1.2 Opening Story: The 21st-Century Omni-channel Challenge

August 31

Emily Weise, Director of Logistics at Olympus Inc., a leading global consumer packaged goods (CPG) company, approached the C-Suite—CPG’s name for the corporate board room—with a sense of curiosity. Just last Friday, Susan Ford, CEO of Olympus had stopped by Emily’s office to invite her to lunch. Susan was a little terse, saying simply, “I’d like you to join a few members of the strategic steering committee for a working lunch. We’d like to discuss the question, ‘How well are we progressing our quest to meet the 21st-century omni-channel challenge?’ and explore the logistics capabilities we need to support our competitive strategy. See you Thursday.”

As Emily entered the C-suite, she smiled. The salad buffet was ready, but no one else had arrived. Emily always came to important meetings a few minutes early so she could sync her computer to a conference room’s technology system. If any questions came up that required a deeper dive into the details, she liked to go straight to the data. Long ago, Emily had learned that preparation translates into credibility. She often told her logistics team, “If you don’t have the numbers, it’s just your opinion.” On the weekends, she still wore her favorite college cross-country team t-shirt with a logo that said, “Preparation Precedes Power.” Emily had been a member of the national championship team.

As Emily finished setting up, Susan Ford walked in, followed closely by Tim Purstrings, Chief Financial Officer, and Josie Wales, Chief Marketing Officer. After everyone had assembled a salad, Susan shared what was on her mind, saying, “Last week, I met with John Furner, CEO of Walmart U.S., to talk about ‘Walmart Grocery’—Walmart’s growing effort to blunt Amazon’s dominance in online retail. I was one of several CPG CEOs in the room. John shared his vision for profitably rolling out store pick up and home delivery. But, he also wanted creative ideas on how we can help Walmart beat Amazon to same-day delivery of goods ordered online.”

“The discussion piqued my own Internet interest. I first took notice of online retail about 20 years ago. As the Internet began to emerge as a viable distribution channel, Home Depot sent suppliers a letter warning them not to try to go direct to end customers via the Web. Since no one knew what the rules of online retail looked like the letter caused quite a stir. We’re still not ready to sell our product directly to end customers, but we do know one rule: To survive, we have to manage two very different types of distribution channels—one exemplified by Amazon and the other by Walmart.”

“Let’s open this discussion up. What are your thoughts on our strategy—and our capabilities? Specifically, what logistics capabilities do we need to be a leader in both online and bricks-and-mortar distribution channels? I don’t expect detailed answers today. Our goal is to reignite the discussions you’ve already been having with your teams. Omni-channel distribution is not going to go away.”

Josie was quick to speak up, “Susan, you’re right about the need to evolve—and maybe revolutionize—our capabilities. But, it’s not just logistics capabilities we need to worry about. Omni-channel is affecting every aspect of the supply chain. We’ve seen some fascinating realignments of relationships in recent years. Consider just two of Amazon’s relationships.

1. Do you remember the firestorm that erupted between Target and P&G a couple of years ago. P&G opened its distribution centers (DCs) to Amazon to help Amazon get diapers and paper towels to customers faster and cheaper. Target was pissed, stripping P&G of its role as Category Captain in several categories. Target promoted P&G’s rivals in order to help them win share and to put P&G in its place for enabling Amazon. We don’t want to get caught up in that kind of fight!

2. Focusing more on logistics, did you ever imagine Amazon and FedEx would break up? Or that UPS would cozy up to Amazon even as Amazon was launching its own last-mile delivery operations to compete directly with UPS and FedEx?

It seems like everything is still in flux as companies try to build the infrastructure and supply chain team to win the omni-channel battle.”

“You’re right, Josie,” Tim agreed, “We’re not P&G. We can’t afford to tick off any of our retail customers. We need every partner up and down the supply chain to want to work with us. The rules of engagement, however, aren’t clear. Think about this reality. The growth is online, but the money is still in bricks and mortar. This is true despite the accelerating effect of the COVID-19 lockdown." Tim paused briefly.

Continuing, Tim emphasized, "Online sales exploded during the pandemic. Everybody ramped up their e-commerce efforts, causing Amazon’s share of online spending to actually drop during the early stages of the pandemic, from 42% to 34%.1 In 2020 e-commerce still only represented about 20% of U.S. retail sales (see Figure 1.2). Even as the dominant player, Amazon captured only 7% of total retail sales. What do the numbers mean? Despite the distress among some bricks-and-mortar retailers, physical stores still matter. If we want to remain relevant, we need to be able to win in both games.”

It was Emily’s turn to chime in: “Tim, a deeper problem exists. One reason Amazon dominates online retail is that Jeff Bezos has never made profit a priority. Bezos insists that Amazon act like a feisty startup. His goals: Innovate aggressively and expand relentlessly. Our bricks and mortar customers couldn’t survive on Amazon’s persistently skinny profits. Investors would revolt! One result: Our traditional retail customers haven’t built the logistics infrastructure to compete in an online environment. If the prognosticators are right, 30% of existing retailers won’t survive the next year or two. Think of that. One out of three will disappear in the next 24 months.” Emily paused for effect.

Continuing, Emily said, “Maybe that’s why Jeff Furner hosted last week’s listening session. Jeff knows that even the world’s largest company by sales needs to get out of the box. Did you ever, for instance, think that Walmart would partner with Shopify? Clearly, Walmart knows it’s no longer business as usual. Jeff is signaling that Walmart is willing to try new things. It’s been experimenting with new ways to pick and ship from stores, including click-and-collect and home delivery. Is there a way we can help Walmart leverage its infrastructure, or our infrastructure, to meet customers’ changing expectations? Can we help Walmart deliver faster and at lower costs to keep the profit squeeze on Amazon? Can we do it without ticking Amazon off?”

The discussion was just getting started.

Consider as you read:

1. How does logistics create value? What capabilities are needed to compete in online versus bricks-and-mortar settings?

2. What tradeoffs do you see in the strategy-development-and-execution process at Amazon, Target, Walmart, P&G, and Olympus?

3. How important is change management as a logistics and supply chain capability? What role does it play in the strategy-development-and-execution process? Are you an effective change agent?