1. shopping
2. retail

Business Strategy: How to Win and
Keep More Customers by Excelling in
Omnichannel-Driven Order Management
and Fulfillment
www.idc -ri.com
IDC RETAIL INSIGHTS OPINION
Global Headquarters: 5 Speen Street Framingham, MA 01701 USA
P.508.935.4400
BUSINESS STRATEGY
F.508.988.7881
IDC Retail Insights: Retail Supply Chain, Demand Planning, and
Merchandising Strategies
#GRI229602
Leslie Hand
A retail paradigm shift toward omnichannel shopping has smart retail
businesses focused on growing omnichannel commerce, specifically
ecommerce and mcommerce; implementing technologies that support
omnichannel business growth; and addressing the supply network
complexity that arises from a shop, buy, and receive goods
anywhere/anytime business model. Retailers spent the past couple of
years focusing on identifying the customer-facing technologies they
needed to update or acquire in order to engage the omnichannel
customer successfully. This year, retailers are shifting focus to the
supply chain to ensure that they can satisfy omnichannel fulfillment
needs sustainably — at the optimal service levels and costs. Retailers
told
us
that
inventory/warehouse
management
and
logistics/transportation management are their highest priorities in
response to IDC's 2011 Vertical Research Group IT Survey. This
report focuses on helping retailers establish strategies for developing
optimized order orchestration and fulfillment capabilities. Some of the
strategic elements discussed are:
● Making sure you have a good foundation and develop
necessary integration services. Excellent services and integration
capabilities are a must.
● Matching requirements to the right applications and services
providers. Review current and future needs and compare with best
practices to capture, orchestrate, optimize, and fulfill and return
orders.
● Selecting the right technology vendor. Understand vendor
strengths, weaknesses, and fit for your business.
August 2011, IDC Retail Insights #GRI229602
IDC Retail Insights: Retail Supply Chain, Demand Planning, and Merchandising Strategies: Business Strategy
Retailers told us that
inventory/warehouse
management and
logistics/transportation
management are their
highest priorities in
response to IDC's 2011
Vertical Research
Group IT Survey.
TABLE OF CONTENTS
P
In This Study
1
S i t u a t i o n O v e r vi ew
1
Recent Trends .......................................................................................................................................... 1
2011 eCommerce Revenue Will Grow to $680 Billion Worldwide, Up 18.9% from 2010 Revenue ... 1
eCommerce Growth Is Outpacing Investments in Supporting Technology........................................ 2
Potential Impact ........................................................................................................................................ 3
Omnichannel Selling Adds Supply Network Complexity.................................................................... 3
Excellent Order Fulfillment Locks in Customer Satisfaction .............................................................. 4
The Benefits Are Pervasive ............................................................................................................... 5
T h e Ap p r o a c h
6
Framing the Alternatives........................................................................................................................... 6
Defining the Ideal Order Orchestration, Optimization, and Fulfillment Processes ............................. 8
Key Strategic Elements ............................................................................................................................ 13
Make Sure You Have a Good Foundation — Developing Necessary Integration Services ............... 13
Matching Requirements to the Right Applications and Services Providers ....................................... 15
Selecting the Right Technology Partners .......................................................................................... 16
Future Outlook
22
Essential Guidance
24
Actions to Consider................................................................................................................................... 24
Actions for Vendors .................................................................................................................................. 26
Learn More
26
Related Research ..................................................................................................................................... 26
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©2011 IDC Retail Insights
LIST OF TABLES
P
1
Summary of Omnichannel Order Orchestration Versus Single-Channel Order Management...... 12
2
Vendor Applications and Experience: Advanced Omnichannel Order Orchestration,
Optimization, and Fulfillment ........................................................................................................ 21
©2011 IDC Retail Insights
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LIST OF FIGURES
P
1
Omnichannel Fulfillment Complexity ............................................................................................ 4
2
Omnichannel Order Orchestration, Optimization, and Fulfillment Core Capabilities .................... 8
3
Integration Services Connect and Facilitate Omnichannel Processes ......................................... 14
4
Retail IT Investment Priorities, 2011 ............................................................................................ 24
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©2011 IDC Retail Insights
IN THIS STUDY
In this study, IDC Retail Insights presents guidance for retailers
interested in defining an omnichannel order orchestration, optimization,
and fulfillment and returns strategy. While it is clear retailers are
developing omnichannel business strategies, not all retailers have
established sustainable supply chain processes to optimize fulfillment
performance, from a service-level and cost perspective.
This report references retail examples and technology provider
capabilities as it demonstrates how retailers should proceed.
Technology vendors including Epicor, IBM (Sterling Commerce),
RedPrairie, JDA, Oracle, Manhattan, SAP, and VendorNet briefed
IDC Retail Insights for this report. Other research includes anecdotal
insight from retailers and quantitative data sourced from IDC's 2011
Vertical Research Group IT Survey.
SITUATION OVERVIEW
Recent Trends
A retail paradigm shift continues as new consumer-shopping patterns
and a blurring of the lines between retail channels redefine what makes
one retailer more successful than another. Competition for the
consumer dollar remains fierce, as we see brick-and-mortar brands
growing more direct to consumer business, while new etail formats
proliferate and established etailers broaden assortments. This retail
paradigm shift has retail businesses focused on the following:
● Growing omnichannel commerce, specifically ecommerce and
mcommerce
● Implementing technologies that support omnichannel business
growth
● Addressing the supply network complexity that arises from a shop,
buy, and receive goods anywhere/anytime business model
2011 eCommerce Revenue Will Grow to $680 Billion
Worldwide, Up 18.9% from 2010 Revenue
Many organizations, including JPMorgan and Goldman Sachs, have
published ecommerce growth forecasts, based on U.S. Department of
Commerce data, that indicate 2011 ecommerce revenue will grow to
$680 billion worldwide, up 18.9% from 2010 revenue. Online retail
commerce in the United States alone will grow 13.2% to $187 billion.
JPMorgan anticipates that global ecommerce revenue will hit a
whopping $963 billion by 2013.
