The omnichannel supply chain: single view of stock, shipments and returns

Walther Ploos van Amstel

VU University Amsterdam

Hogeschool van Amsterdam

delaatstemeter@gmail.com

www.delaatstemeter.nl

March 2015

To hype or not to hype

Supply chains in ‘one day’

• How to build a supply chain?

• How to analyze cost of e-fulfilment

and support supply chain

decisions?

• How to manage omnichannel supply

chains?

• What are future challenges in

omnichannel supply chains?

• Innovations in omnichannel supply

chains

Inventory

Warehousing

Transport

Amazon

Many options for omnichannel

fulfilment

Relevant supply chain decisions

Inventory

WarehousingTransport

Transport decisions

Strategic Tactical Operational

Modes of transport (long

haul versus last mile)

Collaboration

Outsourcing strategy

ICT for transport

HRM strategy

Risk management

Capacity planning

Outsourcing plan

Purchasing services

Purchasing material

HRM planning

Modal shift

Planning trips for pick up

and delivery

Tracking and tracing

Fleet management

HRM day-to-day

schedules

Warehousing decisions

Strategic Tactical Operational

Locations (central,

decentral and in store) for

delivery and returns

Lay-out planning

Mechanization

Collaboration

Outsourcing strategy

ICT for warehousing

HRM strategy

Risk management

Capacity planning inboud

and outbound

Outsourcing plan

Purchasing services

Purchasing material

HRM planning

Planning inbound and

outbound warehouse

operations (and loading)

Workflow

management/shopfloor

control

HRM day-to-day schedules

Inventory decisions

Strategic Tactical Operational

Stock locations (central,

decentral and in store) for

delivery and returns

Collaboration

ICT for inventory

management and data

alignment

HRM strategy

Risk management

Trade compliance

Service levels and safety

stock levels

Assortment (phase

in/phase out) life cycle

management

Sales and operations

planning

Vendor managed

inventories and drop

shipment

HRM planning

Ordering

Monitoring (PDCA)

HRM day-to-day schedules

From ‘managing’ traditional supply chains

with 2 to 4% cost-to-serve

Inventory

WarehousingTransport

To ‘organizing’ supply chains end-to-end

with 15 to 40% cost-to-serve

Inventory

WarehousingTransport

Q4 2014

16,4%

To ‘organizing’ supply chains end-to-end

with 15 to 40% cost-to-serve

Inventory

WarehousingTransport

How to build a supply chain?

Strategy

Balanced scorecard

Logistics targets

Supply chain

Planning and

control

ICT

Organisation

Create value…

USP

Operational excellence Customer intimacy Product leadership

Processes Core competences

Optimize networks

Outsourcing

Purchasing

Standardization

Transactional/operational

Economies of scale

Zero defects OTIFNENC/

cost to serve

Utilize capacities

End-to-end processes

Focus on relationship

Economies of scope

Customer satisfaction

Continuous innovation in processes

and services

Partnerships in service

development

Fast and reponsive

Control Strict S&OP: tactical and operational

focus on efficiency/total landed cost

Demand management

Collaborative S&OP: strategic,

tactical and operational

S&OP: tactical and operational

focus on maximizing profit during

life cycle

ICT Support low cost, standardized

operations

Paperless processes

Community platforms

Customer-focused ICT (shared ICT

platforms)

SOA: flexible, plug & play

Organization Centralized

Product focus

Functional specialists

Transparent

Decentralized

Costumer orientation

Account management

Collaborative teams

Centralized

Innovators

External focus

Understanding the customer journey:

fast, in full and fresh

Webstores offer later cut-off times

Till 2 pm Till 6 pm Till 9 pm After 9 pm

Webstores offer later cut-off times and

shorter lead times

Less than 24 hr 2 to 3 days 4 to 7 days More than 8 No information

Shopper segmentation

Passive

Shopping is a necessary evil. Wants security, simplicity and

convenience in service

Passionate

Shopping is fun, impulse driven. Sensitive for brands, hypes and

experiences. Fast, flexible and special delivery services; many options

Calculating

Focused on savings, well informed, insensitive to brands and hypes. Reliable low cost delivery options

Thorough

Motivated customers looking for the best in quality and service. Offer options and reliability in delivery

services

Spontaneous

Prepared

Need d

riven

Ple

asure

seekin

g

Customer requirements

• Segmentation: passive, passionate, calculating and thorough shopper

• Options, options and more options: day, time, location, click-and-collect, service provider and in car

• Pay for ‘same day’ and ‘your time’ delivery

• Safe

• Customers in control

• OTIFNENC

Designing the supply chain;

understanding fulfilment cost

…only in one step of the supply chain.

Total supply chain cost range from 15-50% of sales value...

Who is in control?

Fulfilment cost range from 8-30%

of sales value of a product…

22

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Book

Fridge

Pharma

Transport

Storage

Handling

Interest

Planning

Different products, different cost

patterns, different requirements…

Transport

and

Storage

Value

density

Packaging

density

Physical

Handling

Interest

Problems in logistics cost control…

• Cost are available per function and/or location, but

not per product (group)

• Cost are allocated differently in each location (and

generally arbitrarily)

