Transportation Sourcing in an Omni-channel World

Omni-channel is transforming retail transportation’s supply chain and logistics processes. Unfortunately, many retailers are jumping in without a plan — that is, they are taking a short-term, silo’ed approach to transportation sourcing and execution, and as a result, are failing to meet their desired outcomes. But what are some of the unintended consequences retailers are experiencing by jumping in without a plan? And, what are some of the key factors retailers need to consider when developing their transportation plans? Also, is multi-functional engagement important and, how does omni-channel impact transportation sourcing?

I spoke with Jim Barnes and Joe Wilkinson from enVista (a Talking Logistics sponsor) about these and other issues that retailers need to think about when developing their transportation strategies in an omni-channel world. When asked what key challenges retailers are running into right now, Jim, enVista’s Senior Managing Partner, says that in most cases retailers that have both a brick-and-mortar presence and a significant online footprint (i.e., are “multi-channel” in nature), are particularly challenged with finding the right cost points versus services for consumers who use both online and offline shopping channels. In addition, Jim says many retailers are facing inventory management challenges in the realm of “ship from store” and “pickup at store” fulfillment models.

When it comes to how to procure and manage transportation in an omni-channel world, “first and foremost, you have to have a plan,” Jim says,“but you also need an owner. As we consult with our clients, there’s often not a clear picture of who owns transportation in this omni-channel environment.” In some cases, the person who owns the parcel side and the last mile actually reports to the e-commerce team, not the transportation team that is responsible for the rest of the company’s transportation operations. The result is a fragmented approach to transportation spend management, which Jim illustrates with a great customer example in the video clip below where it’s unclear who owns $20 million in “ship from store” spend:

How is omni-channel fulfilment affecting transportation sourcing and execution? According to Joe, enVista’s Director of Transportation, “The key to omni-channel sourcing is that it requires you to understand your goals and objectives. You have to understand that you’re talking about a different model, and you can’t just take your baseline data set and baseline requirements out to bid and expect to be successful.”

What differentiates companies that are doing it well from those that are struggling a bit is a commitment to change, says Joe. “A lot of times, you’re dealing with people who have been in the transportation function for 15, 20, 25 years and they seem to just want to sharpen the pencil when it comes to transportation in an omni-channel world. That’s not going to work. They have to understand that we’re talking about a completely different model — ‘ship to store’ and ‘ship from store,’ which are different concepts than what they’ve dealt with before — and they have to wrap their minds around it before they can develop a transportation sourcing strategy that’s really going to work.”

Jim points to a 4,000-store general merchandise retailer as an example of a customer that has successfully developed and executed an omni-channel transportation strategy. “What they do very creatively is that they use a combination of static and dynamic routes,” using less-than-truckload or multi-stop truckload weekly shipments to stores coupled with parcel deliveries in between to replenish fast-selling critical products driven by point-of-sale data. Watch Jim describe the process in the clip below:

“If the retailer had simply used a cost per hundred weight or cost per pound metric, it would have said, ‘No way am I ever going to use a parcel network to deliver 25 cartons to a store — they will have to wait until next week [for the next weekly LTL or multi-stop truckload shipment].’ But by looking at the sell-through rate and the gross margin that they’re making by getting products back in stock faster, the amount of gross margin that they make far outweighs the fact that they are spending more in transportation…[In this retailer’s case], the additional gross margin surpassed the transportation cost by 10 to 1.”

Like this particular retailer has already learned, creating an omni-channel transportation strategy requires a combination of traditional approaches plus numerous strategies that tackles the omni-channel equation head-on. To emulate this level of success, Jim says shippers must “have a plan, work the plan, and be able to model the plan and then understand what the desired outcomes are before they actually execute.”

Joe says shippers also need to define their individual requirements. And having those requirements just because they’ve “been in place for 10 years,” isn’t going to cut it in today’s competitive environment. “A decent percentage of the time we find out the requirement no longer has any relevance to the goals or objectives of that organization,” says Joe. “With that in mind, the best approach is to review everything and make sure that your requirements are aligned with your [current] goals and objectives.”

For additional insights on this topic, watch the full episode, then post a question or comment and keep the conversation going!