©2011 IDC Retail Insights
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Page 1
Kohl's and Nordstrom are two great examples of retailers that are
capitalizing on ecommerce growth. Kohl's, for example, reported 2010
ecommerce sales grew 51.6% to $717 million from $473 million in
2009, and expectations are that sales will climb another 40% in 2011
to $1 billion in online sales. Nordstrom Direct continues to be the
fastest-growing part of Nordstrom's business, adding to the
omnichannel customer experience Nordstrom customers expect.
eCommerce Growth Is Outpacing Investments in
Supporting Technology
Kohl's and Nordstrom have made significant investments in growing
their ecommerce channels. In fact, Kohl's announced that it is opening
a new ecommerce distribution center in Maryland to support its rapid
growth expectations. Similarly, Nordstrom has made significant
investments in technology, both store infrastructure and software, to
better serve its customers. Michael Koppel, Nordstrom's chief
financial officer and executive vice president, stated in Nordstrom's
4Q10 earnings call, February 17, 2011:
Technology is changing how customers shop. It is a
much larger enabler than in the past, encompassing
communication, mobile shopping, salesperson tools,
and store formats. For the past five years, we have spent
considerable time and resources on multichannel, and it
had a significant impact in our performance. In a
similar way, our focus going forward is on technology
to improve the customer experience. This can translate
into a lot of different areas, whether it's mobile or instore shopping improvements.
While many other retailers are investing in technology that supports a
better customer experience, many more are still either assessing
technology investment opportunities or have greatly underestimated
both the urgency and the value of these investments.
Many retailers with a brick-and-mortar heritage have not recognized
that capital expenditures may actually need to be precedent breaking,
given the fact that pure-play etailers typically spend a higher
percentage of revenue on technology than brick-and-mortar
competitors. According to the ecommerce growth forecasts published
by Goldman Sachs, Web retailers spent 7% of their total revenue on
technology in 2008, while retailers overall spent just 2%.
To drive the point home, Goldman points to the largest online retailer,
Amazon.com. Amazon invested nearly 10 times its FY10 gross profit
in technology compared with a sampling of other retailers that operate
in multiple channels. It put 19.1% toward technology, while the
average of six other big retailers, including Nordstrom, JCPenney,
Walmart, and Target, was 2.7%.
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Many retailers with a
brick-and-mortar
heritage have not
recognized that
capital expenditures
may actually need to
be precedent
breaking, given the
fact that pure-play
etailers typically
spend a higher
percentage of
revenue on
technology than brickand-mortar
competitors.
©2011 IDC Retail Insights
Further, Goldman predicts that Amazon's technology investment will
continue to pay off, as Amazon's annual growth rate is projected to
account for 25% of the total eretail growth over the next few years,
adding about $7 billion per year in global revenue through 2011,
leaving only 75% of the remaining online growth for all other retailers
to share.
The threat and the opportunity are unprecedented, warranting more
comprehensive retail technology investment programs. We also want
to emphasize that these programs need to be balanced. Investments in
the hot customer-facing technologies are only a piece of the fully
assembled omnichannel technology puzzle. Fulfilling customer orders
efficiently in an omnichannel retail environment requires a finely
tuned and agile supply network, driven by intelligent and flexible
supply chain software.
Fulfilling customer
orders efficiently in an
omnichannel retail
environment requires
a finely tuned and
agile supply network,
driven by intelligent
and flexible supply
chain software.
Nordstrom improved on many important metrics in 2010, including
revenue, sales per square foot, inventory turns, and SG&A. It
improved customer service via many technological improvements
including a refreshed online capability, a new mobile application, and
improved customer relationship marketing capabilities. Nordstrom
also invested in merchandising and collaborative supply chain
applications including order management execution and fulfillment
capabilities, the topic of this report. These capabilities extended
Nordstrom's existing systems to help improve service, make more
efficient use of inventory, and reduce costs.
Potential Impact
Omnichannel Selling Adds Supply Network Complexity
Omnichannel customers commonly expect retailers will provide a
shop, buy, and receive anywhere model that meets their needs at any
particular moment in time. For example, one day the customer is
shopping in a store, but needs a different size or color, or perhaps
he/she is on vacation or cannot or do not want to transport the item.
The customer may order online from inside the store or later from
home or from a mobile device. He/she may choose to pick the item up
at the same store, a different store, or to have the item shipped home,
or perhaps to an alternate location. The retailer may fulfill this order
from a store (perhaps different than the intended pickup spot), a
warehouse (perhaps the warehouse primarily ships case packs), a thirdparty distributor, or a manufacturer.
There are a plethora of potential scenarios, but germane to this
discussion is the complexity that the variety of order capture and
fulfillment options create (see Figure 1). Some retailers manage this
complexity by limiting customer options. Others provide the range of
options previously discussed, with largely manual time-intensive and
costly processes. Those targeting real growth implement technologies
©2011 IDC Retail Insights
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to orchestrate the order fulfillment process, optimizing order
fulfillment for customer satisfaction and cost.
FIGURE 1
Omnichannel Fulfillment Complexity
Source: IDC Retail Insights, 2011
Excellent Order Fulfillment Locks in Customer Satisfaction
Best Buy was the first to offer both store pickup and "ship to store,"
probably cementing the edge it had over competitor Circuit City.
Walmart introduced a program nationwide called "Pick Up Today"
that allows customers to order/select from among 40,000 items online
and pick up in stores a few hours later. Of course, customers can also
shop a much larger selection of goods at Walmart.com for free pickup
in a designated store, but they must wait four to seven days for the
item to be ready for pickup. Steve Nave, senior vice president and
general manager of Walmart.com, has indicated that Walmart
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©2011 IDC Retail Insights
experienced "meaningful" lift in both traffic and sales in those stores
where the program was tested.
Nordstrom's year-over-year performance speaks for itself, and
technology investments have enabled that success. In two different
earnings reports, Nordstrom cites the impact of its technology
investments on performance:
Our sales growth was due in large part to the success of
our merchandising, inventory management, and
multichannel initiatives. In the fall of 2009, we updated
our inventory platform to allow for shared inventory
across all of our Nordstrom full-line stores and our Web
site, allowing us to fulfill online orders from any fullline store or from our fulfillment center. (Nordstrom's
10K report dated December 31, 2010)
These enhancements increased sales and led to
significant improvements in our sell-through and
inventory turnover rates, beginning in the second half
of 2009 and continuing throughout 2010. (Nordstrom's
10Q report filed August 9, 2010)
Nordstrom's improved business performance is directly related to its
employees' ability to serve customers better. Employees can
concentrate on helping customers, while technological tools manage
the details related to products, inventory, and purchases. Nordstrom
credits the shared inventory platform between full-line stores and the
Nordstrom Direct business for improved financial results because this
platform enables better fulfillment of customer demand and greater
access to inventory.
