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Sonal Sinha

Supply Chain

Managing Supply Chain Risks in Multichannel Selling and Customer Fulfillment

No matter who in the supply chain is at fault, the buck stops at the seller

Published: Tuesday, April 22, 2014 - 15:21

Traditionally, brick and mortar stores have been the primary, and often only, way for companies to sell their products. But with the advent of e-commerce, mobile commerce, and social media, companies have the power to reach consumers through multiple sales channels, across geographical markets, and in the fastest time possible. And they have to.

Today’s consumers shop wherever they want, whenever they want. They use online sites, mobile phones, search engines, price comparison apps, product review pages, and social media feeds to find the best deals. They also expect products to be delivered to them conveniently and quickly.

Visionary companies such as Amazon are striving to stay one step ahead by devising innovative delivery mechanisms, such as the much-anticipated Amazon flying drones. Others are introducing cutting-edge mobile and social wallets and new online payment methods.

Yet with each of these developments comes more risk, especially with regard to the supply chain. Companies are increasingly relying on their suppliers to manage various customer fulfillment channels such as call centers, or to fulfill logistical needs in various geographic markets, or to directly provide products to consumers through drop shipping. These complex supplier networks introduce multiple risks that, if left unchecked, can severely impact a company’s profits, brand, and reputation.

Let’s look at some of these risks. But first, a brief glimpse into how multichannel sales and customer fulfillment channels have taken the world by storm.

Multichannel customer fulfillment: The upside

According to a recent survey by MHI and Deloitte Consulting, more than 90 percent of retailers plan to continue investing in multichannel capabilities, and 74 percent actually expect their investments to increase during the next three years. It’s easy to see why: Tapping into multiple sales channels can provide more opportunities for additional sales, while also improving a company’s brand exposure and recognition.

Multiple sales channels also expose a company to many more potential customers. Take the example of public marketplaces likes Amazon and eBay. Amazon has 237 million active customers, and eBay has 233 million customers. Selling products on these websites significantly improves a company’s chances of attracting more eyeballs—and more sales.

In addition, when a company depends on many channels instead of one supplier or one sales outlet, it is better positioned to distribute its risks and protect itself against the ups and downs of business.

But perhaps the most important advantage of multichannel sales is that it enables a company to be present where its customers are. Some customers prefer to shop online. Others do it via their smart phones. Many still enjoy visiting a store. And some use multiple channels for one transaction—e.g., ordering online, but picking it up at a store.

Even banks are going the multichannel route by introducing Internet banking, mobile banking, and multiple ATM locations to provide a seamless customer experience. In other words, multichannel sales and customer fulfillment are here to stay. But what does that mean for the supply chain?

Coping with the risks of a multichannel supply chain

Serving a multichannel customer requires a multichannel supply chain that is well-equipped to manage the pressures of getting the right product to the right customer—where they want it, when they want it, and how they want it. Unfortunately, most supply chains are not able to handle these new demands in a quick and cost-effective manner.

The biggest challenges come down to quality and performance control. What if a customer orders a product online, but it reaches him in a damaged condition? Or what if delivery schedules are delayed? It may be the supplier’s fault, but ultimately the front-end retailer will be the one to face the customer’s wrath.

The key to effective supplier risk or quality management is to have sufficient visibility over the entire global supply chain. But when you have to monitor hundreds or thousands of suppliers and sub-suppliers across multiple sales channels, things can get murky.

Some companies deal with this challenge by allowing individual business units to adopt their own way of managing their respective suppliers. However, this decentralized approach can result in multiple redundancies. For instance, different business units may end up performing duplicate risk or quality assessments on the same suppliers. A decentralized approach also makes it difficult to consolidate and compare supply chain data at the enterprise level. This kind of overall visibility is crucial in identifying supply chain gaps, discrepancies, inefficiencies, risks, and other issues.

Consistency is another major issue in a multichannel supply chain. How do you ensure that a supplier or a call center is providing services that are consistent with your standards and brand expectations? Customers want a seamless experience across all sales channels—be it online, in the store, or with a call center. They expect that a purchase made at the store will be just the same as one made online. So if they have a good experience ordering online, but face multiple issues when it comes to the delivery, they are likely to not order from the same site again.

Even when it comes to drop shipping, there are multiple risks. No doubt, drop shipping minimizes inventory costs, warehouse space, and delivery resources. But what if there are quality issues or delays in a shipment? A company’s brand and reputation could be at stake.

