Business Strategy: How to Win and Keep MoreCustomers by ......In this study, IDC Retail Insights presents guidance for retailers interested in defining an omnichannel order orchestration,

August 2011, IDC Retail Insights #GRI229602

IDC Retail Insights: Retail Supply Chain, Demand Planning, and Merchandising Strategies: Business Strategy

Business Strategy: How to Win and Keep More Customers by Excell ing in Omnichannel-Driven Order Management and Fulf i l lment

I D C R e t a i l I n s i g h t s : R e t a i l S u p p l y C h a i n , D e m a n d P l a n n i n g , a n d M e r c h a n d i s i n g S t r a t e g i e s

BUSINESS STRATEGY #GRI229602

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I D C R E T A I L I N S I G H T S O P I N I O N

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 vendorstrengths, weaknesses, and fit for your business.

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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.

#GRI229602 ©2011 IDC Retail Insights

T A B L E O F C O N T E N T S

P

In This Study 1

Situat ion Overview 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

The Approach 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 Out look 22

Essent ia l Guidance 24

Actions to Consider................................................................................................................................... 24

Actions for Vendors .................................................................................................................................. 26

Learn More 26

Related Research..................................................................................................................................... 26

©2011 IDC Retail Insights #GRI229602

L I S T O F T A B L E S

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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

#GRI229602 ©2011 IDC Retail Insights

L I S T O F F I G U R E S

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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

©2011 IDC Retail Insights #GRI229602 Page 1

I N T H I S S T U D Y

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 2011Vertical Research Group IT Survey.

S I T U A T I O N O V E R V I E W

R e c e n t T r e n d s

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 brandsgrowing 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.

Page 2 #GRI229602 ©2011 IDC Retail Insights

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 spentconsiderable 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 in-store 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%.

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.


Further, Goldman predicts that Amazon's technology investment will continue to pay off, as Amazon's annual growth rate is projected toaccount 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.

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 improvementsincluding 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 fulfillmentcapabilities, the topic of this report. These capabilities extendedNordstrom's existing systems to help improve service, make more efficient use of inventory, and reduce costs.

P o t e n t i a l I m p a c t

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 third-party 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

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.


to orchestrate the order fulfillment process, optimizing order fulfillment for customer satisfaction and cost.

F I G U R E 1

O m n i c h a n n e l F u l f i l l m e n t C o m p l e x i t y

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


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 Website, allowing us to fulfill online orders from any full-line 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's10Q report filed August 9, 2010)

Nordstrom's improved business performance is directly related to itsemployees' 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.

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.

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.

The bottom line is that retailers say that tying online and in-store inventory together lets them sell more products to more customers.


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

F r a m i n g t h e A l t e r n a t i v e s

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


● Buy-anywhere capability for shoppers, with cost/service-balanced options for shipping or pickup

● Fulfill from anywhere profitably, with seamless drop-ship, ship-to-store, 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 onmobile 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 in-home/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.


F I G U R E 2

O m n i c h a n n e l O r d e r O r c h e s t r a t i o n , O p t i m i z a t i o n , a n d

F u l f i l l m e n t C o r e C a p a b i l i t i e s


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


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 orexchanged 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 (in-store 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 available-to-promise inventory

● Improve inventory data accuracy through the application of sound business rules and processes

● Enable new in-store processes that reserve inventory


● 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.

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

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.


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 requirementsmanagement, 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

Fulfi l l

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 deliveryinstructions

● Ability to dialogue with customers regarding shipping options, should a change be required

● Basic functions include options to track inventory, allow backorder, 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.


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.

T A B L E 1

S u m m a r y o f O m n i c h a n n e l O r d e r O r c h e s t r a t i o n V e r s u s S i n g l e - C h a n n e l

O r d e r M a n a g e m e n t

Single or Independent Channels Omnichannel

Capture 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 Pick, pack, and ship Network visibility including suppliers, third-party

distributors/logistics, and stores


T A B L E 1

S u m m a r y o f O m n i c h a n n e l O r d e r O r c h e s t r a t i o n V e r s u s S i n g l e - C h a n n e l

O r d e r M a n a g e m e n t

Single or Independent Channels Omnichannel

Stores need pick, pack, and ship capabilities

Exception-based reporting and adjustments

Return Limited returns routing — return

to warehouse or vendor

Flexible returns policies — return anywhere

Requires highly automated returns processes


K e y S t r a t e g i c E l e m e n t s

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 rules-based decisions. Figure 3 illustrates how this services layer enables the key integration and data synchronization processes.

Note that Figure 3 makes the processes look rather simple and straightforward, and that is essentially the goal of leveraging service-oriented 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.

One component that will always play a role, however, is the integration services layer that connects disparate applications and processes, synchronizes data, and facilitates rules-based decisions.


F I G U R E 3

I n t e g r a t i o n S e r v i c e s C o n n e c t a n d F a c i l i t a t e

O m n i c h a n n e l P r o c e s s e s


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.


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 fulfillmentinitiatives 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 drop-ships 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 in-store 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


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. Cross-Channel 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.


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 third-party 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 wellbut 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


transportation, workload balancing, inventory, and sales forecasts. The only capabilities Manhattan lacks at this point are an off-the-shelf 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 in-transit visibility of all product shipments from source to final customer destination. Oracle Retail Point-of-Service provides in-store 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 returnsfunctionality enables you to view and update customer orders for product returns through the payment and tendering processes. Oracle Retail Store Inventory Management provides additional in-store 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 Real-Time Scheduler supports the scheduling, routing, and delivery aspects for home delivery of a customer order.


● 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 in-store 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 fromstore. 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


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-the-shelf 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.


T A B L E 2

V e n d o r A p p l i c a t i o n s a n d E x p e r i e n c e : A d v a n c e d O m n i c h a n n e l O r d e r

O r c h e s t r a t i o n , O p t i m i z a t i o n , a n d F u l f i l l m e n t

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


T A B L E 2

V e n d o r A p p l i c a t i o n s a n d E x p e r i e n c e : A d v a n c e d O m n i c h a n n e l O r d e r

O r c h e s t r a t i o n , O p t i m i z a t i o n , a n d F u l f i l l m e n t

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


FUTURE OUTLOOK

Retailers are clearly marching down the path toward omnichannelretailing. 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

The success stories we hear most often today generallydiscuss, 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.


substantially since implementing ship from store three years ago. AllNine 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 customer-facing 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.

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.

Retailers are clearly turning a critical eye to their supply chains as they seek to serve the omnichannel customer more efficiently.


F I G U R E 4

R e t a i l I T I n v e s t m e n t P r i o r i t i e s , 2 0 1 1

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

E S S E N T I A L G U I D A N C E

A c t i o n s t o C o n s i d e r

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.


● 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).


A c t i o n s f o r V e n d o r s

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

R e l a t e d R e s e a r c h

● 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)


● 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)

S y n o p s i s

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."

C o p y r i g h t N o t i c e

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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Business Strategy: How to Win and Keep MoreCustomers by ......In this study, IDC Retail Insights presents guidance for retailers interested in defining an omnichannel order orchestration,