Is your Omni-Channel Strategy Driving Your Customers to Shop A Competitor?

Top performing wholesalers are addressing emerging B2C/B2B type order flows by automating ‘once manual processes.’ Online consumers and ecommerce are redefining the fulfillment landscape, and wholesalers are flocking to open B2B/B2C online ecommerce order portals to automate once manual flows. Forcing your customer to place orders through your website may be counterproductive and open the door for web browser based pricing comparisons. Caution, ask yourself: Is Your Omni-Channel Strategy Driving Your Customers to Shop Your Competitors? There are numerous new costs and challenges (such as B2C split case each picking and free 2 day delivery, see next section) but also some overlooked advantages. Solutions that address this challenge must provide a unified customer experience through the whole order management process even though they use diverse systems and many partners to complete the order. The data flows and applications must be tightly integrated and IS YOUR OMNI-CHANNEL STRATEGY DRIVING YOUR CUSTOMERS TO SHOP A COMPETITOR? September, 2015 Wholesale companies are launching websites and order portals to address new order types under B2B/B2C convergence. But encouraging your customer to place orders through your website may be counterproductive and encourage web browser based pricing comparisons. Leaders are reducing order touches and finding hidden ROI with sales order automation.  Bob Heaney, Research Director, Supply Chain Wholesale/Retail Top Performers are 3.5x more likely to automate once manual email/fax/ orders via B2C customer portals www.aberdeen.com provide a highly automated (not manual) flow of information across numerous business system/areas and provide a seamless customer experience. The B2B/B2C Omni-channel Call to Action 87% of Wholesalers are trying to address eCommerce and multi- channel or cross-channel demand. In a companion research report (Business Transformation in Wholesale Distribution - Why it is a Critical Time to Invest) we learned that new order-to- delivery flows originating with the growth in omni-channel are bringing new challenges that include:  Proliferation of order types and inventory streams – the number of ways and channels through which an order can be processed has exploded, with many companies/systems not keeping pace.  Order density is increased – under B2B and B2C convergence, companies are taking more orders to ship the same volume. For instance for “DC bypass” and “drop ship” traditional B2B are allocated into B2C orders. Not only has the number of orders increased, but the terms for an order have become more complex, and fall outside the capability for traditional B2B EDI or automated interfaces.  Order-to-delivery cycles are compressed – as wholesalers add ecommerce portals and try to match the same day and 2 day delivery cycle of Amazon. As a result, manual order handling is introducing new processes for order-to-delivery flow, and organizations are beginning to understand added cost. The top 30 companies, with the highest levels of automation, do a better job at addressing these challenges. They are also better at key cost and service metrics (see sidebar Leader Advantage). Leader (top 30%) Advantage Versus less automated Followers (remaining 70% of companies): • 95.4% of orders delivered to customers complete and on time outbound vs 86.4% of Followers • 94.6% of orders received from inbound customers complete and on time vs 84.8% of Followers • -0.5% decrease in total landed per unit costs in the past year vs +8.5% increase for Followers • -7.5% decrease in the frequency of out-of-stock inventory in the past year vs .9% increase for Followers 95 Wholesale Companies Total www.aberdeen.com Top performers are 1.9-times as likely to segment by customer and order type. They work to automate once manual processes and are 2–times as likely to invest in process and technology. These advanced capabilities and strategies lead to balance and superior metrics. Factors and Considerations B2B/B2C Convergence Our research has documented the increase in both the scale and complexity of order flows and delivery cycles. The growth in offline, more manual B2C orders raise renewed challenges to profitability and cost under B2B and B2C convergence. Factors and concerns include:  80% of wholesale distributors say that they are concerned about the impact to costs and profitability with more B2C orders  Increase in order density and the growth in B2C order types  Labor/shipping costs due to the introduction of more split case quantity fulfillment and parcel delivery  Compression in the order to deliver cycle time that comes with matching same day and 2 day delivery for the new B2C orders  Manual and special offline processing as traditional B2B EDI systems are supplanted by more complex manual flows like email/fax and phone orders These factors result in bifurcated processes, special handling, and added costs. In the next section we discuss how wholesalers have utilized automation to address order volumes, compressed order-to-delivery cycles, and cost. Touchless Orders and Cycle Time One grocery wholesaler increased its number of touchless orders from 10% to over 60% with 100% order accuracy and 12% improvement in fill rates. The move to touchless orders also allowed for a reallocation of the customer service function. By automating routine low-value transactions, customer service employees were liberated to focus on phone and rush orders, exception handling, and problem solving. Over a 2 year period, the sales order automation solution reduced order cycle time by 35% and improved cash-to-cash conversion by over 70% www.aberdeen.com Highest Shift in sales order automation is in B2C Web Portal Over the 3 year period from 2011 and 2014, between the Top 30 2014 Automation Leaders and Bottom 30 2011 Followers, there has been a decrease in the level of manual order levels. In the 3 year period the number of wholesalers processing manually (email /fax /phone) decreased by:  34% on B2B orders  24% on B2C orders This decrease in manual order processing levels is the byproduct of a corresponding increase in business and customer adoption of websites and portals. Here the Top 30 Automation Leaders in 2014 are:  350% more likely to automate via portal for B2C orders  333% more likely to automate via portal for B2B orders …compared to Bottom 30 Automation Followers in 2011 Hence, the highest shift in automation, at 350% higher levels, is the shift to automation via portal for B2C orders. A disadvantage of a customer web portal is that, particularly for B2B customers that use a purchase order to receive against, it requires item by item entry into the web browser and encourages competitive shopping:  B2B customers would prefer not to enter the information both into their own purchase order system and then turn around and reenter line by line using the seller’s web portal. Manual Sales Order Automation To reduce the redundant keying of orders and PO information, wholesalers often decide to supplement the current user process and convert email and fax formats into XML or other defined electronic metadata and transmit it to the order management system. www.aberdeen.com  Any customer using the browser based portal is a target for shopping banners, for specific items and prices, with links to buy from a competitor’s shopping website.  