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Global Logistics Management 1

(Transportation Management) - Term 2 -


MSEPT 16 - SYD - GLSCM Specialization
Lecturer: Dr Ramanathan K

OMNI CHANEL LOGISTICS and SUPPLY


CHAIN-
A case study on early ADOPTERS in
FMCG industry
Individual Assignment Submission

Name: Sheetal Proag


Roll number: GL41
3000 words
Contents
OMNI CHANEL LOGISTICS and SUPPLY CHAIN-.............................................................1
A case study on early ADOPTERS in FMCG industry..........................................................1
Introduction................................................................................................................ 1
Literature Review....................................................................................................... 1
Whats is Omni channel logistics?........................................................................1
Findings....................................................................................................................... 2
Research Question 1: What is the current situation concerning the early adopters
in the FMCG industry?............................................................................................. 2
Research Question 2: What are the major differences between traditional and
Omni-Channel Logistics?......................................................................................... 3
Research Question 3: What are the key barriers in implementing Omni-Channel
logistics in the FMCG industry?...............................................................................5
Lack of dedicated resources and capabilities.......................................................5
Level of investment required to succeed.............................................................5
Challenge of supply chain complexity..................................................................6
Limitations of siloed organizational structures.....................................................6
Lack of senior leadership support........................................................................6
Managerial Implications.............................................................................................. 7
Objective 1: To analyze the current situation concerning the Omni-channel
logistics for early adopters in the FMCG industry....................................................7
Objective 2: Analyze the difference between traditional and Omni-channel
logistics and supply chain in the FMCG context......................................................8
Objective 3: Identify key barriers in implementing Omni channel logistics and
supply chain in the FMCG industry..........................................................................8
Recommendation....................................................................................................... 8
Conclusion.................................................................................................................. 9
OMNI CHANEL LOGISTICS and SUPPLY CHAIN-

A case study on early ADOPTERS in FMCG industry

Introduction
Amazon, the disruptor of retail platforms introduced a new way of retailing- omni-channel retailing. This
completely altered the global business podium that changed three major areas: marketing, payments and
logistics (Alexander Hbner, 2016). It may be surprising that logistics and supply chain is one of the basic
supportive pillar of omnichannelism. As this is a relatively new concept, introduced by Walmart in 2003
(Banker, 2013 ) and therefore, still in the implementation process as it is not easy to adopt.
Currently according to a recent study, mostly giants in the FMCG(Fast Moving Consumer Goods) industry
adopt this strategy to increase or maintain their competitiveness. However, it was concluded that only
81% of early adopters in the FMCG industry have accredited their profit margins while only 40% of these
firms states that they still need improvement with their supply chain to support their omni-channel retailing
strategy (Ernst & Young, GCF, 2015).

Scope of Research
The research mainly concentrate on the below areas:
Concerns the FMCG industry and first Omni-channel logistics implementers

Analyze the changes from 2013 to 2017

Explore key barriers to implementing this practice in the FMCG industry

Therefore, the objectives of this exploratory report are defined as per the research questions below.

Research Questions Research Objectives

1. What is the current situation concerning 1. To analyze the current situation


the early adopters? concerning he Omni-channel logistics for
early adopters in the FMCG industry
2. What are the major differences between 2. Analyze the difference between traditional
traditional and Omni-Channel Logistics? and Omni-channel logistics and supply
chain in the FMCG context

3. What are the key barriers in implementing 3. Identify key barriers in implementing
Omni-Channel logistics in the FMCG Omni channel logistics and supply chain in
industry? the FMCG industry

Literature Review
Whats is Omni channel logistics?
Omni-channel logistics operations comprise of an innovative supply chain that allows for global fulfillment,
global delivery management, e-commerce development and uses an inventory system. Started by brick
and mortar retailers, omni-channel logistics operations began as an initiative for trailers to improve
integration between their stores and e-commerce channels. The goal is that when a consumer buys
online they can pick up at the store, have it delivered to their home, along with several other delivery and
fulfillment options.

