Struggling to adapt to an omnichannel world

It's a whole new world out there for retailers and consumer goods companies—an omnichannel world, where consumers expect a seamless shopping experience, whether they are buying from a smartphone, a clothing rack in a retail store, or a catalog they receive in their mailbox.

Both retailers and consumer goods companies are struggling to create this shopping "nirvana," and they remain skeptical about the feasibility of engaging in omnichannel commerce while still maintaining margins. Part of the problem, according to a new report from the consulting firm EY, is that retail and consumer goods companies are trying to apply older supply chain models—specifically those created for e-commerce—in this new environment, and they're not working.

The February 2015 report, Re-engineering the supply chain for the omni-channel of tomorrow, is based on a joint survey EY conducted with the Consumer Goods Forum, supplemented with interviews with senior supply chain executives from the world's largest consumer products and retail companies.

The report finds that while Internet sales are projected to increase three times as much as store-based sales, that growth is not translating into greater profitability. Only 33 percent of respondents said they expected to see increased profits from operating under their omnichannel strategy, and only 38 percent said that their omnichannel initiatives have improved their margins.

The source of this disconnect, according to EY, is an inappropriate supply chain design. In the rush to sell products online, companies "bolted on" processes and systems without integrating them with those for store fulfillment. The result has been the spread of inefficient processes and a lack of visibility across sales channels. It is no surprise, then, that 81 percent of respondents said that they did not believe their current supply chain was well suited to omnichannel retailing. About three-fourths (76 percent) believe that supply chain transformation, rather than incremental change, will be required to succeed.

To rectify these problems, companies will need to transform their supply chains, says the report. The authors recommend an array of remedies, including, among others: dismantling channel silos and creating a single, integrated strategy; embedding omnichannel supply chain strategies into overall corporate strategy; prioritizing agility and responsiveness in omnichannel supply chain design while balancing it with efficiency; collaborating with value chain partners to enable seamless visibility and fulfillment; replacing key performance indicators (KPIs); and aligning profit-and-loss priorities with supply chain functions.

To download the report, click here.