Nordstrom credits the
shared inventory
platform between fullline stores and the
Nordstrom Direct
business for improved
financial results
because this platform
enables better
fulfillment of customer
demand and greater
access to inventory.
A critical element of Nordstrom's order execution and fulfillment
strategy is the centralized order hub that synchronizes and orchestrates
customer orders, without having to replace warehouse or distribution
systems. Additionally, Nordstrom has been able to open up Web site
inventory to the stores, operating a single distribution center to fulfill
deliveries for every channel. The end result is a better shopping
experience for the consumer and better control over the entire
fulfillment life cycle for the retailer. The bonus is accompanying
reduced costs to fulfill orders and to manage inventory.
The Benefits Are Pervasive
The bottom line is that retailers say that tying online and in-store
inventory together lets them sell more products to more customers. In
the example of Nordstrom, visibility to enterprisewide inventory
enables it to fulfill an online customer's need; if, for example, the
online stockroom is out of a jacket, a store that has it can ship it.
©2011 IDC Retail Insights
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The bottom line is that
retailers say that tying
online and in-store
inventory together lets
them sell more
products to more
customers.
Page 5
Retailers that implement demand-optimized omnichannel inventory,
order, and fulfillment applications often enjoy the following benefits
(sourced from numerous surveys and anecdotal information):
● Reduced stock outs
● Improved sales (15–35% increase in average transaction size)
● Higher customer-retention rates
● Fewer lost sales (e.g., increased online conversion rates between
30% and 45%)
● 5–10% increase in loyalty customers' profitability
● 20–60% reductions of inventory losses as a percentage of sales
● Reduced order fulfillment costs
● Reduced SG&A
Retailers that do not make a full commitment to growing their
ecommerce business and investing in the technologies that support
tremendous growth may find these benefits are not achievable. The
processes deployed and the level of automation employed will factor
in heavily in level of benefit achieved. For example, if the retailer
relies heavily on very manual picking-and-packing processes in a
warehouse or store, at scale, this becomes costly.
Now that the benefits to implementing streamlined, orchestrated, and
optimized order management and fulfillment processes have been
discussed, let's explore how retailers should approach implementing
processes that help them achieve these benefits.
THE APPROACH
Framing the Alternatives
Creating a single virtual channel — omnichannel — to better serve
customers is the ultimate goal. An omnichannel perspective enables a
retailer to provide a consistent customer experience while reducing the
cost to deliver optimal service levels. Therefore, the customer and the
retailer are the beneficiaries of a single virtual channel, which in
practice has the following characteristics:
● Real-time visibility to inventory availability, anywhere in the
enterprise or among trading partners
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©2011 IDC Retail Insights
● Buy-anywhere capability for shoppers, with cost/service-balanced
options for shipping or pickup
● Fulfill from anywhere profitably, with seamless drop-ship, ship-tostore, and ship-to-customer capabilities
● Call center capabilities to add, modify, and/or return an order
● In-store save-the-sale and endless aisle capabilities, selling on
mobile and/or kiosks
● Return to anywhere with cost-effective reverse logistics
● Manage the order life cycle from anywhere in a single repository
Behind these powerful capabilities are systems architected to automate
as much of the decision processes as possible and provide integration
to all of the required data and processes internally and externally.
Some of the foundational requirements of this architecture are:
● A solid integration layer with tools to orchestrate processes and
access data between disparate applications.
● Databases built to support high levels of real-time interaction. Core
data in question includes customer, store, vendor, inventory, order,
and logistics information that extends beyond the retailers'
enterprise data to that of their trading and logistics partners.
● Core functional processes include order capture, order
orchestration, and order fulfillment and return. Some retailers also
require a service/appointment scheduling function for inhome/office setup, assembly, installation, or service.
Figure 2 provides a high-level picture of the components of an ideal
order orchestration, optimization, and fulfillment and return capability,
which we will now look at in more depth.
©2011 IDC Retail Insights
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FIGURE 2
Omnichannel Order Orchestration, Optimization, and
Fulfillment Core Capabilities
Source: IDC Retail Insights, 2011
Defining the Ideal Order Orchestration, Optimization, and
Fulfillment Processes
Fundamentally, the key omnichannel order processes are capture,
orchestrate/optimize, and fulfill and return. Let's define the primary
objectives of each of these processes:
● Capture. Order capture is the process by which an order
transaction is created, viewed, and managed. The details regarding
customer delivery and payment are captured during this process. In
an omnichannel environment, all orders regardless of input source
must be consolidated across channels. Visibility to inventory
across the entire supply network needs to be visible at the point of
customer inquiry, so that inventory is promised only when it is, or
can be made, available.
● Orchestrate/optimize. Order orchestration is the process by which
orders are aggregated, decomposed, routed, and fulfilled based on
available inventory and a set of business rules that establish how to
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©2011 IDC Retail Insights
identify best source and best route fulfillment. Processes are
automated and manual interaction is enabled to handle exceptions.
● Fulfill. Order fulfillment is the process by which orders are picked,
packed, and shipped. The best shipping method and provider may
be assigned at this stage if they are not predetermined by the
orchestrate/optimize process. In an omnichannel environment, the
network is extended to include suppliers, third-party
distributors/logistics providers, and stores. Functionality must exist
to orchestrate fulfillment across multiple sources of supply (when
to release order lines to each source of supply and complex
fulfillment operations such as deliver together and merge in
transit).
● Return. Order return is the process by which orders are returned or
exchanged by customers and then handled post-return. Many
retailers currently have flexible customer returns policies that
enable customers to return goods to stores, even if they do not
stock the particular item. Reverse logistics are employed according
to the policies and procedures of the retailer and its suppliers.
Now let's take a closer look at how these processes work in
omnichannel retail and the capabilities you should look for from
application providers.
Capture
The consumer engages in a sales transaction via various channels —
store, ecommerce (including social media), mcommerce, kiosk (instore or remote standalone), catalog, and call center. A seamless
quality order capture process is the equivalent of the "thank you" at the
end of a face-to-face transaction — it is what the customer remembers
most — so it is absolutely critical to get it right.
A key component of a successful order capture process in an
omnichannel environment is the ability to share accurate inventory
availability information with consumers regardless of channel — often
referred to as endless aisle. Second, you need the ability to reserve that
inventory for customer fulfillment.
