1. Supporting an omnichannel strategy Enabling an omnichannel strategy
Module 8 Video 1
Supporting an omnichannel strategy
Enabling an omnichannel strategy

2. Intro
Developing an omnichannel strategy presents great opportunities in terms of offering customers an appealing value proposition and potentially increase revenues. However, it also introduces some pain points that retailers have to address to ensure that the omnichannel strategy is efficient and sustainable.
We revisit our main retail fundamentals: forecasting, inventory, assortment, and pricing.
We introduce key considerations that we need to make in each of those dimensions to enable a successful omnichannel strategy.

3. Forecasting
Let's start by exploring how an omnichannel strategy affects forecasting. We are going to see this with an example.
Imagine that Target wants to forecast demand for a particular rug during a month. If Target was interested in total demand in the US, and they had historical sales data, they could probably achieve a reasonably accurate forecast. However, Target will use the forecast to make decisions such as how much inventory of that rug to hold, and where to hold it. So Target will have to make the forecast at a lower level of aggregation.
If Target operated independent brick and mortar and online channels, they would have to forecast demand for each of the brick and mortar stores and for the online channel, so that they can decide the amount of inventory they should hold at the stores and at the distribution center.
For that purpose, they could use past sales data from each of their brick and mortar stores and from their online channel. The forecasts will be less accurate, because forecasts at lower levels of aggregation are harder to make.
If Target integrates the brick and mortar and online channels by offering omnichannel capabilities such as “buy online, pick up in store”, things become even more complex. It is not enough to know how many orders will be placed online. Some of those orders will actually be fulfilled using inventory from the stores.
I need to estimate the fraction of online orders that will choose to pick up the product at each store, so that I can decide the amount of inventory to hold. This means that I need to make forecasts at an even lower level of aggregation, which is going to be harder.
We have also seen that the channels interact in a subtle way, so small changes can have a substantial impact on the breakdown between the inventory I need at the distribution center and at the stores.
For example, some customers may shift from placing orders online to visiting the stores when they are provided information about store product availability.
If we do not consider the impact of omnichannel initiatives in our demand forecasting process, we are going to make poor decisions that will cost us money.
Fortunately, with an omnichannel approach we also get more data that we can use to improve our forecasting capabilities. However, it is going to be necessary to make investments to put that additional data to a good use and enable our omnichannel strategy.

4. Inventory
The difficulty in forecasting demand in an omnichannel context translates into challenges when managing inventories. Ultimately, for inventory planning purposes, we don't care so much about where the orders are coming from. We mainly care about where the inventory serving those orders will be coming from.
We have to transform our demand planning process into a fulfillment planning process that details the amount of inventory we will need at each location.
Inventory replenishment models will also need to be adjusted.
In the past, retailers had inventory teams ordering products for the store channel and the online channel separately. This is no longer possible in an omnichannel context. Retailers developing omnichannel capabilities need to adjust their inventory ordering processes to enable their omnichannel strategy.
An omnichannel approach can also present opportunities that can increase the inventory efficiency.
Because channel integration makes inventory information more visible across channels, this information can be used to make better inventory decisions.
For example, if the retailer can fulfill online orders from stores, the retailer can get rid of excess inventories in one store by using that inventory to fulfill online orders. Actually, some retailers integrating their channels have reported an increase of inventory turns and a decrease of end of season sales. ( inventory-at-nordstrom/)

5. Assortment
An omnichannel approach also offers interesting opportunities when it comes to assortment decisions.
Ship to store programs allow the retailer to provide customers with access to products that may not be carried in the stores, dramatically expanding choice.
Retailers adopting ship to store programs can also reevaluate their assortment decisions.
The retailer can decide to carry different products in stores and distribution centers. Since distribution centers have aggregation benefits, it may be a good idea to shift products with uncertain demand and high costs to the distribution center, as long as they are products customers are willing to wait for.
When shifting products to the distribution centers, it is important to keep in mind that there may be products that the retailer may want to keep carrying in the store because they help establish a reputation as the go-to place for a category, or because they help bring traffic of variety-seeking customers.

6. Pricing
Finally, let's talk about some of the implications with regards to pricing. A question that any retailer offering store and online channels should consider is whether to use consistent pricing across different channels.
Online and brick and mortar stores face different cost structures and different competition dynamics, with brick and mortar stores competing with other local stores, and with online customers being one click away from companies like Amazon. So in some cases, it may make sense to offer different prices.
However, offering different prices may have negative repercussions. Customers shopping at a brick and mortar store can use their phones to check prices at the online channel. If customers see lower prices, this may generate frustration.
A possibility is offering price matching.
In an omnichannel context, the price coordination becomes even more critical. Customers can use different entry points and modes of delivery. If two customers using the same mode of delivery but different entry points are charged different prices, this is likely to generate confusion. This can also lead to customers gaming the system. For example, if the price charged to buy a product at the store is higher than the price charged to buy the product online using the "buy online, pick up in store" option, customers can actually use their mobile phones to place a “buy online pick up in the store” order from inside the store. Retailers should assess how that can affect customer perception when deciding on their price coordination strategy.