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These initiatives enable consumers to select the most advantageous distribution channel in terms of
proximity, convenience, price, kindness of personnel, store ambience, products and information
availability, delivery speed (DHL Customer Solutions & Innovation., 2015)and channel transparency and
accessibility (Gerritsen et al., 2014). Obtaining the proper performance in approaching markets depends
on the type of merchandise distributed i.e. low versus high value products (Chopra, 2016), by the
distribution channels used, and the extent to which the retailer is able to improve the shopping experience
of consumers by evolving from a multi-channel strategy focused on traditional retail formats to an
omnichannel strategy based on the internet and social networks, portable devices and applications for
smartphones, iPads, iPhones etc. (Fernie and Grant, 2015, Heinemann et al., 2015, Online Retailing
Market, 2015; Verhoef et al., 2015; Gonzales-Lafaysse and Lapassouse-Madrid, 2016).

Findings
Research Question 1: What is the current situation concerning the early adopters in the FMCG industry?

Most firms in the global FMCG platform like LOreal, P&G, Unilever amongst others collectively agree that
Omni-channel is the current enabler of growth as the new trend in to be omni-present in the retail industry.
Currently only 28% of the players in the FMCG industry has embedded omni-channel logistics in their
corporate industry and 81% (Ernst & Young, GCF, 2015)of the early adopters states that their supply
chain is still not fit for Omni-channel retailing and more than one third of the adopters suggests that their
Omnichannel logistics are accretive to their margins.
The current scenario suggests that brick and mortar stores still accounts for 93% of their sales. However,
it is expected to be reduced to 83% in only 5 years (KSalmon ; HDE, 2015). Unsurprisingly, it is
forecasted that Food and beverage industry will be less brick and mortar (Duff & Phelps, 2016). It is
already noticeable how some fast-food companies no longer have retail outlets such as Dominos in
Malaysia.
The second biggest/most importat Omni-channel logistics industry will be apparel and consumer
appliances (Ernst & Young, GCF, 2015). Therefore, it is not a surprise that Xiomi has a mixed- logistics to
capture global market-share. The mobile phone company is now competing with major brands like
Samsung and Apple (Wang, 2016).
The early adopters in the FMCG industry identified three major variables for an effective Omni-Channel
logistics and supply chain(L&SC). These variables can be represented in the below conceptual
framework.

Strategy
Effective
Agility Omni-Channel
L&SC
Visibility

The early adopters claimed that it is important to implant the Omni-channelism in the core strategies
that is Marketing, Finance and Operations (Ernst & Young, GCF, 2015). Firstly, it should not deviate
from the FCMG industry LSC main objective: to be customer centric. Secondly, top management should
really commit to the omni-channelism. For instance, Walmart has been pinpointed several times by
Forbes and other business magazines about their stock outs in 2012 due to inventory mismanagement
(Luttz, 2017). Even though, many firms are implementing Omni-channel, 40% of these players do not
have proper mechanisms for out-of stocks situations (Ernst & Young, GCF, 2015).
Thirdly, top players agree that visibility is of uttermost importance in the supply chain as collaboration
between manufactures and retailers are critical. Many early adopters are using big data and are