In real time, the application should be able to:
● Provide visibility to the consumer and store associates to availableto-promise inventory
● Improve inventory data accuracy through the application of sound
business rules and processes
● Enable new in-store processes that reserve inventory
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● Enable new in-store processes that enable pick, pack, and ship
order processes
● Apply ad hoc rules to drive inventory reservations from particular
nodes in the supply network
● Apply customer intelligence that ties to personalized offers,
interactions, preferences, payment information, or shipping
information
● Arrange customer purchase–related install/setup services (e.g.,
computer setup, TV installation, cell phone activation, appliance or
furniture delivery and installation, and repair services)
Orchestrate
Orchestrating order fulfillment processes efficiently requires
foundational integration and process services that can be configured to
meet your business requirements. In order to accurately select the best
route–fulfillment option to both present to the customer and then to
submit upon order capture completion, the application must be able to
assess the value of each of the options for the customer and for the
business.
More intelligence and significantly more data and process integration
are applied to omnichannel order orchestration and optimization than
in typical single-channel order processes. While single-channel
processes are generally responsible for the coordination of inventory
allocation, payment processing, releasing the order to fulfillment, and
tracking order status, configurable business rules and decision
processes are not leveraged to the same extent.
In order to accurately
select the best route–
fulfillment option to
both present to the
customer and then to
submit upon order
capture completion,
the application must
be able to assess the
value of each of the
options for the
customer and for the
business.
For example, in a single channel, the order process typically checks 1
bit or 2 bits of data before deciding if inventory is available to promise
— current inventory and in transit — most likely in a single facility. In
an omnichannel environment, fulfillment flexibility is achieved by
enabling new supply nodes for available supply — stores, warehouses,
and suppliers. New fulfillment methods including ship online order to
store and ship direct order from store to consumer address also need to
be enabled, in an automated fashion.
In real time, the application should be able to:
● Access centralized order management, regardless of order capture
channel (This enriches fulfillment options and provides greater
order-and-supply visibility to improve fulfillment efficiency.)
● Verify available inventory quantities and display an expected
shipment date (This enables the store to provide availability dates
not only for inventory in stock but for inventory that has not yet
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been received. It allows for multiple release dates within one
order.)
● Predict future inventory based on expected inventory receipts
● Estimate future ship dates for back orders
● Enable supplier integration, so that supplier direct drop-ship orders
can be executed seamlessly
● Provide accurate schedule monitoring and shipping requirements
management, enabling faster delivery times and reducing overall
storage and transportation costs
● Schedule best source purchase-related install/setup services
● Execute exception-based monitoring and reporting capabilities that
enable opportunities to modify and improve the current fulfillment
model, ensuring efficiency and customer satisfaction
Fulfill
Fulfillment is traditionally viewed as a set of straightforward processes
that happen in a fulfillment center or warehouse, including picking,
packing, and shipping. In an omnichannel enterprise, the fulfillment
capability is extended to stores and to third parties, including suppliers.
This expands the scope of responsibility for fulfillment execution.
Important capabilities include the following:
● Supply network visibility so that orders may be staged
appropriately, particularly if there are multiple suppliers involved
in filling a single order
● Exception-based reporting that enables real-time adjustments to
routing, picking schedule, packing, and service delivery
instructions
● Ability to dialogue with customers regarding shipping options,
should a change be required
● Basic functions include options to track inventory, allow back
order, force back order, release separately, and specify that the
product should not be returned
Return
Flexible returns processes have become an inevitable and absolutely
critical component of omnichannel retail. Return policies change based
on competitive pressure, supplier agreements, and consumer demand,
so there absolutely has to be flexibility in configuring and applying
returns rules to processes.
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Components of the returns process life cycle include the following:
● Return approvals — manual or automatic by defined business
policy
● Return material authorization (RMA) generation
● Disposition assignments and processing, including:
○ Return to inventory in store
○ Return to warehouse for further disposition
○ Return to vendor
○ Return to vendor from consumer direct
○ Record loss and destroy
● Automatic refund amount calculation, including taxes and
adjustments and edits when necessary
Table 1 summarizes how omnichannel order orchestration,
optimization, and fulfillment and returns differ from single-channel
order management.
TABLE 1
Summary of Omnichannel Order Orchestration Versus Single-Channel
Order Management
Capture
Single or Independent Channels
Omnichannel
Enter and submit order
 Orders consolidated across channels
 Inventory visible across channels
 Ability to reserve inventory anywhere within network
 Apply customer intelligence to capture function
Orchestrate
Manage and process order
 Orders aggregated, decomposed across channels
 Best source, best route–fulfillment optimization
 Leverage predictive inventory capability
 Dynamic order monitoring and management
Fulfill
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Pick, pack, and ship
 Network visibility including suppliers, third-party
distributors/logistics, and stores
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TABLE 1
Summary of Omnichannel Order Orchestration Versus Single-Channel
Order Management
Single or Independent Channels
Omnichannel
 Stores need pick, pack, and ship capabilities
 Exception-based reporting and adjustments
Return
 Flexible returns policies — return anywhere
Limited returns routing — return
to warehouse or vendor
 Requires highly automated returns processes
Source: IDC Retail Insights, 2011
Key Strategic Elements
Make Sure You Have a Good Foundation — Developing
Necessary Integration Services
Retailers have a variety of applications installed and have time-tested
processes in many areas of their business; so precisely, how they
achieve omnichannel order orchestration, optimization, and fulfillment
excellence may vary. One component that will always play a role,
however, is the integration services layer that connects disparate
applications and processes, synchronizes data, and facilitates rulesbased decisions. Figure 3 illustrates how this services layer enables the
key integration and data synchronization processes.
One component that
will always play a role,
however, is the
integration services
layer that connects
disparate applications
and processes,
synchronizes data,
and facilitates rulesbased decisions.
Note that Figure 3 makes the processes look rather simple and
straightforward, and that is essentially the goal of leveraging serviceoriented architecture (SOA) services. The details are abstracted, and
the presentation of information is simplified. For example, there is just
one process for performing an inventory availability check; however,
the data may actually reside in multiple databases — sources may
represent owned warehouses, stores, third-party distributors/logistics
providers, and suppliers. The process is seamless and performed in real
time.
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FIGURE 3
Integration Services Connect and Facilitate
Omnichannel Processes
Source: IDC Retail Insights, 2011
Many retailers already employ an SOA services capability that can be
utilized to create a single virtual environment. Others may invest in
such a capability to become omnichannel. Still others may identify
applications and services that have been built specifically to provide
the omnichannel capabilities described in this report. The latter is the
focus of this report.
