By Ian Hobkirk
Managing Director of Commonwealth Supply Chain Advisors
December 14, 2013
In recent months, there have been some well-publicized articles about retailers like Macy’s, Wal-Mart, and Best Buy who are adopting “omni-channel” commerce strategies, and shipping e-commerce orders from stores. However, much less has been said about the technology backbone that makes these strategies possible. Since omni-channel distribution is still an emerging strategy and many companies view it as a competitive differentiator, these firms are often reluctant to share their technology footprints publicly. Therefore, it might surprise you to learn that a little known genre of software called “DOM” lies at the heart of many retailers’ omni-channel fulfillment operations.
To begin with, let’s define what we mean by omni-channel. A related concept – multi-channel fulfillment – involves selling goods through a variety of channels, including retail, wholesale, and direct-to-consumer. However, in a purely “multi-channel” world, the three major channel are distinct entities, with each store or consumer address having its orders filled from statically-assigned distribution centers aligned with particular geographic regions. Omni-channel commerce adds an additional level of flexibility to both the order capture and order fulfillment options by allowing retail stores to serve as e-commerce order hubs, shipment centers, and pickup points. The biggest implication of this involves using store inventory to fill e-commerce orders, with store associates picking SKUs off retail shelves, packing them, and preparing parcel shipments.
Earlier this year I attended a forum in Washington DC which involved leaders in industry and government coming together to outline a roadmap for the supply chain of the future (www.mhia.org). A big topic at this meeting was the hyper-expansion of Amazon.com, and how businesses could possibly compete on service levels with a retailer that has e-commerce DCs in almost every state. With omni-channel commerce, store inventory doubles as direct-to-consumer inventory, and at times the same service levels can be achieved.
A number of challenges come into play, however, when complex order fulfillment strategies must be employed in omni-channel commerce. Below are just a few of the decisions that the retailer must make to effectively execute an omni-channel fulfillment strategy:
- Under what circumstances is store inventory allowed to be used?
- Will it only be used if the closest DC has no inventory in stock?
- What if there is a more distant DC that could fill the order…does it make sense to fill from the DC or from a closer store?
- If there are multiple stores in the area which could be used to fill the order, which one makes the most sense?
- What stores have already been given a lot of ecommerce orders today?
- How much labor capacity exists at each store to fill the order?
- Which ones might have extra capacity?
- If the closest store only has one of the items left in stock, does it make sense to use it to fill the order, or should the next closest store be considered?
- Which stores are selling this item at the lowest price point, so that the impact of losing the inventory on the shelf will be less painful?
- What if the closest store has the highest retail price-point?
- What if the item exists in the DC, but the customer requests expedited service?
- What should be done if the item can be delivered next day via ground service if filled from the store, vs. more costly air-service from the DC?
- What if there is a chance to ship the item ground from the store, but it means shipping the last unit that the store has in stock?
The decisions can often seem like an endless series of trade-offs, weighing a number of complex criteria to make the best decisions about cost and service. While it may be possible to evaluate all of these options for one or two individual orders, it is impossible for human decision-making to function effectively when large volumes of orders are involved.
Enter Distributed Order Management software, or DOM. DOM is actually not a new technology. It was developed in the early 2000s when e-commerce began to gain momentum, but most implementations at that time were not in true omni-channel applications. The first generation of DOM implementations were often for retailers that needed to decide which DCs to ship product from, or how to handle situations where orders needed to be split between multiple DCs; the concept of shipping e-commerce orders from stores when circumstances dictated was not as well developed as it is today.
Distributed Order Managed software sits between the ERP and WMS systems and makes decisions about how to best fulfill each order. DOM generally has real-time access to inventory databases in the DCs via the WMS, as well as visibility to store inventory, via either the ERP, POS, or other systems. The ERP passes orders to the DOM system, which manages the complex hierarchy of business rules to “source” the facility which will fill the order. DOM must, of course, be heavily configured to define which rules win out over other rules in some of the scenarios noted above. Once the sourcing decision is made, the sales order is passed to the appropriate system for fulfillment – WMS, ERP, POS, or other. Thus, DOM is a vital hub between order acceptance and order fulfillment that can enable complex distribution strategies like omni-channel.
What sorts of companies use DOM? A surprising number actually. As noted above, many companies prefer not to disclose their technology strategies publicly as they relate to omni-channel commerce. Commonwealth has, however, been able to talk to a number of companies about their omni-channel networks. Among the companies currently using DOM to enable an omni-channel strategy are some of the nation’s largest housewares retailers, apparel retailers, department stores, and sporting goods chains. Some of them have had the strategy in place for several years with good success, while we spoke to one retailer who was rolling out the technology just this month.
What companies offer DOM technology? The two best-of-breed vendors with the largest installed base for DOM happen to be WMS providers with complementary DOM systems. It should be noted that DOM is not as mature as WMS, and a successful implementation is highly dependent on tight integration with ERP, WMS, POS, and other systems. Companies should perform their due diligence when evaluating DOM platforms, making sure to verify that the software they are considering has been used for true omni-channel applications rather than in other multi-site fulfillment strategies. Additionally, a number of ERP providers claim to offer DOM-like capabilities through technologies like “Available to Promise” modules. Strictly speaking, DOM differs from ATP systems in that it goes beyond searching for available inventory and actually mapping out a fulfillment path that satisfies a complex set of rules.
Some cautionary notes: DOM is still an emerging technology in many ways; it is not as mature as WMS and ERP applications. Companies considering DOM systems should not simply assume that because a large software provider is offering a DOM module that it has truly been battle tested in their specific realm of business. And since a successful DOM implementation is so dependent on strong integration with other applications (and retailers have vastly different technology footprints), it can be said that no two DOM installations are quite alike. Another point to be aware of is that in many scenarios, DOM controls the allocation of inventory. If all of the systems are not communicating properly with each other, then inventory that should be available might be locked out of consideration for some reason, which can negatively impact sales. As always, companies considering the technology should do their homework and evaluate vendors in the light of their own requirements.
To be sure, there is much more to the concept of omni-channel commerce than simply having retail stores fill e-commerce orders. Concepts like order in store, ship to home, and order online, pickup in store are all major components of this strategy that have their own sets of technology requirements and challenges. However, Distributed Order Management is increasingly becoming a key enabling technology to orchestrate one major component of a successful omni-channel program.