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07/08/2014

Are CEOs Missing the Boat on Omnichannel?

The technology-driven shift to omnichannel shopping is the most transformative change to hit retail in decades. Yet in a global survey of CEOs conducted by PwC, only 22 percent felt this monumental shift would impact their organizations. Are these retail CEOs missing the boat?

In the midst of this omnichannel transformation, most of the CEOs surveyed still seem to be focused on the traditional levers of growth. Their top three priorities all deal with expansion — expanding into new regions or markets, expanding by opening more stores, and expanding through mergers and acquisitions. They appear to be fixated on the numbers at a time when success in retail is shifting to providing the best possible customer experience across channels.

Similarly, the top threats the retail CEOs listed were the traditional factors of increasing competitive pressure and margin erosion/cost reduction. Attracting and retaining customers, key issues in an omnichannel world, were farther down the list.

Perhaps most indicative of where the CEOs may be missing the boat on the new realities of today's omnichannel marketplace is their posture on supply chain. One of the biggest success factors in providing consumers the buy-anywhere, deliver-anywhere shopping experience inherent in omnichannel is having the new supply chain capabilities required to execute on this promise. But even though 74 percent of surveyed CEOs stated that supply chain is a high or top priority for their business, investing in supply chain ranked at the bottom of the stack.

The lack of investment in supply chain capabilities cannot be written off with the assumption that these CEOs felt their supply chains are already where they need to be. A full 83 percent said their supply chains were not optimal for today's market. So where is the disconnect? Why aren't these CEOs making the proper investments to optimize their supply chains?

A key reason is that retail CEOs have traditionally considered supply chain operations to be tactical—a necessary expense in order to stock their stores. With the growth of ecommerce, a common strategy was to set up separate fulfillment operations or outsource it to third parties so as not to risk upsetting the flow of goods into their stores. Before the rise of omnichannel, that was an acceptable alternative.

Now digitally-savvy omnichannel consumers, empowered by an ever-widening array of internet, mobile and social technology, is upsetting the traditional retail applecart. They want to shop, research, buy, receive and return merchandise whenever, wherever, and however they want. Retailers who empower these experiences will be rewarded by winning the loyalty of their best customers, while those who cannot will be faced with increasingly empty stores and abandoned shopping carts. Therefore, omnichannel fulfillment is now making supply chain a mission-critical area of focus.

The supply chain imperative
Retail CEOs must realize that supply chain proficiency isn't just about cutting costs; it's also about providing customers what they want, where they want it, while defending profit margins. This takes many forms in an omnichannel environment. Critically, the store must evolve from an end destination for inventory and sales to just one node on the multi-channel path to purchase. This redefinition of the role of the store will require investments in technology and associate training.

The first technology building block of a buy-anywhere, deliver-anywhere omnichannel shopping experience is enterprise-wide inventory visibility. Offering omnichannel options such as buy online/pickup in-store are impossible without inventory visibility and availability. One bad experience with an online order not being available when a customer comes to pick it up can cost you a customer for life — and may cost you even more if she shares her disappointment with her social network. You also can't support ship-from-store capabilities to provide same-day/next-day deliveries, to rebalance inventories, or to lower transportation costs if you don't know what inventory is in each store.

Beyond visibility to enterprise inventory, omnichannel fulfillment requires supply chains to be faster and more agile. Consumer demand-based supply chains are much more volatile than traditional "push" based retail models. This impacts everything from how you forecast and plan replenishment, to how you position inventory across multiple supply chain tiers, and how you collaborate with supply chain partners to ensure the right quantities of the right inventory will be available to meet expected demand at the right time and cost. This requires technology-enabled solutions that support a collaborative supply chain strategy, resulting in real-time planning, decision making and execution to meet customers' expectations. Yet the surveyed CEOs don't seem to recognize this investment will be critical to their continued viability and growth.

Good supply chains grow confidence
One of the interesting findings in the survey report produced by PwC and Forbes Insights dealt with the CEOs' perceptions of future growth. When the CEOs were asked how confident they were in their company's growth over the next three years, 54 percent said they were very confident and another 34 percent said they were somewhat confident. However, when this information was cross-referenced with the CEOs' self-described supply chain maturity levels, a telling correlation is revealed.

Of the 17 percent of CEOs who described their supply chains as being most mature — that is, those with cross-enterprise collaboration and optimization capabilities — a staggering 97 percent were confident in their company's growth. Conversely, the other 83 percent who know their supply chains are less than optimal must reprioritize their supply chain investment plans to increase their confidence in future growth, customer lifetime value and brand integrity.

The implications are clear
While the majority of the CEOs surveyed by PwC are confident in their company's growth, they are pursuing this growth through traditional strategies that focus on expansion. They don't seem to realize the impact of the monumental shift in retail operating models being caused by the rise of omnichannel shopping. This shift has raised agile, demand-driven supply chains to mission critical status. CEOs must adjust their investment priorities accordingly to avoid missing the boat to prosperity.


Scott Welty is global vice president, retail industry strategy at JDA, a supply chain software solutions company.