The vendors that demonstrated their omnichannel order orchestration,
optimization, and fulfillment capabilities in the course of the research
for this report include IBM (Sterling Commerce), RedPrairie, JDA,
Oracle, Manhattan, SAP, and VendorNet. Let's look at how retailers
should approach matching their requirements to specific technology
providers.
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Matching Requirements to the Right Applications and
Services Providers
Every examination of potentially new capabilities needs to start with a
review of the questions that your organization needs to answer in order
to get a complete picture of your needs. Typical business questions for
omnichannel order orchestration, optimization, and fulfillment
initiatives include:
● Inventory data. What inventory information needs to be presented
to customers? What has to be accomplished to deliver the
necessary inventory accuracy levels? Do you need new master data
management capabilities? Are your policies and practices
regarding inventory management robust enough to maintain Six
Sigma inventory accuracy? What is the impact to customer loyalty
if inventory accuracy is not that good?
● Fulfillment options. What array of customer order fulfillment
options will be offered? What is the expected service level? How
will the array of options impact existing operations? What are the
alternative scenarios that could be explored? For example, would
employing a third-party distributor like GSI be the right solution
for your company? Or do you need to employ a supplier hub to
enable better access to supplier inventory and to facilitate dropships to customer, direct from supplier?
● Customer intelligence integration. What level of customer
intelligence should be applied when the customer completes the
order? How strongly do you want to incent one method of delivery
over another? Will this policy vary with purchase amount or
product category? For example, will you reward customers for instore pickup, to save the expense of direct ship, or will you ask the
customer to pay for shipping?
● Supply network. Where should inventory be stored? How will
you evaluate the most cost-effective locations to store and ship
inventory from? In your operation, does it make sense to push all
inventories into stores to improve inventory availability in-store
and then pick from overstocks to fill direct orders? Or does volume
dictate more efficient automated warehouse processes? Can you
get suppliers or third parties to distribute inventory on your behalf?
● Technology. What technology is needed to support the flexibility
you need now or in the next few years to optimize order routing,
balancing service level and cost? Can you always determine in real
time whether a go to regional store will be adversely impacted if
you pull inventory out to fill a customer order? If you put the order
on back order instead, will customer loyalty be impacted, for a
very good customer? Being able to answer these questions requires
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excellent customer intelligence and access to information that is
not always coordinated.
● Business rules. What facilities are eligible, and is this the same for
all categories (factors include size, location, sales velocity, and
allocated inventory)? There are significant advantages for many
retailers in identifying regional stores that are used to fulfill certain
types of merchandise or orders? Can you draw this map today?
● Financial reconciliation. Who gets credit for the sale, and who
pays for resource utilization? This is where we get into the
discussion about the value of redefining how retail growth is
evaluated because if same store metrics are used, then the retail
store needs to get credit for a sale that is fulfilled in-store. It makes
sense — it is the stores' resources that fill the order. The
ecommerce channel probably also wants credit for growth, but in
the end, what is most important is that overall, same customer sales
are growing. This is a better measure of whether you are serving
your customers well.
Selecting the Right Technology Partners
Once the questions in the previous section (see Matching
Requirements to the Right Applications and Services Providers) are
answered, the search for application providers can start in earnest.
While this document is not a review of technology providers and their
capabilities, a very high-level view of some of the advanced
capabilities that the vendors we reviewed have demonstrated are as
follows:
● Epicor. Epicor leverages several modules from its retail suite of
applications to satisfy retail order capture, orchestration, and
fulfillment needs including Epicor Retail Store, Enterprise Selling,
CRM, Merchandising, Warehouse Management, Sales Audit, and
BI. The Store application enables orders at POS and Mobile Store,
provides real-time inventory updates management, and facilitates
centralized returns management among other things. CrossChannel Order Management Enterprise Selling is a key linchpin
for order orchestration with components that monitor, manage, and
fulfill using best source algorithms. Epicor Retail Enterprise
Selling Cross-Channel Order Management facilitates cross-channel
retailing by combining a real-time inventory manager and a
configurable order manager to process orders and inventory
transactions across multiple sales channels. The Enterprise Selling
application enables sales from anywhere in the enterprise and is
fully integrated to the Epicor Retail Suite. Enterprise Selling gets
product and inventory data from Merchandising, allows Store POS
to create and fulfill orders, and sends orders to Warehouse
Management Systems (WMSs) for fulfillment and sends orders to
Merchandising to reserve available-to-promise (ATP) product.
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Additionally, it keeps Sales Audit up to date with new orders,
fulfilled orders, and cancellations. CRM and BI employ powerful
analysis tools and support integrated marketing, loyalty
management, and customer-specific order management. Epicor
applications are designed to support multiple sales channels by
providing a complete and consolidated view of the customer,
inventory, and orders.
● IBM. By leveraging its Sterling capabilities and market-leading
IBM WebSphere Commerce capabilities, IBM delivers excellent
core, built-to-purpose order capture, integration, and fulfillment
capabilities. A single view of inventory and customer orders across
all enterprises and channels coupled with route optimization tools
and embedded business intelligence enables customers to select the
best source for fulfillment, as well as provide a superior customer
experience. For retailers that plan on orchestrating and fulfilling
orders from stores, store personnel also have full access to
inventory information and customer orders. These fulfillment
capabilities extend beyond a retailer's four walls — a drop-ship
solution incorporates all of the benefits of the order management
solution, automatically routing the appropriate orders for thirdparty fulfillment. Embedded intelligence and an adaptable business
process definition framework support making the proper
fulfillment choices and providing customer options including
services scheduling and end-to-end returns processing (part of the
order process and allows for return-to-anywhere capabilities).
● JDA. JDA leverages applications including JDA Advanced Store
Replenishment, JDA Advanced Warehouse Replenishment, JDA
Fulfillment, JDA Order Optimization, and JDA Vendor Managed
Replenishment to expertly capitalize on real-time inventory to
profitably source, promise, and deliver goods and services
globally. Some of these capabilities initially deployed in B2B
environments can be leveraged in B2C retail environments as well
but have not been made generally available for B2C. Omnichannel
customer orders can be managed through a single configurable
application.
