 Hello and welcome back to the sessions on supply chain digitization, the NPTEL course which is being provided to you by the Indian Institute of Management Mumbai, I am Professor Sushmita Narayan. In this lecture, we are going to continue upon our discussion on channel structures and supply chain, where we are going to particularly focus on the concepts of multi-channels and omnichannels. This will be the last lecture also as part of the series of lectures on channel structures, where we have seen the very definitions of channel structures, decentralized and centralized coordination mechanisms, the role of contracts, the meaning of brick and mortar systems, dual channels and now finally, we culminate this discussion with our focus on multi-channels and omnichannels. So, what are we going to discuss in this particular lecture? We shall focus upon multi-channels, get an overview of the same, what are the complexities and how this concept actually leads to the concept of omnichannels and then we conclude our discussion with the focus on omnichannels and an overview of omnichannels. Now, we have already discussed about brick and mortar systems and dual channels, where we have seen how a dual channel strategy is going to consider the benefits of both a brick and mortar system and an online system in order to deliver the final value to the consumers and we can extend this discussion to multiple channels as well. So, in order to look at multi-channels, let us consider a scenario. In this particular scenario, what do we have is a consumer who wants to purchase some product. Let us say the complete order consists of a soft drink and a pack of chips, which is going to be consumed by the person over here. This consumer is located at home and now wants to purchase these two products or these two items together. So, what are the options available to the consumer? Think of yourself as the consumer and you would visualize what are the possible ways in which you would want to make this purchase. When you want a soft drink or a pack of chips or both of them together, how do you approach this particular purchase decision? One of the things that you would be thinking about is what are the channels available to me from where I can purchase. In today's era of platform economy, one of the options available to the consumer is to shop online. And this has become very common nowadays in cosmopolitan cities in the country, especially with the role of quick commerce or 10 minute deliveries happening. This becomes an attractive option for the consumer who may make a purchase by viewing the products on the app, connecting with the retailers who are available through these apps and selecting the product. And once the product has been selected, they will create the order, make the payment or opt for cash on delivery systems. And once this has been completed this order and this order has been placed, the product is going to be fulfilled from fulfillment center or a warehouse. In the case of quick commerce, we also call these as dark stores, which are essentially smaller sized storage locations, which are located very close to consumers. So, the products are going to be fulfilled from the fulfillment centers or nearby locations, where these products are stored. And how is this going to be supplied to the consumer? The delivery is going to be provided by the supply chain, players who could be retailers, who could also be manufacturers or distribution centers who are making this supply to the consumer. Now, this is one of the options available or this is what we can say is one of the channels available for the consumer. This is one option or if the consumer finds it a bit more convenient, the consumer would go to a nearby vending machine. And vending machines also have become quite common place again in cosmopolitan cities. You would also be observing them in large shopping areas such as malls or in offices, educational institutions or other places, where we are able to provide a setup for a vending machine, refrigeration systems so on and so forth. And these have become attractive opportunities for retailers to sell the products to the consumer without the need for a physical store, physical presence of manpower or any such interaction with the consumer. So, here what does the consumer do? The consumer is going to visit a nearby vending machine located near the house, is going to use perhaps an app and make use of the vending machine and make the purchase and pay for the product online and pick up the item. So, this is one of the other options again over here as you can observe the consumer is actually visiting the vending machine. So, is moving out of the home location. So, in terms of travel this is slightly more inconvenient than the first option as in the first option consumer was opting for delivery at home. In this particular option the consumer is actually making a visit to a nearby vending machine. The third option which is possible is going to actually visit a store in a brick and mortar system, pick out the items that is the soft drink and the pack of chips then make the purchase and leave the store. As you can observe over here these are multiple channels which are available for the consumer to pick and choose from and according to preferences, according to convenience, according to interest the consumer may choose these options differently at different points in time. So, for example if this is a person who has just returned home after a long day at work and who is very tired and would like to consume a soft drink and a pack of chips, but there is nothing available at home. The consumer is actually going to go online and make this purchase and opt for let us say 10 minute or 15 minute delivery if it is a case of quick commerce. Similarly, it may not be a case of quick commerce in which very quick deliveries are being made, but it could also be a planned purchase which is the consumer wants to purchase the soft drink and pack of chips in anticipation of maybe this consumption happening at a later point in time. Perhaps there is an event or an occasion on the next day or in the coming days when the availability of this product would make sense and when the consumer can also be sure that they are available at home to pick up these items or someone is present at home to pick up these items when they are being delivered. So, this could be the way in which the consumer actually made the decision of opting for online shopping. In this case, it may be the case that the consumer actually is near a vending machine and it is a very convenient option. The consumer is aware of how to use vending machines, they have used it in the past and they find it interesting or innovative and very convenient in the sense they do not need to interact with anyone. They can see the product before they make the purchase and they can also figure out what are the other options available to