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OR And Omni-Channel Retailing – A Match Made In Heaven

OR and Omni-Channel Retailing – A match made in Heaven

The complex world of omni-channel retailing has introduced a new realm of analytical challenges. I touched on this topic briefly after the San Diego RILA Conference and have had a few months to work on a variety of conceptual designs and modeling approaches.

In this time I have confirmed that the commonality amongst omni-channel solutions is that each solution is unique from the others. The primary objective is to define what it means to represent the complete set of fulfillment channels as a single channel. In other words, all channels appear as a single customer touch point with the retail system.

While demand signals from online and in-store customers are common, considering these demand signals simultaneously and supporting them with a consolidated fulfillment system changes the role and value of the components of the supply chain.

A critical factor of the value equation is the role of inventory. With the appropriate inventory deployment strategy this value extends to every potential holding location and also drives investment in handling capacity. Essentially, the objective is to determine the value of stores to fulfill online orders and the value of central inventory vs. deployed inventory. The true advantage is to assess the potential to virtually eliminate the need for mass markdowns and excess inventory.

Therefore, in the case of omni-channel fulfillment, a typical strategic network optimization formulation will not account for all the business, operations and cost factors. Ultimately, decision makers require a clear understanding of the value of every fulfillment asset, the binding business constraints (handling capacity, storage capacity, shipping capacity) and the profitability of every order class (if not every order).

Competing in omni-channel isn’t just about providing the service. Retailers must consider the value of offering services and understand the impact to profitability and total sales.

This is most effectively achieved in a mathematical formulation that considers the full spectrum of analytical factors in a single model. Solving the strategic model as a precursor to tactical and operational execution provides the most robust platform for long-lasting and impactful decisions.

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