The trend of Omnichannel refers to the progressive synchronization and combination of all product sales, distribution, and return channels accessible to a customer. This trend goes further than a multichannel system in which the customer is exposed to many channels but must buy and return through the same channel. Omnichannel systems empower the customer to browse in all channels and select any channel for purchase, product receipt, and return.
The seamless integration of online and offline channels with a clear focus on the end customer is at the heart of a successful omnichannel strategy. For example, 1/3rd of US shoppers said that, since the pandemic, omnichannel features such as the ability to buy online and pickup in store (BOPIS) have become part of their regular shopping routine. The start of 2022 with the reopening of brick-and-mortar stores has also shown that retail stores still have high value for end customers and companies, as retailers are also increasingly using stores as strategic distribution channels. Only by exploiting and connecting all potential channels can an omnichannel strategy be established successfully, especially in the e-commerce retail and fashion sector. While this is a challenging task, it opens up a very lucrative market – the total global value of omnichannel distribution is expected to increase every year by 7%, reaching up to 840 billion USD by 2025.
In recent years, more and more companies have recognized the great potential of implementing omnichannel strategies. Traditional brick-and-mortar retailers are investing heavily in e-commerce programs; for example, Walmart announced an investment in the Indian e-commerce company Flipkart of 1.2 billion USD in 2020, and e-commerce companies are investing in traditional store retail concepts that leverage the offline channel as well, like Amazon’s chain of convenience stores Amazon Go and supermarket chain Whole Foods Market. This illustrates the importance of this trend to corporate agendas. Omnichannel strategies require sophisticated supply chain management to deliver the promised customer experience as, for example, planning, lead times, inventory levels, and locations become more complex. However, it will still take 2 to 3 years before most companies are able to design and implement a comprehensive omnichannel strategy for day-to-day operations, transport networks, and IT systems.
An ideal omnichannel logistics network requires active communication, visibility, and coordination between many players and engagement point with customers.
Relevance to the Future of Logistics
- Logistics As An Omnichannel Differentiator
- Anytime & Anywhere: Last-Mile Omnichannel
- Inventory Movement
The successful implementation of an omnichannel strategy today depends, above all, on the online presence of companies and their e-commerce sales channel.
For companies that are adopting an omnichannel strategy, a key differentiator is logistics. Logistics service providers play an important role in the entire customer journey. Research shows they even influence the final purchase decision, as 46% of online customers abandon online shopping carts if required to wait too long for delivery of their purchase. There is also clear evidence that customers want the ability to track the shipment of their purchases right to their pickup point or front door.
To ensure a superior customer experience, the key to success is end-to-end integration of supply chain planning involving all relevant stakeholders. After all, an omnichannel strategy can only be successful if there is continuous visibility of product locations and quantities as well as seamless integration of all relevant platforms and service providers.
Furthermore, a successful omnichannel strategy includes giving customers the options to choose their preferred logistics providers and services, as well as delivery time and location, regardless of whether they use one or multiple channels throughout their entire customer journey.
The realization of various delivery options requires the omnichannel strategy is taken into account when planning the supply chain network in close cooperation with the logistics service provider. In future, a combination of ‘dark stores’ which are small micro-fulfillment centers near city centers and strategically positioned distribution centers will be of enormous importance for fast and cost-efficient delivery.
Companies can benefit from the know-how of logistics service providers and improve the customer experience through this collaboration to achieve long-term customer retention.
The growth of e-commerce during the Covid-19 pandemic has accelerated developments of comprehensive omnichannel offerings. Companies recognized pandemic-favored delivery options such as ‘buy online, pick up in-store’ (BOPIS); in fact, the use of BOPIS services in the US increased by 106.9% in 2020. Other new omnichannel examples include a kiosk solution from collaboration between e-commerce software provider Shopify and Portuguese kiosk manufacturer PARTTEAM & OEMKISOSKS. Designed for use in brick-and-mortar stores, this digital kiosk presents customers with a complete online store selection, including individual offers and discounts. After making a purchase, the customer can opt to have their goods delivered or decide to take them directly from the store, if this option is available.
Customers appreciate this flexibility and particularly like choosing their delivery location. This could be the nearest branch, a smart locker solution such as the DHL Packstation, or even delivery to a neighbor. They also want to select the most convenient delivery time.
To offer this level of flexibility, companies must have an accurate inventory management system, one that is connected to all retail stores as well as warehouses and production facilities, with seamless connection to the logistics service provider.
In future, autonomous deliveries via drones and vehicles such as the Nuro delivery vehicle can help further personalize last-mile services, enabling a fully anytime, anywhere solution.
With the reopening of retail stores in the wake of the COVID-19 pandemic, the relevance of brick-and mortar stores as a place for customer engagement and brand building has become more visible again. New delivery and return models such as BOPIS or in-store return options have led many retailers to increasingly use their brick-and-mortar stores as fulfillment centers.
This is evidence of a clear trend towards omnichannel solutions, so that online and offline channels are becoming more and more complementary and connected, and are no longer seen as substitutes. A central aspect of the implementation of an omnichannel strategy is the movement of inventory, which requires a high degree of precision and even more flexibility to respond to fluctuations in demand. Strategically, this also means a shift from large distribution centers to a more decentralized setup, local micro fulfillment centers or even using brick-and-mortar stores as inventory hubs. This shift was first accelerated during the COVID-19 pandemic, when retailers began using their retail storefronts as fulfillment centers when they were not allowed to open them.
Currently, the decision on warehouse locations and quantities is primarily made by humans. However, companies are increasingly aiming to automate these decisions in regards to internal movement of inventory using smart algorithms based on various data points, such as regional weather changes or online customer behavior.
The challenges for logistics are finding the ideal logistics solution for the respective shipments and, above all, to adapt the more flexible, smaller-scale movement of inventory to route planning, as exact information about delivery options (eg, specific delivery periods and zones within inner cities) as well as measurements to help select the right means of transportation (eg, small van or large truck) are necessary for efficient planning. Only in this way can effectively shared inventory be realized across the various channels, online and offline, and an omnichannel strategy be successfully implemented.
This trend should be CLOSELY monitored, with implementations available for many use cases today.
Omnichannel strategies will remain highly relevant to the success of companies in the future, as indicated by a survey of 100 e-commerce decision makers in Europe and North America, 20% of whom rated an omnichannel strategy as quite important and 47% as very important to their organization in 2021.
Logistics will continue to play a major role in omnichannel concepts and collaboration between companies and logistics service providers is essential to the success of an omnichannel strategy. New, emerging customer channels such as the Metaverse and growing customer expectations in terms of speed and convenience of delivery will continue to shape omnichannel strategies in the future and, accordingly, also place new demands on the supply chain and logistics services.
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- McKinsey (2021): Omnichannel: The path to value
- McKinsey (2021): Unlocking the omnichannel opportunity in contract logistics
- TechCrunch (2020): Walmart leads $1.2 billion investment in India’s Flipkart
- McKinsey (2022): The five zeros reshaping stores
- Insider Intelligence (2021): US Click and collect in 2020 and 2021
- Statista (2021): Level of importance attributed to an omnichannel strategy for e-commerce companies in North America and Europe in 2021