them in a physical format, which means let us say I want a soft drink, but I am also interested in other flavors available in terms of soft drinks. If I want a pack of chips, I might be interested in knowing what other types of edible items are present, what other refreshments may be possible and the vending machine acts as a very attractive opportunity because it helps showcase variety of products in a refrigerated system without the need for any human interaction, which might be quite convenient or comfortable for the consumer as well. So, here you can see how the interest of the consumer is driving them towards a vending machine. And in the last option, it may be a possibility that the consumer likes to travel, likes to visit stores and has made a decision of visiting the specific store when the need arose for the soft drink or the pack of chips or it could be the case where the consumer is just visiting a store and happens to look at the possible options of soft drinks and chips available and then makes a decision that they want this product and then they make this purchase. So, over here all of these options are being driven by the nature of interest of the consumer. So, one of the things that we can understand is when the consumer actually visits a specific channel or contacts a specific channel, they would be doing this as per some kind of convenience or interest which are going to be present. And the question finally that one would need to think about is where will the consumer really buy. Now, why is this a question of interest to us becomes more apparent when we look at some of the complexities which happen in multi channels which is the nature of what we are observing over here. That is we have multiple channels in which the products may be available to the consumer. The question arises as to how do we manage the products and the product movement in these multiple channels and this becomes quite complex. What are the complexities? One of the complexities that we can see is let us say there is a service failure which occurs in one of the channels. Let us say the consumer actually came to a vending machine and wants to buy a pack of chips and also the soft drink sees it in the vending machine over here. But for some reason is not able to use the vending machine. Perhaps the consumer is not aware how to use the technology. Perhaps the app which is present on the mobile for the consumer is not syncing with the vending machine properly. Perhaps there are some technical issues due to which even after making the payment, the vending machine does not really open and does not give the product to the consumer. So, these are all technical failures that could occur in this particular channel when the consumer has made the effort of traveling the distance to the vending machine and trying to make a purchase. Let us say that this particular item is not available because the vending machine is not working or the consumer has seen this product is available on the vending machine on the app. But when they actually visit the vending machine they observe that it is not there. So, what is going to happen over here? One of the things that is going to happen is the consumer might not get what they want in this vending machine. And hence they might decide to forego consuming the item altogether which is they might have thought of it as a requirement when they were approaching the vending machine knowing that the vending machine may be able to give this product to them or complete the order for them. But because there is no fulfillment of the order the consumer might actually forego making this purchase altogether. In other words the consumer is going to leave this entire system of three channels and not make this purchase at all. Now, this would actually be a loss in revenues which is going to occur because let us say the vending machine is empty. So, this is leading to dissatisfaction of the customer with the entire purchase altogether. And hence even if the items are going to be available in other channels let us say it was not available at the vending machine, but it was available for a 10 minute delivery on an app which provided online shopping. But the consumer was not bothered about looking at the channel because the consumer was not aware that this product is available on the online shopping channel as well. So, the product is available over here, but the consumer is not aware or in the store also if the consumer just travelled a distance of let us say 100 or 200 meters more from the vending machine they may come across a store which has these products and they can get these products from the store. So, which means even though inventory is available in the system in the different channels the consumer is simply not aware that they are available in these options and hence this leads to an entire loss of revenue for the channels for these products. So, this is one of the complexities that can arise when multiple channels are present, but the consumer may not be aware of these options being available. The second issue that could occur is what would happen is the consumer might approach different channels for fulfillment and for purchase. So, for example over here the consumer who is present has these three options available, but makes the choice of visiting the store, seeing the product in the store, seeing the price of the product in the store and then viewing on the mobile app as to what would be the prices associated with the product. If the product is not of an urgent requirement, so the consumer might actually make a planned purchase decision which is they would see the product over here and find out that the product it looks good. Physically they have been able to observe the product, they are also able to engage with the sales personnel who are present at the store and understand what other varieties are going to be present for the product, but they make a conscious decision not to purchase the product over here because of certain inconveniences or because of the purchase price being high. So, what could be the inconvenience? One of the inconvenience that we can see over here in a brick and mortar system is the consumer has to visit the store, make the purchase and carry back the items to their home. Now, let us say that this is very inconvenient for the consumer, then the consumer may opt for purchasing this product online and they would purchase the exact same product which can be fulfilled from a warehouse or a fulfillment center or a dark store within the same day or over the course of the next few days. One of the other issues could be because of the price of the product, they may observe that the price of the product is very high when compared to the prices available online and this is the benefit of having the platform economy as we have discussed much earlier is that information becomes more and more visible to the purchasing parties