White Paper Omni-channel Optimization for Retailers: Fulillment best practice to deliver on customer promises and drive down returns July 2013 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. Fulillment best practice: recommendations for omni-channel success Kewill White Paper | Omni-channel Optimization for Retailers 3 The omni-channel revolution For many years, irst multi-channel and later omni-channel was touted as the business model of the future and evolved as the successor to the oten 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 ofering 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 it’s proving very successful. Recent years have seen well-known retailers, including Oice Depot and Macy’s, 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 retailer’s website before visiting stores to examine goods irst-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 fulillment strategy that focuses around the customers demand and desires. 1 In-store kiosk Direct Mail Customer Order Touch-Points Smart Phone / Tablet For further information please visit: www.kewill.com Store Purchase Websites A successful omni-channel retail strategy requires multiple customer order touch-points Kewill White Paper | Omni-channel Optimization for Retailers 4 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 Shopper’s Journey, US Dec 2011). Speed is of the essence While customers would once have been satisied 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 – it’s expected as standard, and diferent shipping options (e.g. express) are increasingly becoming a point of diferentiation 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 fulillment 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 diicult to ofer and to keep. Further complicating the situation, retailers are increasingly inding they have to ofer more product lines, oten 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 retailer’s supplier to despatch the order, efectively removing traditional links in the supply chain. While this cuts logistics costs as goods do not have to be shipped to the retailer’s DC and stored, managed and processed, it also cuts the retailer’s control over the execution of the fulillment process. This is a beneit 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. For further information please visit: www.kewill.com Kewill White Paper | Omni-channel Optimization for Retailers 5 Omni-channel retail oten falls apart at the fulillment 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 ofered 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 fuillment process starting, adding to the overall delivery timescale. – Where fulillment is outsourced, or orders are fulilled on a drop-ship basis, further delays are automatically introduced if retailers’ order management systems are not integrated with those of their suppliers or fulillment partners, or suitable access provided. – If the retailer is managing fulilment, 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 staf do not have accurate visibility of where a customer’s goods are in the fulillment cycle. – Customers will not accept outsourced fulillment or drop-ship as an excuse for lack of information. They purchase from the retailer and the fuillment 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. It’s usually much cheaper to keep a customer than to have to win new customers or persuade a lost customer to return….. For further information please visit: www.kewill.com Kewill White Paper | Omni-channel Optimization for Retailers 6 • Poor carrier intelligence: Is it better to use a method that’s faster and more expensive or slower and cheaper? That’s 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 fulillment model. Drop Ship Order Process Flow Retailer places bulk order with supplier Supplier delivers bulk order to Retailers warehouse 1 Customer places order (by phone, online, at in-store kiosk, by post) Retailer picks order Carrier delivers order direct to customer/ to store (click and collect) Traditional Order Process Flow 1 Customer places order (by phone, online, at in-store kiosk, by post) Retailer passes order to supplier Carrier delivers order direct to customer/ to store (click and collect) For further information please visit: www.kewill.com Kewill White Paper | Omni-channel Optimization for Retailers 7 Protecting the brand One of the most convincing arguments against outsourcing fulillment is protecting the retailer’s brand. Yet fulillment 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 wildire and erode a prized brand reputation and negatively influencing consumer buying decisions. With more and more consumers shopping online, it’s critical for retailers to execute shipping flawlessly – to get the right product, to the right customer, at the right time – the irst 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 fulillment 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 signiicantly 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 haven’t 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 Kewill’s 2012 parcel shipping survey, “Best Practices Survey: Parcel Shipping/LTL Freight.” For further information please visit: www.kewill.com Results from this survey on fulillment and delivery errors indicate that 29% of respondents will stop shopping with a retailer entirely if they receive even one incorrect order 29 % Kewill White Paper | Omni-channel Optimization for Retailers 8 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 staf, 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, that’s 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 signiicance, as customers have had more limited interaction via a website or telephone call than when purchasing from a store. Where goods are fulilled directly by the supplier (drop-ship), you need to ensure consistency in the customer experience. The rules of diminishing returns A growing headache for omni-channel retailers is returns, which represent the weakest link in the supply chain for many, eating away at proits 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 haven’t 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 isn’t 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 inding that other categories are more frequently bulk ordered with more than one model, color-way or speciication, 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 For further information please visit: www.kewill.com Kewill White Paper | Omni-channel Optimization for Retailers 9 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. Thet in this area are becoming a more and more signiicant problem and the cost again directly impacts on retailers’ (and also carriers’) proits. 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 – oten next or even same day depending on location, and certainly within the period speciied at point of order. Even previously satisied customers will oten 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 diferentiator. 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, it’s 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 signiicantly 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 efective and cost-eicient 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 irstly complies with all applicable laws, but that is practical (e.g. doesn’t expect customers to take large items to a post oice) and then make it accessible – post it on your website and include clear links to it in order conirmations. – 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 ofering much more favourable returns then that’s your decision, but don’t enter into it blind – calculate and monitor the cost and proit impact. – Make sure returns policies across diferent channels are For further information please visit: www.kewill.com Customers ordering online generally expect to receive their goods quickly and frequently free of delivery charges – oten next or even same day depending on location Kewill White Paper | Omni-channel Optimization for Retailers 10 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 diferent 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 notiied 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 fulilled on a drop-ship basis via data sharing and/or system integration. – The beneits 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 it’s better to sell out on a seasonal collection and inform your customers than to re-order and be let with obsolete inventory with the cost eroding away the proit 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. For further information please visit: www.kewill.com Kewill White Paper | Omni-channel Optimization for Retailers 11 Fulillment best practice: recommendations for omni-channel success Automation makes sense Supply chain management isn’t 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 sotware 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 beneits of automating your parcel shipping handling will more than justify your investment. Parcel shipping sotware can help ensure each customer receives the right order at the right time, every time. 1 Visibility, visibility, visibility Accurate, 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 staf need to have full visibility of order statuses, even if fulillment 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 efective way of reducing calls to customer services 2 Build in branding Uniformly 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 fulillment is used. 3 Keep up with the carriers Carriers change their rates and services frequently, in response to market demand and oten as a competitive move. It’s 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 don’t become uncompetitive. If outsourced fulillment or drop-ship features in your fulillment strategy, consider how you will ensure a consistent shipping policy is applied across your operations, and that you maintain good customer value. For further information please visit: www.kewill.com 4 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: info-eu@kewill.com Americas: info-usa@kewill.com Asia Pacific: info-apac@kewill.com © Kewill Ltd 2013. All rights reserved. Kewill and the Kewill logo are trademarks or registered trademarks of Kewill Ltd. 5704