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Supply chain costs also increase. In the past, manufacturers and retailers could rely on consumers to drive to the store, pick products off the shelf, pack them and take them home. In an omni-channel world, the supply chain must take control of all these steps. This consumes additional resources and drives down profitability.
Our recent EY research in collaboration with The Consumer Goods Forum’s Supply Chain Committee available here
, found that 81% of our survey respondents believe the traditional supply chain is not fit for purpose for omni-channel. Transforming their supply chain to succeed requires both retailers and manufacturers to consider three key questions:
- Which consumers should they serve, with which product portfolio?
- What stock to hold, where and in what depth?
- Where to provide supply chain agility versus efficiency?
Answering these questions will require companies to strike a careful balance. They must be agile and focus on growth, yet at the same time they must keep a close eye on their margins. Balancing agility and efficiency relies on good planning, end-to-end visibility and clear communication across channels and functional areas.
Although the need to embrace omni-channel is clear, companies must be careful about how they approach it. Many have rushed in too quickly and made the wrong investments and decisions. They have not done enough to understand the cost to serve different channels, and have not put in place the right margin structures and trade terms.
Making the right decisions requires companies to take a more considered, strategic approach. Leaders will need the ability to drive through change and make difficult decisions. They will also need a robust analytics capability to understand fully the implications of the transformation.
Although transforming their business to succeed in an omni-channel world will be highly challenging and disruptive, consumer products companies have no choice. Companies who remain complacent risk becoming irrelevant on the path to purchase. As Kraft Foods Chairman and CEO John Cahill said on Kraft’s Q4 earnings call on 12th February 2015, “It’s clear that our world has changed and our consumers have changed, but our company has not changed enough”.
EY Global Leader Supply Chain & Operations