to the selling parties as to what options are available. So, this can actually lead to a competition occurring between this channel and the channel of home delivery. So, what does this result in? Because of this particular behavior what the store is actually behaving like is a kind of a showroom where the products are displayed for the consumer, but not necessarily purchased and the real fulfillment and purchase is actually happening in another channel. As a result if you are storing a lot of inventory over here in this particular brick and mortar system, it may be the case that not much of it really gets sold because the consumer is finding that buying online is a much cheaper and more convenient option. So, in a sense this again leads to loss of revenues for another channel which was not primarily the option that the consumer wanted to choose, but was just an option where the consumer wanted to view the product, analyze the product or assess the product. Another kind of consumer behavior that can make multi-channel management complex is again a service delivery failure which happens in one of the channels which can lead to the consumer switching to another channel. So, let us say the consumer has actually chosen to purchase the products online, but it so happens due to some unforeseen circumstances or because of some poor planning on the side of the retailers or on the side of the manufacturers. There have been some delivery delays which are occurring in the system as a result of which the consumer does not get the product on time. So, what will the consumer do? The consumer may take a very drastic decision of canceling the order and claiming a refund that is one of the options that the consumer does. If this is not a very painful interaction the consumer might not leave the entire system, but the consumer might then make a choice of visiting another channel altogether which is let us say in this case the consumer might actually visit the store because the store would be having the inventory if available the consumer would make the purchase. So, again this is the case when service failures in one channel are leading to a loss of revenues in that particular channel and leading to some kind of spillovers in another channel which was not the intended prioritized channel for the consumer in the first place. So, again this is a behavior that we are observing that would lead to the company thinking of what kind of channel should be offered for the consumer. So, if the service failures are going to be very high in online shopping then it may be more reliable for the company to invest in brick and store brick and mortar store options in order to provide the products to consumers. But let us think of it this way as well we have seen that brick and mortar stores are also expensive to manage brick and mortar stores will need to expand basis the consumer demand or they may need to be relocated. So, there are a lot of options related to investment related to operations and maintenance when it comes to maintaining brick and mortar stores. So, it would not be desirable to be having this kind of switching happening from online shopping to brick and mortar formats if you have already started selling the products online. So, this is another case where the consumer behaviors or the dissatisfaction of the consumer with a particular channel is leading to a switch in another channel. So, we have seen all of these variety of complexities that are occurring across channels. So, when we are considering multi channel management it is a very complex issue because this is where the consumer behavior is driving a lot of outcomes of these channels. One of the observations that we can make is for the same product the companies may make multiple channels in order to reach consumers and dedicate resources to each of these channels. So, they manage them separately this may be the case that happens, but as a result of this one of the issues that is going to arise is the channels may function well in a decentralized manner which means they are looking at working at the very best specific to the resources that they have and the target customers that they have. However, what they are not going to be considering when only different multiple channels are functioning independently just like we have seen in the case of dual channels we can have each of these channels working in decentralized fashions, but we can observe that each of these channels have their own limitations. The online shopping experience does not give you the touch and feel of the product. The brick and mortar system is inconvenient because it requires the customer to actually visit the store. It is also expensive to maintain and upkeep. The vending machine system is going to be at risk if there is any kind of technological issues, electricity outages that are going to occur and as a result of which this channel might also fail and again it requires an investment in technology for the companies as well as some kind of digital readiness at the end of the customers who know how to use vending machines that are also coordinated with payment systems, banking systems as well as apps and other digital solutions. So, they will function to the extent to which these resources can actually be used at their best capabilities. However, one of the things that we have missed out as we have seen in the last few examples is that there are certain complexities that the consumer behavior and experiences actually bring to the system. So, these multiple channels that are functioning in decentralized manners ignore the interaction that occurs between channels which is caused primarily due to the behavior of the consumer. So, one of the main insights that we can derive is although we are functioning in multiple channels, we are forgetting that the consumer is not seeing multiple channels, but is wanting to buy the product or wanting information about the product from any channel. So, they are not really worried about the channel where they purchase from, they are only worried about getting the product and information at the time that they wish. And if this is going to get disturbed in any one of their channels that they approach, then their entire service experience is going to get hampered which may result to channel competition, which may result in channel conflicts and this can become undesirable for the company. So, primarily one of the things that we need to understand is the consumers are actually omnichannel in thinking and behavior. What this means is the consumer can seek information about the product from any channel and then make the fulfillment and purchase decision in any other channel. So, the consumer is actually present in different ways across different channels for the same product and service. So, when it comes to multiple channels, managing multiple channels independently is not a very good idea. If we are considering