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Increase Profitability in Digital Channels with Distributed Order Management

Leo Muid
Jan 17, 2025

Even though digital commerce has significant potential for high profitability, there are still a variety of e-tailers who have been struggling with strong headwinds. For most e-tailers, the primary strategy is to increase the profitability at scale. However, this strategy comes with several challenges.

  • Buying more traffic can lower the quality of this traffic and reduce conversion rates.
  • Competitors are driving the same thesis and will compete for the same clients.
  • The recent economic climate has slowed down growth in most sectors.
  • Perhaps most importantly, many costs will not decrease with scale but rather increase. Pick & pack, fulfillment, reverse logistics, and return costs will likely grow at the same pace or more than turnover growth.

If selling more isn’t an option, selling smarter is essential! You don’t make a profit on the first items you sell but on the last ones. Therefore, you must optimize and sell your entire inventory from the most cost-effective location with as few price reductions as possible.

When speaking with clients, many don’t initially see any major issues with Order management. However, after exploring capabilities and alternative ways of working, we often find numerous opportunities for optimizations within distributed order management. In this blog, we will share our perspective on how to:

  • Take control of your sellable inventory
  • Optimize sourcing & fulfillment.
  • Improve and drive CX journeys.
  • Increase Sustainability without interfering with the margin.

Take control of your sellable inventory

To drive successful digital commerce, you need to ensure you know what products you can sell. The importance of this can vary based on the cost of products, seasonal products/fashion cycles, return rates, the number of fulfillment locations, etc., but it will affect all e-tailers in some way.

It sounds simple, but can your company calculate what is available to sell if you include e-com inventory, warehouse inventory, store inventory, in-transit replenishment, returns (planned, in transit, in warehouse processes), and products in basket/e-basket?

What is then your available-to-sell stock balance?

Furthermore, the system must calculate an accurate sellable inventory in near real-time and simultaneously support several different channels with available-to-promise (ATP) checks in microseconds. On top of this, you must add some intelligence to the inventory with certain business rules. For example, how can you override the safety stock rules if certain criteria are met to sell the very last product at hand in stores? By increasing the accuracy of the stock levels, you can significantly lower your safety stock and hence sell more of your inventory without jeopardizing the risk of overselling.

Once you have better control of your inventory, you will significantly reduce underselling/overselling, thereby improving the NPS and reducing customer service calls. Make the sellable inventory a fact-based business decision rather than an assumed number.

Optimize Sourcing & Fulfillment

Once we know where we have these products, we can start to evaluate the most cost-effective way to fulfill these orders or allow customers to pick them up from stores or surplus inventory locations. How can you use these insights to optimize sales across all channels? Apply rules around your inventory so that you can take calculated risks in the sellable inventory balances you calculate and thus sell the last items, which often means 100% profit margins as the costs have already been carried by the first products.

Through transparent ATP (available-to-promise) controls, we can guide customers toward the most cost-effective, and sustainable fulfillment options. Split shipments can be managed and aggregated to achieve a single delivery to the customer. Furthermore, the pandemic and the subsequent component shortage and shaky supply chain have shown that flexibility is required in the fulfillment process.

When sourcing fails and we have oversold an item, ensure the best action is automated. For example, prioritize orders to critical channels like Amazon to avoid penalties for unfulfilled promises.

Improve and drive CX Journeys

There is a misconception that OMS processes start when an order is placed. Many areas of pre-purchase can improve significantly by improving your order management processes. Transparency will create opportunities both for better customer experience as well as guidance for improved margins and reduced cost of fulfillment.

There are several ways to influence fulfillment costs without jeopardizing the customer’s journey. For example, can we influence customers to place orders that can be delivered from the same distribution center, thereby reducing the number of deliveries? Can we drive different strategies for membership/membership levels, i.e., only offer free shipment/returns for club members or member levels?

Historically there has been a fear of touching the free delivery/return policies since that will have a significant impact on the conversion rate. Recently, more and more e-tailers have changed policies, but our investigation shows that there is still a lot to do in this area to offer more personalized and optimized fulfillment and return strategies.

Increased Sustainability without interfering with the margin

Sustainability comes in many shapes and forms. Optimizing the order management processes can significantly improve various areas that impact sustainability. Examples include:

  • Reducing CO2 emissions due to optimized fulfillment and giving customers the option to choose delivery not only by speed but also by cost as well as emission footprint.
  • Using these optimizations to reduce waste due to fewer returns and consolidated orders.

Adapting to new models in sourcing and fulfillment should be a configuration/automation of processes rather than a project.

Capgemini’s Expertise: At Capgemini, we bring extensive experience in helping clients in retail, grocery, and consumer product sectors achieve their digital commerce goals with tailored strategies and solutions.

Author

Leo Muid

Global Fulfilment Lead, Director in Digital Customer Experience
Leo is a Director within Capgemini’s Digital Customer Experience organization, bringing over 20 years of experience in Retail and Consumer Packaged Goods (CPG) sectors. As an Enterprise Architect and CTO adviser, Leo specializes in Technology Strategy and Digital Transformation. His expertise encompasses Order Management Systems (OMS), retail operations, digital supply chains, and eCommerce. As the global lead for Capgemini’s Order Management capability, Leo has architected and delivered digital supply chain transformation programs for both UK and international retail clients.