Product items and descriptions are saved in cookies which can later be marketed by search engines like Google and Bing to target and entice your customers to comparison shop. As the volume of manual B2C/B2B orders flows has increased under omni-channel commerce, sales order automation is growing in importance. To reduce the redundant keying of orders and PO information, wholesalers often decide to supplement the current email/fax/order creation process by using an automated solution that converts each format into xml or other defined electronic metadata and transmits it to the wholesaler’s order management system. Hidden ROI of a streamlined cloud-ready automated solution It is a given that more complex labor and process intensive B2C Order are more costly for the myriad of factors we illustrated earlier. The issue of order profitability is further compounded because the time from order-to-delivery is radically compressed. To match the Amazon cycle for same and next day delivery, B2C order-to-delivery averages only 2.5 days (versus an average of 9.4 days for B2B orders.) In Table 1 (next page) we demonstrate an often overlooked and misunderstood hidden benefit of the compressed and more efficient delivery cycle. Cash-to-cash conversion cycle measures the amount of days between the original outlay of cash to purchase inventory and Cash-to-Cash Conversion Calculated as the sum of: + Days Inventory Outstanding (DIO) - the current inventory level and how many days are required to sell this inventory + Days Sales Outstanding (DSO) - the current sales and the amount of days it takes to collect the cash from these sales Less: Days Payables Outstanding (DPO) - the average number of days before inventory debt must be paid back to vendors www.aberdeen.com when the wholesaler actually receives the cash from the customer. The three components of the calculation (defined in the sidebar) are summed together to yield a net negative 12.5 days value for B2C orders for an Automation Leader. Table I: Sales Order Automation impacts Overall Cash-to-Cash Conversion As the table illustrates there can be a favorable impact to the companies Cash-to-Cash conversion cycle. Since B2C sales are delivered for cash recognition in 2.5 days, the “Days Sales Outstanding” (DSO) component is substantially less than the 39.4 DSO for B2B sales on credits. The net result is that inventory sold via B2C orders is not payable to the vendor until 12.5 days after the sales cash is received from the customer. The hidden advantage, or payback, for investing in automation of the order to cash cycle for B2C orders is this -12.5 days of inventory. The Automation Leaders have captured the hidden ROI and advantages. They have:  350% higher likelihood to automate B2C orders via customer portals or sales order automation  2.5 days B2C order to cash/deliver vs 39.4 days on B2B orders bought on credit  -12.5 days Cash-to-Cash Cycle versus +24.4 days on B2B orders on credit  8.3 days overall blended B2C/B2B cash-to-cash cycle versus the Followers/others with more B2B orders, sold Leader Cash-to-Cash Conversion Values B2C B2B Leader 2014 + Days Inventory Outstanding (DIO) 15.0 15.0 15.0 + Days Sales Outstanding (DSO) - Order to Deliver/Cash 2.5 39.4 23.3 Less: Days Payables Outstanding (DPO) (30.0) (30.0) (30.0) Equals : Cash-to-Cash Conversion Cycle days (12.5) 24.4 8.3 www.aberdeen.com with 30 days credit terms, and have an overall cash-to- cash cycle of 43.3 days Key Process Steps and Recommendations With B2B/B2C Convergence, new, more complex order flows are both complicating and accelerating the speed of business. This paper presents several complementary ways in which manual order flows can be automated. Below we present several steps and recommendations.  Build a system that automates B2B and B2C order flows – The automation leaders are 2–times as likely to invest in technology and are capturing new efficiencies in order-to-cash and cash-to-cash conversion cycles.  Recognize the needs and preferences of your customer - While B2C/B2B portals are necessary, they often require double the work from your customer and can lead to competitive shopping. You will still have manual order types and customers who require POs to receive against and do not want to change from emailing or faxing their orders. In these instances, consider alternative automation solutions as discussed in the next step.  Understand the complementary sales automation solutions - Leading companies complement e-portal solutions while reducing the propensity to comparison shop. They are streamlining the email/fax PO delivery process in use by their customer today and simply leveraging an automated, cloud-ready solution to transform the metadata and update the order management system without manual process or intervention. By automating B2B and B2C order flows by customer you can improve order throughput, obtain 100% accuracy, and reduce manual intervention. You can also compete with 2 day delivery standards to capture the hidden ROI associated with negative cash-to-cash conversion cycles www.aberdeen.com  Capture hidden ROI and Order-to-deliver efficiencies - By selecting the proper way to automate B2B and B2C order flows by customer you can improve order throughput, obtain 100% accuracy, and reduce manual intervention. You can also compete with 2 day delivery standards and hence capture the hidden ROI associated with negative cash-to-cash conversion cycles as illustrated in this report. 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