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integrating IT frameworks to a single view of customer and provide a seamless supply. However, despite
implementing Omni-channel L&SC, only 45% of manufacturers (Ernst & Young, GCF, 2015) for the early
adopters have access to end-to-end sales data!
Another aspect that dominating the FMCG Platform is the balance between agility and efficiency. It is
about striking the perfect balance and early adopters are still struggling with this case. However,
successful implementers assert that firms should focus on fulfilling the needs of tomorrow rather than
today. Amazons L&SC is an agreed benchmark in the L&SC platform as we are tending towards an
Amazon world.
Research Question 2: What are the major differences between traditional and Omni-Channel Logistics?
The Omni-channel concept is still being defining. However, authors and major third-third party logistics
agree that the major differences between traditional and Omni-channel are as follows.
Inventory Visibility
Most stakeholders do not have or have limited vision on inventory in the traditional L&SC. However,
inventory visibility is considered as the backbone of Omni-channel logistics. Continuous review systems
has evolved into daily inventory update to real-time update of inventory throughout the SC. This helps to
combat stock out situations and therefore increase sales for example, American Apparel Sales increased
by 30% after adoption of Omni-channel L&SC (Deloitte, 2015).
The advantages of tapping any inventory data warehouse in the networks allows the firms to plan and
execute a different order fulfillment Strategy.
Order Fulfillment Strategy and Store Inventory Management
Order fulfillment is a traditionally process starting at the manufacturing unit to the warehouse and lastly to
the retailers and end customers (Hbner, 2016). However, as all entities can now access the inventory
data for each actor in the SC (Supply Chain). Optimum allocation of resources can be executed. For
instance, in some areas, the firm can be stock out for a certain product but overstock for the same
product in another area. Unfortunately, the retailer may try to source the additional orders to combat the
stock out situation from the main DC (Distributor) while it can simply source the additional orders from the
other warehouse to remedy the situation of having less or no stock
This new feature that Omni-logistics allows firms in the FMCG industry to also conduct Ship-from-store
strategy to compete against the logistically, superior firm: Amazon, in terms of lead-time and rapid order
fulfillment for online orders. Instead of picking goods from warehouses, firms are opting to ship goods
from nearby stores to customers. For instance, LOreal has partnered up with Pricline in order to have an
e-store in 2015 (Watson, 2016).
This system also allows firms in FMCG industry to help their major retailers such as SuperU in Europe,
Giant in South-East Asia, Spar in Africa and Walmart in US to optimize their inventory level by having
more accuracy. Formerly, accuracy of inventory level were around 50% to 80% (Kurt Salmon, 2012). This
means there would be some products that would either have back orders or lost sales. However, the
logistics service provider/department should also do periodic physical inventory count as the business
order is not utopian and there may be cases of theft and pilferage, inventory shrinkage or even false-
shrinkage of inventory, instances of when the order never arrived at the warehouse or DC!
Warehousing role in an Omni-channel logistics frame
Traditionally, warehouses main role was to store and process orders. However, the Omni-channel
platform has transform warehousing into a flexible fulfillment network that can easily respond to changing
demand serving both B2C and B2B networks as well as online and offline orders (DHL Customer
Solutions & Innovation., 2015). For instance, Amazon and P&G have a linked system to enable P&G
warehouse to act for online and offline orders for a B2B Customer/Amazon.
Secondly, warehouses are becoming more like showrooms and pickup locations rather than storing the
products (DHL Customer Solutions & Innovation., 2015). For instance, Ikea has been implementing this
feature since long as its warehouses acts as showrooms and also pick up in some countries. Walmart is
also pioneering a drive-through system for the senior citizens as other customers that may be
disadvantaged in some manner.

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Proactive and personalized customer management
Conventionally, personalized service is quite time consuming. This is because it is reactive to customer.
However, Omni channel L&SC promoting proactivity and is more customer centric. This has been
pioneered by Amazon with its predictive purchasing software (DHL Customer Solutions & Innovation.,
2015). This helps to plan effectively and therefore decrease the lead-times.
The new feature also allows added customer value. For instance, reverse logistics has become easier.
Many FMCG firms allows their third party logistics to facilitate immediate product returns in case of any
issue. Firms have also started customization during the delivery time. For instance, Bayer uses the transit
time to customize their products via its F3Factory (DHL Customer Solutions & Innovation., 2015). For
instance, Mr. Sudesh,CEO at AVL,Mauritius, stated that fruits are graded into different sizes and packed
during transit time to be delivered at the earliest possible time to hotels (Sheetal, 2017).
Research Question 3: What are the key barriers in implementing Omni-Channel logistics in the FMCG
industry?

Lack of dedicated
resources and
capabilities

Limitations of
siloed
organizational Challenge of
Barriers to
structures supply chain
an
complexity
omniChann
el Logistics

Lack of senior
leadership Level of investment
support required to succeed

All early adopters agreed that the above factors are the main barriers to implementing an omni-channel
logistics in the FMCG industry (Ernst & Young, GCF, 2015).
Lack of dedicated resources and capabilities
Currently only 26% of the respondents in the EY survey had the IT requirements and capabilities required
to have a smooth omni-channel L&SC. Many firms invested in the following capabilities in the logistics
area (Deloitte, 2015; DHL Customer Solutions & Innovation., 2015).
Automation in distribution center
Mobility-driven shopping
Click-and-collect models
Digitalization of stores
Same-day deliveries
Cloud-based logistics/supply chain services Predictive logistics techniques

