Last updated: Omnichannel fulfillment: Definition, benefits, strategies

Omnichannel fulfillment: Definition, benefits, strategies

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COVID-19 isn’t the world’s first global pandemic, and it certainly won’t be the last unpredictable disruption to life (and business) as we know it. Be it a pandemic, economic event, political upheaval, or change in consumer behavior, companies need to be able to respond to changing market conditions quickly and flexibly.

When COVID-19 brought more and more shoppers online, for example, retailers saw a huge increase in demand for fast and affordable delivery options.

So how do you prepare for the unexpected?

Having flexible, omnichannel fulfillment options at the outset allows companies to adapt quickly and sets them up for success, even in the most challenging market conditions.

What is omnichannel fulfillment?

Omnichannel fulfillment is an approach to order management that integrates various selling channels to efficiently fulfill and distribute customer orders.

This strategy allows for quick, flexible fulfillment across all the channels customers use to purchase products, which boosts customer experience and operational efficiency.

Unlike traditional multi-channel order fulfillment, where each channel operates independently with its inventory, omnichannel fulfillment uses a centralized inventory system. An omnichannel fulfillment process is designed to meet consumers’ changing needs and prevent inventory issues like overstocking or overselling.

Executed well, it drives business growth through better shopping experiences, customer retention, and satisfaction.

Why is omnichannel fulfillment important?

Omnichannel fulfillment is an essential strategy for retail business: It directly impacts customer satisfaction and business efficiency. Key reasons include:

  • Improves inventory management: A centralized inventory control reduces overstocking and overselling, leading to more efficient stock utilization.
  • Boosts efficiency and reduces costs: Omnichannel fulfillment streamlines order processing and optimizes delivery routes, improving overall operational efficiency and reducing logistical costs.
  • Increases operational flexibility: Helps retail business quickly adapt to changing market conditions and customer demands, providing various fulfillment options like in-store pickup and diverse shipping methods.
  • Enhances customer experience: Offers a consistent, flexible shopping experience across various channels, meeting customer expectations for convenience and speed.
  • Supports business expansion: Helps brands discover new sales channels and market opportunities with little disruption to existing processes.

Omnichannel order fulfillment integrates different aspects of retail operations, making it a critical component for staying competitive and responsive in the hyper-competitive retail industry.

3 key advantages of omnichannel order fulfillment

Above all, brands need to be agile and flexible to tackle whatever new challenges come their way. Having a comprehensive system for order management and fulfillment is foundational to that agility, providing three key benefits:

  1. Increase delivery speed
  2. Reduce delivery costs
  3. Ship globally, not just locally

Let’s drill down into the details of each.

Faster delivery: Closer to the customer the better

Distance is key to fast delivery, and presents unique challenges.

Companies that can ship products from a location nearest the customer will secure an advantage when it comes to speed.

For those who have more than one nearby location that could process the customer’s order, you may also want to factor in labor availability based on the number of “open” orders that still need to be picked and packed.

Also consider that the closest location may be a third-party logistics (3PL) company or drop ship vendor (DSV). In this case, you’ll need to think about whether you want to prioritize a 3PL over your store network, or a store over a DSV.

For enterprises that have invested in modern distributed order management, designed to adapt and scale rapidly, these calculations can be made quickly and easily, without sacrificing profitability.

Unlocking the right combination to reduce delivery costs

Often the best way to reduce delivery costs is to ship from the closest in-stock location to the customer, and while this is a good approach, there are other factors to consider.

What if the closest location is a store, but there is also a distribution center (DC) nearby? Given that DC fulfillment is more efficient, you’ll want to make sure you can easily ship from the DC over the store if the two in-stock locations are within a similar distance from the customer.

But what if there’s a closer location that’s expecting a new shipment of inventory that will arrive in time to meet the customer’s expectations? Then you’ll want to source the order from a location based on future stock availability.

You should also consider how busy the store is. If the closest store has a great sell-through rate, but the second closest one has poor foot traffic, it might be better to dispatch from the second closest store so the lesser performing store can still sell their stock and the well performing store doesn’t run out.

Other factors include split shipments. While they can help get items to a customer faster, and eliminate the need for order consolidation, they’re still not great for margins as you’re paying to deliver twice. It also isn’t good for the environment.

So, it’s important to balance speed and profitability by using rules to minimize split shipments, and/or set a minimum order value for split shipments.

Finally, if you have special, pre-negotiated contract rates with carriers for certain types of items (like oversized, bulky, or high-volume items), you’ll want to specify rules for which carrier can be used for shipping which items.

In this case, the most cost effective delivery method may be to split an order so a lightweight item is shipped via standard carrier, and the bulky item is shipped via special carrier. And ideally, you would try to group customers in a similar area and deliver all their orders on the same day.

The key to smart, omnichannel order fulfillment is to figure out the most efficient combination of all the factors.

Ship globally, not just locally 

When enterprises first start to ship globally, they typically ship all orders from their home country. But as businesses expand, that can change.

There are two approaches to global sourcing:

  1. In-country business unit autonomy: Here, you source all orders from a location in the same country in which the order was placed. This allows in-country business units to customize sourcing rules and fulfillment logic based on local consumer preferences and provide a differentiated experience that can give them a competitive advantage.
  2. Global expansion or business continuity using regional fulfillment hubs: This involves setting up a fulfillment hub in key geographic regions, and sourcing orders from the hub closest to where they are was placed. As a brand enters new markets, it can use the regional hub to fulfill orders from the new country until a local presence is established, at which point, it might want to ship from an in-country store to reduce costs and speed delivery. This approach lets you test demand in a new market before setting up a distribution network.

Regional fulfillment hubs can also be used to ensure business continuity. Since all hubs are set up to support international shipments, if one closes, perhaps due to a power outage, orders can be automatically sourced from the next closest hub.

The downside to this approach is the increased delivery time and complexity associated with customs processing and cross-border returns. In-country business unit autonomy eliminates the need for cross-border shipping and returns, simplifying operations and providing faster delivery, but with a bit less flexibility.

Find a system that fits your business

Every enterprise is unique and the factors you need to consider depend on your customers, margins, and products. There’s no one size fits all approach to speeding up delivery without compromising on profitability. To do this successfully you need a highly flexible, agile omnichannel order fulfillment system.

Embedded in a composable, headless architecture, you truly get the best of both worlds: the customization of an “in-house build” and the reliability, adaptability and innovation of best of breed software solutions.

This allows you to calculate multiple variables quickly and apply the best strategy to every order.

That way you can continue to provide a great customer experience, while being able to respond to supply chain impacts and changing market conditions.

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