● Manhattan Associates. Manhattan Associates successfully
leverages core applications including Distributed Order
Management, Reverse Logistics Management, Warehouse
Management, Supply Chain Intelligence, Supply Chain Visibility,
and Supply Chain Event Management and then applies Store
Commerce Activation to fully enable robust omnichannel order
orchestration and fulfillment capabilities. Manhattan excels in the
depth and breadth of its retail supply chain capabilities and has
certainly nailed omnichannel order orchestration, optimization, and
fulfillment. Manhattan can enable mobile and call center
capabilities or just plug into existing capabilities. Manhattan's
routing optimization takes into account factors including
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transportation, workload balancing, inventory, and sales forecasts.
The only capabilities Manhattan lacks at this point are an off-theshelf vendor portal and a strong integration to more advanced
customer intelligence, which, for the company, is generally
delivered in conjunction with partners with the commerce
component of the process.
● Oracle. Oracle leverages the array of assets described in Table 2 to
deliver omnichannel order capture, orchestration, and fulfillment
capabilities to retailers. Oracle provides seamless omnichannel
order capture, with built-in integrations to POS and with
integration work in progress for Oracle ATG. A single view of
inventory and drop-ship capabilities is made available through
Oracle Retail Merchandising System (RMS). Oracle Fusion
Distributed Order Orchestration enables order orchestration and
routing of customer orders. When a drop-ship opportunity is
detected, the system automatically sources the order to the most
appropriate vendor and cuts a Purchase Order. The sales order
status is automatically updated and progressed as the vendor
updates the PO (acceptance, Advance Ship Notice transmission,
etc.) providing touchless real-time order status visibility and
seamless fulfillment to the customer regardless of the sourcing
method employed. Oracle Transportation Management (OTM)
provides extensive route optimization capabilities enabling
retailers and manufacturers to deliver their products on time while
minimizing freight costs. OTM's route optimization accounts for
such factors as: order consolidation, mode of transport and carrier
selection, transportation capacity constraints, pickup and delivery
time windows, and customer shipping preferences. In addition,
OTM monitors the route execution process to provide complete intransit visibility of all product shipments from source to final
customer destination. Oracle Retail Point-of-Service provides instore order fulfillment and returns capabilities. The fulfillment
functionality enables the user to view, pick up, complete, or cancel
orders, as well as provide order updates to customers in a timely
manner using automated email communication. The returns
functionality enables you to view and update customer orders for
product returns through the payment and tendering processes.
Oracle Retail Store Inventory Management provides additional instore order fulfillment capabilities, which includes the ability for
items to be reserved for pickup based on an order request and for
picklists to be printed, facilitating order fulfillment. Oracle Retail
Warehouse Management System (RWMS) supports the customer
order fulfillment from a warehouse. This solution allows the
retailer to support the pick, pack, and shipping capabilities required
by a consumer direct shipping distribution center. Oracle RealTime Scheduler supports the scheduling, routing, and delivery
aspects for home delivery of a customer order.
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● RedPrairie. RedPrairie delivers omnichannel order capture,
orchestration, and fulfillment capabilities by leveraging core
applications including Commerce Suite (acquired via the
acquisition of Escalate Commerce), Warehouse and Transportation
Management, and Store Inventory. RedPrairie's Order Sourcing
module and ATP module enable order routing and sourcing
optimization. Order Sourcing provides dynamic sourcing of orders
based on three factors: the availability of inventory, the proximity
of inventory to the consumer's location, and the assessment of the
site that offers the lowest freight costs. This offering is further
enhanced with the ATP capability that considers inventory in
transit to allocate future receipts to orders that have a future ship
date. Today RedPrairie enables store fulfillment through the
RedPrairie Commerce Store Center (and/or integration to existing
store-based solutions), but it also plans to deliver an extensive instore fulfillment component early in 2012, which will consider
inventory availability, picklist generation, and labor scheduling to
support in-store fulfillment including pickup in-store and ship from
store. RedPrairie delivers a strong and comprehensive set of OMS
capabilities including full Customer/Sales Order Management
integrated with visibility/fulfillment capabilities as an embedded
set of functionality within the RedPrairie Commerce Suite.
RedPrairie also enables vendor drop-ship fulfillment through the
RP Connect/Vendor Collaboration Portal.
● SAP. SAP leverages its modular yet already-integrated Business
Suite to deliver omnichannel order orchestration and fulfillment
capabilities. SAP Multichannel Order Management for Retail is the
core offering and is based on the applications SAP CRM and SAP
ERP to capture and process orders, manage inventory, execute
fulfillment, handle payments, and take care of returns. SAP
NetWeaver is the service-oriented, technical foundation for SAP
applications that supports integration to non-SAP applications and
provides a business rules management system that can help
determine the best fulfillment path. SAP's supply chain
management applications optimize inventory and logistics and
provide visibility to inventory beyond the enterprise — from
suppliers, for example. A browser-based UI enables in-store order
management and customer order pickup capabilities. One example
of SAP's experience in this area is the implementation at Coop of a
mobile shopping application with SAP Multichannel Order
Management for Retail as the back end — it was lauded as the
most successful shopping application in Switzerland.
● VendorNet. VendorNet's applications were built specifically to
provide the capabilities described in this report. VendorNet's
applications are in production with its own multichannel retail
clients, as well as retail clients of its parent company, GSI
Commerce (recently acquired by eBay). As a software vendor that
has been on the forefront of omnichannel order orchestration and
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fulfillment, VendorNet expertly delivers the supply chain
components of cross-channel fulfillment. The company usually
integrates with a retailer's existing Web store and/or order
management system and facilitates best source fulfillment along
with interfaces to all possible fulfillment channels including an
interface for pick, pack, staging, and shipping in-store. For
example, GSI customers (Toys"R"Us, Sports Authority, Polo
Ralph Lauren) use VendorNet's order routing and in-store
fulfillment applications coupled with GSI's customized OMS
application from IBM for a turnkey solution.
The vendors best positioned to deliver omnichannel order
orchestration and fulfillment capabilities are those that have off-theshelf purpose-built capabilities. I spoke of the value of SOA in
enabling integration and orchestration capabilities previously, but
understand that BPM solutions alone are not enough to support
omnichannel fulfillment because they do not contain the business logic
and functional expertise to manage fulfillment. Layering a BPM tool
on top of a single-channel order fulfillment system doesn't typically
work as well as a purpose-built application, because the BPM tool
does not have the inherent logic to enable integral optimization based
on the consolidated view of the single-channel systems, nor can the
single-channel systems easily adapt to work with the processes the
BPM tool is trying to control.
