy, smooth, worry-less experience. So, what benefits can omnichannel bring to them?
- Speed of delivery time: Omnichannel has generated new standards for retailers, making it easier to order something with velocity. According to an Ipsos-Octopia study, “85% of European consumers consider it important” with a majority (57%) even considering important to be able to choose same day or next day delivery”.
- Freedom of choice: Online shoppers can order their favourite items from whatever channel they prefer. Some people prefer to buy directly from social media, some prefer to do so from the comfort of the retailer’s official website. Retailers can now integrate it all.
- Availability: An obvious benefit of omnichannel is that products can be chosen from one inventory pile and be sent to multiple channels, providing better product availability. By using a well-oiled omnichannel offering from their favourite brands, customers will benefit from the joy of accessing a full product range, bundled products deals, exclusive channel-only offers, etc.
- Ease of returns: A seamless online retail experience also needs to take reverse logistics into account. Wunderman Thompson claims that “23% of everything that global shoppers order online is returned”, a good- sustainable system is necessary from businesses to allow free returns by using directly the options made available by their logistic supply chains.
- Transparency: By using omnichannel logistics and increasing their use of these channels, more and more users can benefit from vouching for this way of shopping and delivery. Tech savvy users are increasingly intolerant of negative experiences when ordering or shipping online, so the whole system is becoming more transparent and trustworthy as more and more people use it.
A future shaped by omnichannel logistics
In only a matter of twenty years, logistics will be different in all departments.According to Wunderman Thompson, “64% of global consumers said they wished brands and retailers would be more innovative in how they use digital technology to improve their experiences.” The need to have omnichannel systems in place will be essential for online retailers in order to facilitate their customers’ experience, meet their needs, and augment online sales.
Omnichannel will become the norm for all companies, deeply rooted in their business strategies, reducing inventory while opening markets and geographies. “60% of global shoppers said they will increase their usage of digital shopping channels in the future” reports Wunderman Thompson, bringing direct-to-consumer brands to invest more in optimizing their on-channel experience. To establish this, businesses will expect a high level of omnichannel efficiency from their logistic providers too.
Supply chains will be characterized by more trials and development in the field of omnichannel fulfilment, to optimise business while also defining new ways to use this to achieve better environmental standards. An integrated logistics strategy will soon facilitate these systems powered by better analysis, more personalisation, better offering, and a stronger focus on sustainability.
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