COVID-19 Delivers 2020 Clarity for Omnichannel
September 9, 2020 Alex Woodie
The viral pandemic is impacting society in profound and multi-faceted ways. In the consumer goods supply chain, which includes a good chunk of IBM i shops, COVID-19 is forcing manufacturers, distributors, and retailers to get a lot nimbler in a hurry — particularly as it relates to diversifying sales channels and embracing omnichannel fulfillment strategies.
Ecommerce has exploded during COVID-19 and the ensuing lockdowns, as consumers elect to make purchases online instead of venturing into stores, which raises the risk of being exposed to the novel coronavirus. According to Adobe Analytics’ Digital Economy Index, ecommerce spending surged by 78 percent in May 2020 over May 2019. During April and May 2020 — the height of the COVID-19 lockdown — American consumers spent over $153 billion online, which is 7 percent more than they spent in November and December 2019, the peak of the annual end-of-year holiday shopping binge.
By the (hopefully merciful) end of this year, ecommerce is expected to have grown by 18 percent relative to 2019, according to the U.S. Ecommerce 2020 report produced by eMarketer, outpacing last year’s 14.9 percent increase over 2018. However, total retail sales are expected to be off by 10.5 percent this year, a change on the order of half-a-trillion dollars, which shows how much overall damage COVID-19 is doing to the economy. Brick and mortar sales, which still account for the lion’s share of all sales, are expected to be down 14 percent on the year, according to eMarketer.
That last figure highlights the importance of diversifying one’s sales channels, and particularly the need to have a good ecommerce strategy. We’re well into the third decade of buying and selling stuff online, so nobody can say with a straight face they were caught unawares by the shift. COVID-19 is laying bare all sorts of inequities; you can include the dinosaur companies that resisted going online or modifying their processes and systems among them.
Consider COVID-19 a wakeup call on the importance of digital transformation. If you haven’t started thinking about your digital transformation strategy, it might already be too late. The digital natives are restless, and they’re ruthlessly exploiting the market chaos of COVID-19 to gobble up share at the expense of slower-moving rivals. As Microsoft CEO Satya Nadela said in April, “We saw two years of digital transformation in two months.”
For companies in the consumer goods supply chain, digital transformation can mean diversifying one’s sales channels, including supporting an omnichannel fulfillment strategy that widens the ways in which orders can be placed and fulfilled, and getting as close to the end-consumer as possible.
As the CTO of the data integration company Cleo, John Thielens has a good view into the technological particulars that go into supporting increasingly diverse business patterns. According to Thielens, there’s a lot of work that has to be done on the backend, particularly for smaller manufacturers and distributors that want to grow their businesses by selling into emerging online marketplaces.
“A lot of it has to do with whether you’re the big dog or the little dog in the relationships as to the complexity of the data formats you need to accept,” Thielens says. “If you’re the little dog and people are sending you orders and you need to be accommodating, then you need a really rich interface point with your ecosystem so you can be accommodating as a partner. If you hold the power in the channel, then you can actually simplify your integration fabric and say this is the way we’re going to do it.”
The situation is complicated by the fact that big dogs often run two separate fulfillment systems from the same storefront. On the one hand, there is the classic supply chain, where orders are handled by EDI. This is the “vendor central” approach. But these big dogs will also host online marketplaces that do not support established EDI mechanisms, and instead require upstream suppliers to work with a particular API. This is the “seller central” approach.
“So in Amazon, vendor central is classic EDI, just like Walmart,” Thielens says. “They send out purchase orders. They warehouse it. They deliver it, and it’s sold by Amazon. But then the marketplace might be fulfilled by Amazon, it might be drop-shipped, and that’s actually handled by APIs. So you have an API-EDI duality. You see the same thing across a lot of the other vendors, like Walmart and Target. They’ve got a marketplace side and a classic side.”
The marketplace APIs are more open and support greater flexibility in an omnichannel delivery model, Thielens says. They are designed to be tighter, with greater clarity of order status and quicker update frequency, to support the drop-shipping requirements of demanding ecommerce customers. Cleo develops software that helps to mask the difference between EDI and API, thereby allowing manufactures and logistics firms to work with both styles of commerce without making a huge technological investment.
The vast majority of the consumer goods supply chain is still run on EDI; about 80 percent, estimates Thielens. There’s no good reason to rip out an existing ERP system plumbed for an API-based “vendor central” supply chain and replace it with a new system that’s plumbed for the emerging “seller central” system based on APIs, he says.
“Because a lot of the purchasing is still done of traditional work-a-day commodities that go through grocery stores, big box retailers, those current supply rhythms work just fine,” Thielens says. “So there’s no reason to change things just so they’re using a cooler technology. What works, works. It’s more about getting to that long tail.”
The sticking point, of course, is that the long tail is growing. As ecommerce grows, the existing “vendor central” supply chain system, which is centered around APIs generating tickets to load truckloads of goods to be sent to brick-and-mortar stores, is used less frequently. Growing ecommerce favors the “seller central” omnichannel system, which rewards the use of flexible APIs to trigger less-than-truckload (LTL) deliveries of goods on-demand (and we haven’t even gotten to curbside delivery).
“Companies need to be able to grow without having to throw it all away and start over. Throwing that ERP away means retooling their factories with the different controlling embrasure. It’s just hard to justify doing it,” says Thielens, who has worked in the industry for 30 years. “We talk about ‘outside in thinking.’ Think about the outside world and the data surface you have as a company and the extra reach you need to connect to these new pieces of your ecosystem, without necessarily building up a new 18-year enterprise architecture project or a $16 million SAP HANA S/4 implementation. You don’t need to do that. Some people are going to do that. You do that every decade or two. If you don’t need to do that now, you can put this façade in front and we’ll help you get that done.”
Cleo, which acquired EXTOL in 2016, supports the IBM i server with its software, although most EXTOL customers have moved off the IBM i, Thielens says. The company recently shipped a new on-premise agent that can pump logistics data from behind-the-firewall databases up into the cloud, where it can be analyzed, and possibly used for machine learning initiatives.
“We have mostly a cloud offering, but a lot of the data is locked on premise, so we have a little cloud extender agent that can reach down into the databases that live behind the firewalls and kind of securely pump that up to the clouds, so we start to unlock some of that data. We can not only do your B2B integrations, but feed that into your data lake,” he says. “That’s a big part of it too, this legacy modernization, digital transformation façade that we provide, without having to replace the AS/400 with a fancy new cloud ERP. You don’t have to do that. We can just tie into your old AS/400 and that data is still relevant, if you can just get it out of there, and we’re able to really do that.”