We recommend that retailers assess how well vendors deliver on the
following minimum omnichannel order orchestration, optimization,
and fulfillment advanced capabilities: order capture, order
orchestration services and integration, single view of inventory, order
route optimization, vendor portal, in-store fulfillment, drop-ship
fulfillment, customer intelligence, and end-to-end returns processes.
Table 2 provides a summary listing of the vendor applications
available to enable omnichannel order orchestration, optimization, and
fulfillment and a sampling of the customers using their applications to
support these functions. This is a very hot application development
area, so check with these vendors for current capabilities and a
technical fit to your needs as you go down this path.
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TABLE 2
Vendor Applications and Experience: Advanced Omnichannel Order
Orchestration, Optimization, and Fulfillment
Applications
Customers
Epicor
Epicor Retail Suite: Epicor Retail Store, Enterprise
Selling, CRM, Merchandising, Warehouse Management,
Sales Audit, and BI
Sports Chalet, Famous Footwear, Orvis,
American Eagle, Genesco, Chico's, VF Corp,
Foot Locker
IBM
IBM Sterling Configure, Price, Quote; IBM Sterling Order
Management, IBM Sterling Warehouse Management, IBM
Sterling Transportation Management System, WebSphere
Commerce
Nordstrom, Cabela's, Crocs, InterContinental
Hotels
JDA
JDA Advanced Store Replenishment, JDA Advanced
Warehouse Replenishment, JDA Fulfillment, JDA Order
Optimization, JDA Vendor Managed Replenishment
ACE Hardware, Lowe's, OfficeMax
Manhattan
Associates
Store Commerce Activation, Distributed Order
Management, Reverse Logistics Management,
Warehouse Management, Supply Chain Intelligence,
Supply Chain Visibility, Supply Chain Event Management
Tory Burch, Bed Bath & Beyond, The Men's
Wearhouse, David's Bridal, Safeway.com,
Performance Bike, House of Fraser
Oracle
Oracle Retail Merchandising System, Oracle Retail POS,
Oracle Retail Store Inventory Management, Oracle Siebel
Order Management, Oracle E-Business Suite Supply
Chain Management, Oracle ATG, Oracle Fusion
Distributed Order Orchestration, Oracle Global Order
Promising/Advanced Supply Chain Planning, Oracle
Transportation Management (OTM), Oracle Real-Time
Scheduler
 Oracle ATG: Best Buy, Urban Outfitters,
Sprint, Chico's
 Oracle Retail Merchandising System: The
Good Guys, Woolworths Ltd.
 Oracle Retail POS: Scheels, Abercrombie &
Fitch, Best Buy
 Oracle Retail Store Inventory Management:
The Beer Store, Galeries Lafayette
 Oracle Retail Warehouse Management
System: Tesco
 Oracle Real-Time Scheduler: Sainsbury's
 Oracle Siebel: Metro
 Oracle Fusion Distributed Order
Orchestration: Customers are not disclosed
 Oracle Global Order Promising/Advanced
Supply Chain Planning (ASCP): Herbalife
 Oracle Transportation Management (OTM):
Supervalu, Giant Eagle
 In-store Fulfillment (Oracle E-Business
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TABLE 2
Vendor Applications and Experience: Advanced Omnichannel Order
Orchestration, Optimization, and Fulfillment
Applications
Customers
Suite, Oracle Retail POS, Oracle Retail
Store Inventory Management)
 Drop-ship Fulfillment (Oracle E-Business
Suite Supply Chain Management): FootJoy
 End-to-End Returns (Siebel Order
Management, Oracle E-Business Suite):
Metro, Intuit
RedPrairie
Commerce Suite, Warehouse and Transportation
Management, Store Inventory
 Commerce Suite: J. Crew, Belk, Hot Topic,
Saks, Kohl's, Eileen Fisher
 Order Management: Eileen Fisher
 Vendor Portal/Drop Shipment: Saks
 Inventory Visibility: Mountain Equipment
Co-op
 Store Returns: AWG, GNC, Michael's,
Wegman's, JC Penney
SAP
SAP Multichannel Order Management for Retail, SAP
Web Channel Enablement for Retail, SAP Interaction
Center Management for Retail, SAP Store Inventory and
Merchandise Management, SAP Forecasting and
Replenishment, SAP Warehouse Management, SAP
Transportation Management. SAP NetWeaver, SAP
BusinessObjects
Coop Group, Home Shopping Europe,
Barnesandnoble.com, Ulta
VendorNet
VendorNet Commerce Suite, Order Broker, StoreNet Live,
Dropship Manager, Stock PO Manager, SKU Track
Nine West, Neiman Marcus, Juicy Couture
Source: IDC Retail Insights, 2011
FUTURE OUTLOOK
Retailers are clearly marching down the path toward omnichannel
retailing. The success stories we hear most often today generally
discuss, perhaps in different words, how a focus on growing same
customer sales and reducing the cost to serve an omnichannel
customer have dramatically improved year-over-year business results.
Nine West saw a significant increase in ecommerce orders in 2009,
which all shipped from stores. Further, ecommerce revenue has grown
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The success stories
we hear most often
today generally
discuss, perhaps in
different words, how a
focus on growing
same customer sales
and reducing the cost
to serve an
omnichannel
customer have
dramatically improved
year-over-year
business results.
©2011 IDC Retail Insights
substantially since implementing ship from store three years ago. All
Nine West stores (retail and outlet) are fulfilling ecommerce orders.
Nine West reports the following business benefits, validating the
benefits we provided previously. Omnichannel order orchestration and
fulfillment:
● Exposes more available product for purchase on Web, increases
ecommerce sales
● Improves customer loyalty and satisfaction with increased
inventory accessibility
● Improves SKU demand forecasting for each channel
● Optimizes inventory usage and sell-through
● Facilitates more profitable and efficient sell down of end-of-season
merchandise in stores prior to discounting
This is just one example of a retailer that is leveraging store inventory
and resources to grow ecommerce sales. Consider the growth Macy's
and Saks are seeing in ecommerce after reorganizing business units to
focus on omnichannel growth.
Interestingly, this year retailers told us in IDC's 2011 Vertical
Research Group IT Survey that inventory/warehouse management and
logistics/transportation management are their highest priorities. Figure
4 illustrates how retailers ranked their priorities on a scale of 1 to 5.