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Level of investment required to succeed
This leads to the second barrier as these capabilities require high investment levels and there must be
proof of returns. This is because 29% of capital expenditures (Parro & Jordan, 2016 ) is targeted about
solutions like transportation and logistics, delivery options, order management, inventory visibility and
returns management.
The majority,38%, of the early players in the FMCG industry stated that the initiatives to make the logistics
and SC Omni channel is accretive to their firms profits while 26% argued that it made no impact (Ernst &
Young, GCF, 2015). However, 36% of these early adopters affirmed that it actually increased their profits.
However, even if currently most FMCG firms are dissatisfied with the initiatives they have no choice but to
implement Omni channel efficiently as 81% (Ernst & Young, GCF, 2015) of the firms that did not yet
implement omni-channel logistics confirmed that they need to switch their l&SC from traditional to a hybrid
or omni-channel.

Challenge of supply chain complexity


In order to stay competitive, firms in the FMCG industry are not only reaching across the globe for
consumers but also scattering their supply chain throughout the world. For instance, Nestls Coffee
production in Latin America, Africa and come areas of Asia (Nestl S.A., Public Affairs, 2014)! However,
LOreal produces different goods in different products more adapted to its different geographical
customers. For instance, Indian Colossal Kajal is produced and sold mainly in India while BB cream
mainly produced and sold to Koreans (L'Oreal, 2016) .
These kinds of practices embodying Omni-channelism have made the supply chain much more
complicated that it should be leading to bloated inventory levels as well as reduced margins. In an
efficient supply chain it may be difficult to have Omni channel practices. Many established players argue
that one way to combat this issue is to march on with a single view of customers. However, this is only
applicable to firms that offer standardized products such as Coke. However, in case of highly customized
products, one may argue that decentralization may be a better catalyst to adopt Omni channel practices.
For instance, P&G have national and regional commodity teams for better management (P&G, 2016)!

Limitations of siloed organizational structures


Companies can no longer operate in silos or even bolt in new companies without integrating them. 97 %
in the FMCG firm argue that it is important to be integrated with other entities in the SC network (Ernst &
Young, GCF, 2015) and therefore it would be possible to embrace Omni-channel logistics and embed in in
their overall strategy.
In order to be completely integrated, firms should target to have a customer centric supply chain.
However, only 5% of these early adopters in the FMCG industry consider themselves as established in
Omni-channel L&SC (Ernst & Young, GCF, 2015). Remaining 57% are still implementing this new
procedure while 38% are still in the introductory phase. Therefore, it is not unusual for the firms to still be
immature and have different perspective about customer centricity or even customer-related objectives.
Lack of senior leadership support
This leads to the next major barrier that could have eliminated the forth explained barriers: Senior
Management/Leadership and their role during this transition. Not everyone in the SC network will react
positively to these Omni-channel related changes, so leadership must create the impetus for change,
resolve conflict and overcome organizational inertia. Currently, 37% of firms in the FMCG industry agree
that senior leadership is a barrier to implement Omni-channel logistics (Ernst & Young, GCF, 2015)
In addition to these issues, firms also experience a huge cultural shift from this disruptive practices. In
order, to fight these issues, established FMCG firms advise to have KPIs directly related to these changed
practices. This is because this will force efficiency as well as employees will have a stronger sense of
commitment towards the new SCM channel structure.

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Another potential solution is to embed the end-to end thinking throughout the supply chain network. For
instance, 3PLs(third Party Logistics) have revolutionized their last mile delivery services with the help of
senior leadership support as well as new way of thinking. Amazon have implemented the locker system
and even Google have Google Express Service (Deloitte, 2015) ! Therefore, Leadership support can help
the FMCG firm eradicate most of the barriers. It is the main barrier to consider and the first one that
should be tackled!

Managerial Implications
This study has various managerial implications. However, a very important enabler of the Omni-channel
logistics is a Plan of Action related to the change-over process. For instance, if part of a
component/process relating to Omni-channel logistics is being implemented, the firm should ensure that
everything is becoming more productive. This can be done using the PDCA cycle.

