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Towards the omni-warehouse

THE WORLD OF MULTI AND OMNICHANNEL

amazon_wh_smallThere’s a lot of talking about omnichannel lately. Behind us are the times when all was simple and for buying in the supermarket you just needed to go to their store. And for buying clothes, to the nearest outlet. Later, online shops appeared, but the idea was still the same: if you want to buy books online, you go to the online bookstore, if you want to buy tickets, visit the travel agency on the Internet. But nowadays, there are more and more hybrid models, the so-called multichannel, in which the traditional brick-and-mortar now also have their digital version. In this way, two different channels co-exist, in many cases each with different products, different prices or conditions and, as a consequence, maybe even aimed at different audiences.

The new wave that’s coming goes even one step further. Multichannel is already a past trend and now we have to talk about omnichannel: the ‘connected customer’ of the future will no longer distinguish between different channels, they will just go to the store to see the product, touch it, try it and then, still within the same store, will be able to make a picture and share that directly with their friends so that they can also give their opinion and at the same time check if there is maybe any kind of special offer of the same product on Internet or in purchasing powerhouse combinations like Privalia or Groupon. On the one hand, this behaviour will cause a totally different dynamic for staff in the store and their relationship with the customer, but at the same time it might actually completely change the concept and the role of the shop as we know it.

EMERGING LOGISTICS MODELS

Out of the differences between multichannel and omnichannel, it’s very important to highlight the ones related to marketing and sales. Aspects like product range, pricing policies, design of Points of Sales or the customer experience in the different channelscan be relatively straightforward in the case of channels which operate really ‘in parallel’, in the most extreme situation even aimed at different audiences. It’s clear that when we talk about omnichannel everything changes and we have to take the global comercial coherence of the chosen channels take much stronger into consideration.

But what can we say about the logistics in this environment? I think that until today many companies have been applying methods of trial and error. Some have chosen to take part of their existing warehouses for the traditional business and dedicate it to e-business where others have opted for setting up a small separate warehouse dedicated to the digital channel. Both are aware that multi or omnichannel business requires mixing the characteristics of transportation and logistics with those of the parcel-based industry.

With moderate business volumes there shouldn’t really be an issue and the logistics coexistence between channels should be fairly well manageable. However, the more serious challenges appear when managed volumes begin to be significant and the company needs to make decisions of a more strategic nature: do we still separate the operations of the different channels? Should we integrate them? Do we redesign the warehouse? Do we redesign the whole logistics infrastructure?

Logistics real-estate experts assure that the traditional warehouses are no good for this new omnichannel model, that warehouses for goods of low rotation should be separated from high-rotation operations, that future business requires warehouses of a higher free height inside, that satellite platforms close to the limits of the larger cities are needed and that operations should have high degrees of mechanization and automation, just as “El Vigía” highlighted in its recent edition of April 8th, 2013, quoting these same experts.

FLEXIBILITY IS THE KEY

However, these are all only potential solutions and maybe it\’s a bit premature to have it so clear already. Besides, the variables can change quite a lot depending on the industry sector: a chain of supermarkets is very different from a network of apparel stores. Or a company that sells it own brands versus one that deals with third-party brands. It’s not the same to be dealing with heavy and/or voluminous products as it is to deal with smaller goods. And if we bring the very different competitive strategies that companies can pursue into the picture, then it’s very likely that in the future we will see a wide range of possible solutions and different omnichannel models.

And besides the possible impacts on warehouses, there are other concepts that are being experimented with, like for example the ‘click-and-mortar’: delivery to the physical store of orders done in the shop, which doesn’t really simplify the picking, but does simplify the transportation, which will then no longer have to go to the customer’s house. Or a concept like merge-in-transit, in which various products from one and the same order an actually be supplied from different warehouses and be consolidated close to the customer’s house in order to facilitate one single delivery. This introduces complexity in transportation, while it simplifies the warehousing.

It’s clear that a lot of experimenting still needs to be done, starting with the commercial part, the shop of the future. Who knows, maybe in the future stores of certain retail segments will only serve as a space for product display and the deliveries will be done from a warehouse directly to the customer’s home. In this way, the customer experience might be omnichannel but the logistics not necessarily, because in this operational model it’s not needed to have important inventories in the stores. Who knows?

That’s why I believe that for the moment the key is in maintaining a healthy dosis of flexibility, whatever the chosen solution is. Flexibility to change concepts, to change operational solutions, even to change business models. Many refer to Amazon as the great example of best-practice in the e-commerce world. That’s fine with me, because in many aspects they do very remarkable things, in the positive sense of the word: in the USA, for example, they have created satellite platforms close to the bigger cities to facilitate same-day delivery and they have implemented serious degrees of mechanization in their warehouse operations. But at the same time, let’s no forget that Amazon for as good as it may be in e-business, for the moment it has little multi and omnichannel.

WHAT ABOUT OMNITRANSPORT?

One final reflection about a subject which is very much linked to the multi and omnichannel discussion and which cannot be forgotten: what will transportation be like in this context of delivery to the customer’s home? Also in this respect, there are important challenges still ahead, ranging from problems with traffic and congestion in urban areas which make delivery reliability much more difficult, to the distribution outside office hours or the coordination with the receivers of the goods, much more complex in the case of private people than in the case of companies. And the flow in the other direction, the so-called reverse logistics is converting itself into another important challenge, because consumers tend to send back a lot more products and in worse conditions than companies do.

In summary, all these factors together form the famous last-mile logistics that the large logistics operators are having so much trouble with solving, simply because their current infrastructures, processes, systems, labour contracts, etc. etc. are not (yet) prepared for it. Let’s pay close attention, since interesting new entrepreneurial initiatives are beginning to take shape here.

(this post was also published in Spanish Logistics Magazine “El Vigía, 17-June-2013)