• Cost data don’t support management decisions

Location

Cost centres

Article groups and/or customers

• factory

• central store

• degrouping point

• transshipment point

• warehouse sales organisation

• transport

• handling in

• handling out

• storage

• interest

• reconditioning

Add dimension

product/customer

Make allocationsconsistent andcomparable

Cost reporting in three directions…

Central network

Transport Warehousing Inventory

Pro’s Economy of scale

Consolidation incoming and outgoing

flows

Purchasing power

Economies of scope

Cost control

Economies of scope

Economy of scale

Automation and mechanization

Lean processes

Flexibility

Cost control

SLA’s controlled

Purchasing power

Economies of scope

Product availability

Safety stock

Assortment management

European S&OP

Trade compliance

Con’s Distance to the market

Unclear responsibilities

Complex LSP’s

Complex contract management

Distance to the market

Complex outsourcing

Unclear responsibilities

Complex contract management

Complex ICT

Risk management

Complex procedures

Complex ICT

Unclear responsibilities

Obsolescence

AH.nl

AH.nl

Decentral and instore network

Transport Warehousing Inventory

Pro’s Close to market: fast

Simple LSP's

Clear responsibilities

Close to market

Traffic

Simple ICT

Risk management

Clear responsibilities

Close to market

Traffic

Simple procedures

Simple ICT

Clear responsibilities

Con’s No economies of scope

Cost control

Contract management

No economies of scope or scale

Double handling

Limited flexibility

Limited outsourcing

Cost control

Supply chain control (returns)

No economies of scope

Product availability

High safety stock

Assortment management

Obsolescence

Data quality

Trade compliance

Schuh

Operational

Strategic

Outsourcing the network:

pro’s…

• Reduce operating cost

• Improve functional and technical quality

• Tighten controls

• Increase staffing flexibility

• Access supplier’s tactical resources

• Improve back office services to the business

• Focus in-house staff on higher value work

• Access supplier’s strategic resources and capabilities

• Radical transformation of business services

• Help business create new products and services

• Help business establish presence in a new market

• Commercialization

Outsourcing: blue or green?

Summary:

Building the supply chain…

• Step 1: Organization

• Step 2: External factors

• Step 3: Economical factors

Step 1: organizational considerations

• Organizational considerations:

– business strategy and value discipline

– local or central responsibilities for sales, service levels, inventories and forecasting

– flexibility

– risk attitude

• External factors

• Economical factors

Step 2: external factors

• Organisation

• External factors:

– Customer requirements

– transportation time and cost

– perishability/General Food Law

– legal and tax issues

– ISO28002/risk management

• Economical factors

Step 3: economical factors

• Organization

• External factors

• Economical factors:

– Cost

– Demand variation

– Product life cycle and

seasonal pattern

– Market mediation cost

– Tax

0

20

40

60

80

100

120

140

1 2 3 4 5 6 7 8

Overhead

Inventory

Storage

Handling

Outgoing

Incoming

Managing the supply chain is a USP...

Strategy

Balanced scorecard

Logistics targets

supply chain

Planning and

control

ICT

Organisation

Variance is our biggest enemy

95%

From operational to tactical planning and

control…

Supply Planning Demand Planning

Order

Promising

Sales and Operations

Planning

Materials

Planning

Production

Scheduling

Distribution

Scheduling

Supply Chain Execution/Monitoring

Su

pp

lier

Co

llab

ora

tio

n

Cu

sto

mer

Co

llabo

ratio

n

SC Network Design

Allocation

Transport

Planning

Supply Chain

Operational

Tactical

Strategic

OPERATIONAL

Sense and respond

TACTICAL

Predict and prepare

Inventory: fire-and-forget?

• Increasing Assortment Dispersion Index (ADI) leads to higher inventory levels

• Flow: S&OP changes to product life cycle management ‘predict and prepare’

• Increase clockspeed: senseful ‘sense and respond’

• Most inventory is at your consumers

• Data quality: Big Data is dumb…

• Collaboration in the supply chain

• Coordination as a service (CAAS)

Future supply chains…

More collaboration

Under great pressure

Future last mile concepts:clean, friendly, shared, large scale, local

Bringing logistics back into cities?

Future delivery platforms:Blue chip companies or new kids on the block?

Collaboration in all directions

External

collaboration

(Suppliers)

External

collaboration

(Competitors)

External

collaboration

(Customers)

External

collaboration

(Other

organisations)

Internal

Collaboration

Vertical

Collaboration

Horizontal

Collaboration

Network Collaboration

From strategy to execution:

Integration on all levels…

Strategy

Balanced scorecard

Supply Chain Objectives

supply

chain

plan and

control

ICT

organization

Strategy

Balanced scorecard

Supply Chain Objectives

supply

chain

plan and

control

ICT

organization

GLOBAL SUPPLY CHAINS AND PROCESSES:

End-to-end solutions for OTIFNENC delivery

CROSS CHAIN COLLABORATIVE PLANNING AND CONTROL

SHARE AND ALIGN SUPPLY CHAIN DATA

GOVERNANCE, COMMON LANGUAGE AND SKILLS

ALIGN STRATEGY FIRST:

Options, options and more options

Many questions still unanswered…

• Local-for-local delivery networks

• Peer-to-peer fulfilment/sharing economy

• Cross chain European fulfilment retail supply chains

• Non-EU cross border

• omnichannel product life cycle management

• Data sharing and gain sharing models for collaboration

• CAAS business model

E-fulfilment

Mega loser in omnichannel?

• No segmentation

• Not balancing cost to serve:

inventory, handling and transport

• No process management from order-to-euro

• Not OTIFNENC

• No data alignment in supply chain

• Transformation is necessary

Competences:

World class people

• Architect of a profitable customer value chain

• Create successful alliances

• Plan and control based on financial data

• Use ICT to create excellent processes:

ERP, WMS, TMS, EDI, agents, etc

• Successfully implement innovations:

Train your team as you fight…