Then there are data security and privacy risks. As companies expand, many of them outsource functions such as website hosting or credit card processing to various vendors. But if a vendor-hosted website stores personal customer information, it is immediately vulnerable to cyber-attacks, hacking, and even internal fraud. Or if a vendor’s credit card processing application is not compliant with standards such as the PCI data security standard (PCI DSS), it may be unsafe for use in a sales transaction.

Hackers or cyber attackers look to take advantage of the slightest weakness in a network. A seemingly insignificant node or application could be the key to infiltrating the most critical systems. And while many companies place a premium on securing their internal systems as best as possible, they may not be able to extend this level of control over their entire supplier ecosystem.

But ultimately, every company is responsible for its suppliers. If a supplier makes a mistake, it reflects badly on the company that hired it. And when a customer shares a negative experience online—especially in forums such as social media—the news spreads quickly. After that happens, there’s very little a company can do to save face.

Apart from these risks, there are multiple regulatory-compliance obligations that companies must manage, including the Consumer Product Safety and Improvement Act, PCI DSS, consumer privacy laws, Federal Trade Commission e-commerce regulations, Sarbanes-Oxley, and conflict minerals reporting requirements—all of which apply to the supply chain, too. And these are just a few U.S.-based laws. A global supply chain brings with it hundreds of local laws and requirements that vary from one region to the next.

So what can be done?

The good news is that multichannel supply chain risks can be effectively and efficiently managed. Here are a few best practices:

Develop a comprehensive database of supplier risks. Knowledge is power. When you are well informed about the risks in your supply chain, you are empowered to mitigate them before they spiral into major issues. So catalog your supplier risks, evaluate each supplier against these risks, and then categorize them into high, medium, and low risk suppliers. This helps in the effective distribution of resources for risk management, assessments, and audits. For instance, if there is a moderate risk that a supplier is not delivering products on time, you may conduct frequent audits on it, or monitor its performance more closely than others. On the other hand, if the vendor hosting your website has insufficient information security controls, but your website doesn’t actually store valuable information such as customer data, you can afford to be less vigilant about security audits and assessments.

Implement a federated supplier risk management model. A federated model balances a decentralized approach with a centralized approach. This way, individual business units can independently manage their own supplier risks, quality, and performance, while ensuring that data and metrics around these processes are consolidated and rolled up to the management team. From there, they can more easily study the data, and identify areas of concern as well as areas of opportunity.

Leverage supplier risk dashboards, reports, analytics, and performance scorecards. These tools are extremely valuable in tracking supply chain quality and performance across channels and markets.  They also help in slicing and dicing large amounts of supplier data and extracting meaningful insights that enable stakeholders to make informed decisions about their supply chains.

Implement supplier policies. Policies are essential in communicating to suppliers your expectations around quality, performance, information security, sustainability, and social responsibility. Ensure that these policies are regularly updated to reflect business changes, trends in multichannel sales, and upcoming regulations.

Conduct regular audits and assessments. Supplier quality and risk audits are important to keep suppliers on their toes, and ensure that they are meeting the expectations set forth across all sales and customer fulfillment channels. Audits also help in evaluating whether your standards around service, quality, and customer satisfaction are consistent across all channels.

Conclusion

Industry trends indicate that multichannel fulfillment will ultimately give way to omni-channel fulfillment, where companies offer customers a seamless integrated shopping experience across various channels. No doubt, the omni-channel approach will open up exciting new opportunities for sales and revenue. But to get there, companies will first have to take a good look at their supply chains. Only when suppliers are well-governed, risks are well-managed, and performance is well-monitored, can a company truly and effectively take its sales and customer fulfillment strategies to the next level.

Discuss

About The Author

Sonal Sinha’s picture

Sonal Sinha

Sonal Sinha is the vice president of industry solutions at MetricStream Inc., developer of enterprisewide governance, risk, and compliance (GRC) solutions. Sinha is responsible for driving solutions and strategy for MetricStream in consumer packaged goods, retail, and technology industries. She has more than a decade of experience as a risk management, audit, advisory, and compliance leader for consulting and technology companies including Google, Visa and KPMG.

Comments

It's all about ... Logistics

Thank you Mrs. Sinha: it seems that not only the buck but also - and perhaps primarily - the "bus" stops at the seller. I'm an avid reader of Hystory books, especially wars history: the most Authors I read recount how effective Logistics was instrumental to winning battles and wars. There's all evidence therefore that the quality community should look much further than to the mere requirements of the best selling quality management Standards, though they pretend to address risks connected to supply "process"; which seems to me a more appropriate attribute than "chain". Regards.