Action Comments
s Each Findings have
Act Plan Plan
All the implementation are planned previously serious managerial
based upon requirements implications.
Do All the implementations are according to plan Objective 1: To analyze
and done in a systemic way the current situation
Check All the implementations are done in the correct concerning the Omni-
way and the new system is producing in a channel logistics for
satisfactory early adopters in the
Check Do manner(According to objectives)
Act In case, mistake /issues are identified, it is being FMCG industry
remedied (jidoka) Currently, 5% of the top
players have already
established a competitive omni-channel logistics strategy and 81% of the FMCG industry has not yet
implemented any aspect of the FMCG (Ernst & Young, GCF, 2015). However, the firms that are already
using and implementing this strategy have been benefitting from this new phenomenon. Therefore, in
order to stay competitive in this Amazon World, FMCG firms have to also adopt Omni-channel or else
their logistics costs will rocket while catering to Omni-Chanel retailing business model.
Objective 2: Analyze the difference between traditional and Omni-channel logistics and supply chain in
the FMCG context
The differences provides an insight on what tools, systems and management practices that firms in
FMCG should adopt for a more efficient Omni-channel logistics strategy. In order to implement these
components of omni-channel L&SC, the firms may have to invest in technology (Kumicz, 2015). Many
softwares/ERP firms like GK/Retail advocates their software to be including these components.

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Objective 3: Identify key barriers in implementing Omni channel logistics and supply chain in the FMCG
industry
Barriers Preventative Actions
Lack of dedicated Ensure appropriate capabilities and resources used and ready to be in use. For
resources instance, new modules for ERP System should already be available
Level of investment The level of investment is high. However, 38% of the early adopters advocated
required to succeed that in the long run, the profits will increase. Therefore, the only thing the firm
can do is to carefully planned their budget so that it does not get negative budget
variance
Challenge of supply The firm can plan the roles of each entities so that they have a single
chain complexity perspective and objective. Complexity of network cannot be simple as omni-
channel is itself complex. However, communication strategy
Limitations of siloed Firms can also concoct an appropriate communication strategy. For instance, IM
organizational on Lync system or even other VoIP systems.
structures
Lack of senior Intensive training and coaching session should be ongoing with senior
leadership support leadership so that they have the right mentality to implement the change and
new system as well as lead the other employees.

The barriers can be avoided by using appropriate strategy such as appropriate change strategy plan with
preventive actions for each main barrier. The below table depicts how a firm in FMCG can tackle this
issue.

Recommendation
Major firms like Disney and Starbucks have been ruling in Omni-channel retailing. However, not all firms
in the FMCG has to adopt such an agile L&SC strategy. In some areas, a leaner perspective is required.
For instance, agile warehousing is needed to support Omni-channel logistics.
Moreover, customer perception about multi-channel retailing is not yet favorable to a huge extent. For
instance, amongst customers who do not trust drone delivery 72% are concerned about theft and safety
of the delivery package and 60% are concerned about their privacy. Therefore, the FMCG firms cannot
implement such strategies whereby customers are not ready for such services.
Another issue to ponder upon is that Amazon is already pioneering the Beyond Omni-channel logistics
Strategy by moving even more towards customer centricity. Therefore, the firm should adopt parts of the
Omni channel strategy where it suits its supply network the best. This is because while some practice
may be profitable for some customer it may not be for other cases. For instances, drone delivery may be
applicable within a certain geographical areas. For instance, educated and informed customers such as in
developed economies would be more applicable as well as profitable. However, it may also be profitable
for countries like India where traffic jam can be a serious issue in certain areas.

Conclusion
The report provides an insights on the Omni-channel L&SC based on the three objectives. However, one
should note that the tools, barriers and key differences may change according to technological changes
as well as consumers perception. Capital investments and money spent by end-customers also plays a
big role. For instance, some firms like Mink, have been selling make-up via 3D printing machine.
However, this is not globally accepted in a large scale because of the capital investments by both the
supply chain network entities including the end-consumers.
Therefore, Omni-channel L&SC explanation may change over the next few years and firms will have to
adjust to the new ways of dealing with the new systems to survive the competition and keep costs lower
than competitors.

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