Profitability remains a challenge for omnichannel

A new JDA study reveals an enormous amount of money, energy and time retailers and consumer goods manufacturers are spending to improve their omni-channel sales capabilities, but only 16 per cent can fulfil demand profitably.

This finding, and others are highlighted in The Omni-Channel Fulfillment Imperative,a new report prepared for JDA Software Group, Inc.by PwC. This study is based on a global survey of more than 400 retail and consumer goods CEOs from around the world, conducted in late 2014. It found that the high cost of fulfilling orders hits profitability for 84 per cent of the more than 400 chief executives from retail and consumers goods manufacturers who were questioned.

What is eroding retailers’ margins as they sell and deliver products across multiple channels? It’s simple: the high cost of fulfilling orders. A full 67 per cent of respondents reported that these costs are growing as they increase their focus on selling across channels. Survey respondents reported their highest costs associated with omni-channel selling as:

·         Handling returns from online and store orders (cited by 71 per cent of respondents)
·         Shipping directly to the customer (67 per cent)
·         Shipping to the store for customer pick-up (59 per cent)

The CEOs in the JDA study recognize that they need to continue investing in business improvements to enhance their omni-channel performance. However, reducing the associated logistics costs is not their primary focus. When asked to rank their top initiatives for improving business operations, CEOs’ number-one choice (57 per cent) was spending capital on creating new customer experiences (tweet this). Similarly, when asked to rank strategic growth enablers for the year, reducing/reformatting physical store footprints to focus on expanding the ecommerce business was the top choice at 53 per cent. (tweet this)

“Every time retailers receive an online order, they have a number of options to fulfill that demand. They can pull the product from a local store, send it from a centralized warehouse or ship it directly from the supplier. JDA’s new study demonstrates that most retailers lack the insight to make these decisions in a profitable manner — and are not sufficiently focused on this critical capability gap,” said Kevin Iaquinto, chief marketing officer at JDA. “They need intelligent logistics and fulfilment solutions that can reveal the hidden costs, and the customer service trade-offs, associated with every delivery option. In addition, to truly win in the omnichannel marketplace, retailers need the upfront demand forecasting tools to make sure products are already distributed across all locations in a manner that supports profitable delivery.”

While they might not be focused on actions today to create profitable fulfilment and delivery schemes, the JDA study leaves no doubt that CEOs are aware of the importance of profitable omnichannel fulfilment to their future survival. Seventy-one per cent of respondents said omnichannel fulfilment is either a high or a top priority. And these CEOs are planning to invest an average of 29 per cent of their total capital expenditures for 2015 on improving their omnichannel fulfilment performance.

The fulfillment capability most cited as needing attention was transportation and logistics, named by 88 per cent of CEOs as a priority for the future. The second capability CEOs will focus on is improving inventory availability to fill orders, cited by 85 per cent.

“Having products available, then finding the most profitable way to deliver them are critical activities that lie at the heart of supply chain excellence,” noted Iaquinto. “The CEOs in the JDA survey clearly understand the challenges they have ahead of them with regard to fulfillment, and they know they will have to innovate if they are to be profitable while meeting customer expectations across channels. The good news is that advanced technology can help retailers and consumer goods manufacturers master omni-channel fulfillment. However, until companies fully leverage these solutions, they will fail to realize positive financial returns on their omni-channel investments.”

The full JDA report is available online at jda.,com.