Note that there were 20 IT priorities listed in the question — we have
only presented the top 8 in Figure 4.
This makes sense since many retailers were sorting out the customerfacing component of omnichannel retail over the past couple of years
— deciding what mobile applications to deploy, whether POS and
ecommerce needed upgrading or replacement, and whether retailers
needed additional customer intelligence applications. Retailers are
clearly turning a critical eye to their supply chains as they seek to
serve the omnichannel customer more efficiently.
Retailers are clearly
turning a critical eye
to their supply chains
as they seek to serve
the omnichannel
customer more
efficiently.
The business need is apparent, and order management and supply
chain technology vendors are stepping up to the challenge to help
retailers more efficiently serve omnichannel customers. Expect to see
more investment from retailers and technology providers in this area.
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FIGURE 4
Retail IT Investment Priorities, 2011
Q.
On a scale of 1 to 5, where 1 = not important and 5 = very important, please indicate the
priority level of your investment for the following IT solution areas.
n = 200
Source: IDC's 2011 Vertical Research Group IT Survey
ESSENTIAL GUIDANCE
Actions to Consider
If you are a retailer, you are probably well down the road of
determining how you want to grow omnichannel business, but you
may not have determined how to deliver sustainable customer service
levels efficiently in a shop, buy, and ship anywhere world. If this is the
case, then we recommend that you take the following actions:
● Get to a single view of inventory and improve your policies and
practices to improve accuracy. If you don't have this right, don't
take another step.
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● Give all channels access to the data they need to serve customers
— more than a computer display with access to your Web site.
● Determine all of the business rules related to when and where each
of the following delivery capabilities will be employed:
○ Third-party logistics
○ Drop-ship (from store, from DC, and from supplier)
○ Omnichannel fulfillment through owned DCs
○ Direct fulfillment from stores (options of pickup in-store or
ship to address)
● Build better collaborative relationship with your suppliers. Perhaps
you will want to partner with vendors and enlist a drop-ship hub.
● Identify the capabilities that you need to obtain to capture,
orchestrate, optimize, and fulfill and return efficiently, given your
current and planned ecommerce volume, products, services, and
competencies.
● If you are going to leverage stores for direct order fulfillment,
prioritize the stores that can handle the additional work and
inventory movement. Many retailers start with a store in each
market to reduce shipping costs.
● Don't forget about returns. Current retail policies lean toward very
liberal return policies, which encourage consumers to overbuy
(knowing that they can return the wrong size or color at no cost to
them). I am not advising that you change the policy — instead that
you plan for an efficient and cost-effective returns process.
● Optimize the fulfillment process. Flexible best route capabilities
are complicated and require capabilities supported by business
intelligence, unless you know for sure that you will always want to
choose from a few fulfillment scenarios based on limited criteria.
● Think about future needs. Wouldn't it be great if you could
optimize to select goods from stores that will be discontinuing a
product next month, ahead of other stores in the chain?
Markdowns could be reduced.
● Account for delivery and appointment/installation scheduling (if
this is a service that you provide).
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Actions for Vendors
The following are a few words of advice for the technology vendors
reading this report:
● Continue developing capabilities that enable retailers to lower their
cost to serve omnichannel shoppers.
● Know the retailers' options, given their product mix and business
model. Help them sort out which technologies are right for them.
● Help them develop better collaborative relationships. This is
something else retailers are telling us they want to do in the next
12 months.
● Develop metrics and tools that enable retailers to understand what
inefficiencies cost them.
LEARN MORE
Related Research
● Perspective: The Future of Work in Retail Operations — Creating
a Platform for a Productive and Engaged Workforce (IDC Retail
Insights #GRI229802, August 2011)
● Best Practices: Grocers Fighting Fire with Fire — 2011 Survey
Results Reveal Strong Technology Investment Trends (IDC Retail
Insights #GRI229284, July 2011)
● Perspective: JDA FOCUS 2011 — Enabling the "Go Faster"
Supply Chain (IDC Retail Insights #GRI229304, July 2011)
● From Shop To Shopper: Retail Changes Focus (IDC Retail
Insights #GRI228892, June 2011)
● Perspective: Can Food Traceability Help Protect Japan's Food
Export Sales? (IDC Retail Insights #GRI228022, May 2011)
● Perspective: Earth Day 2011 Reflections — Time to Set New
Sustainability Targets and Measure Progress (IDC Retail Insights
#GRI228030, May 2011)
● IBM Synchronizes Its Commerce 2.0 Strategy with "Smarter
Commerce" Initiative (IDC #227526, March 2011)
● Perspective: NRF 2011 — New Energy for New Operating Models
(IDC Retail Insights #GRI226758, February 2011)
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● 2011 Global Retail Supply Chain Prediction (IDC Retail Insights
#GRI226872, February 2011)
● Business Strategy: Driving Green — Real Progress as
Sustainability Becomes Integral to the Retail Brand (IDC Retail
Insights #GRI226460, January 2011)
● Business Strategy: Developing a Cloud Computing Point of View
for Your Organization (IDC Manufacturing Insights #MI226477,
January 2011)
● Worldwide Retail Industry 2011 Top 10 Predictions (IDC Retail
Insights #GRI226393, December 2010)
● Business Strategy: The State of Retailer-Supplier Collaboration in
2010 (IDC Retail Insights #GRI225949, December 2010)
Synopsis
This IDC Retail Insights report helps retailers that are now shifting
focus to the supply chain to ensure that they can satisfy omnichannel
fulfillment needs sustainably and establish a strategy to optimize
service levels and costs simultaneously. Retailers are adapting to the
omnichannel shopper who demands shop, buy, and receive anywhere
retail capabilities.
Leslie Hand, research director, IDC Retail Insights, said, "This retail
paradigm shift toward omnichannel shopping has smart retail
businesses focused on growing omnichannel commerce, specifically
ecommerce and mcommerce; implementing technologies that support
omnichannel business growth; and addressing the supply network
complexity that arises from a shop, buy, and receive goods
anywhere/anytime business model."
Copyright Notice
Copyright 2011 IDC Retail Insights. Reproduction without written
permission is completely forbidden. External Publication of IDC
Retail Insights Information and Data: Any IDC Retail Insights
information that is to be used in advertising, press releases, or
promotional materials requires prior written approval from the
appropriate IDC Retail Insights Vice President. A draft of the
proposed document should accompany any such request. IDC Retail
Insights reserves the right to deny approval of external usage for any
reason.
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