that the consumer is actually going to visit any channel and switch between channels or create issues for the channels. Integrating these channels is actually hence very key for ensuring service levels and growth, which has led to the concept of what we call today as omnichannels. Now, what are omnichannels? Let us first understand what are some of the typical consumer behaviors that are going to occur, which can be considered for designing omnichannels. Some of the typical behaviors that can occur and one of the very popular ones which occurs is the consumer might buy online that is view the products online, but pick up the items at store. So, this is a very popular option chosen by consumers, where they are going to view the products online, evaluate the various options available to them, which is the benefit that online shopping really provides to you. You might not be able to touch and feel the product, but you will be able to see a variety of products online and then you can make a decision as to what you are going to purchase. And then if you feel you want the product immediately, a nearby retail store with the inventory can be allocated to you and you can quickly pick up the item from there without having to wait for a few days or a week or so in order to get the product home. Now, this is a specific kind of behavior which is very convenient for the consumer, because it fulfills the requirements for the consumer. The second option is the consumer might actually view the products online, make decisions as to what kind of products, what colors, what design, etc. Technical specification interest them and then make the purchase in the store. So, again they are using the online systems which are available in order to understand the products very well and make the purchase in store. The third very common observation that we see here is view in store and buy online. So, here the consumer is going to view the products in store, get an idea as to how the products actually look like, get the touch and feel of it, but make the purchase online. In other words they might actually opt for home delivery at the end of it. Now, what is the benefit of this for the company? The company gets the idea that in the store they do not need to unnecessarily store a lot of inventory in order to make sale. They understand that the consumer is actually going to purchase online, so they need to have limited inventory items which can help them demonstrate the product to the consumer. This is a very common observation which is being implemented especially in the apparel and footwear industry where the consumer can try out different styles when they come to the store, but let us say they are interested in a specific color or they are interested in a specific design, once they understand the fit of the product they can actually go online and buy a variant of that product very easily at a very competitive price as well. The fourth type of example that we have is ship to store. This is similar to buy online and pick up at store, but here the main difference is the consumer actually views the product and purchases it online and gets it shipped to a nearby location where the inventory was not available in the first place. In the first case that is buy online pick up at store the consumer has made a purchase and inventory from the nearest store is allocated to the consumer for a pick up. In this case the inventory is not available and the consumer actually takes a decision to get it delivered to somewhere nearby from where they can pick up. So, they do not necessarily need to opt for home delivery they can actually get it shipped to a store nearby and it becomes more and more lucrative if that shipping to the store is made free of cost for the consumer. And the third option and the last option that we see here is the consumer purchases the product online the fulfillment is in terms of home delivery and they have used the product they are not happy with the product and they want to return the product. One of the options that they have is to schedule for a return or the pick up to happen from their home, but let us say this is very inconvenient which is most often the case they can actually go to a nearby store and return it. Now, this is another kind of behavior. So, these are these common behaviors that we can summarize and we can design the omnichannel for such kinds of behaviors. So, what does an omnichannel do? The omnichannel strategy integrates these various experiences by engaging a variety of fulfillment and service delivery options in the supply chain such that the business does not get lost, the consumer loyalty is retained such that there are no conflicts between channels and inventory is allocated in the best possible manner with responsiveness and efficiency being embedded within the supply chain. So, this is what the omnichannel would ideally look like we still have these multiple channels which are going to be there, but we would look at integrating the consumer experiences across these channels and making a variety of decisions related to where should we allocate the stock, how much should we allocate the stock. Let us say the consumers are found to be more of the nature of buy online pickup in store then we would like to have more stock available in the store, but if this is a consumer who is of a show roaming nature we would like to provide lesser inventory which is going to be in store and more inventory at the warehouse such that online fulfillment can be carried out. We could look at what should be the pricing of the products, if we are pricing the products too low in the online channel most of the purchase would be happening from the store and if the stores are very expensive to maintain then it might not be a good option which means we might need to price the products in such a way such that it is going to be encouraging the consumers to actually go for online shopping. What would be the purchase and fulfillment options which we provide to the consumers should we provide a buy online pickup in store option, should we provide a ship to store option that would be a decision to take into consideration and finally, these are the options that we provide to the consumer, but how do we enable these options? Let us say these different channels have different kinds of players not owned by the company but operating independently how do we enable these players to actually function within these channels and to also ensure that there is not excessive competition occurring between channels. So, we would need to look at some kind of coordination systems such as contracts and other incentives that can be given to these players or even to the consumers to encourage them to move between channels and see to that there is not excessive conflict which happens between the channels. So, at the end of the day what we are observing over here is an anomaly channel we are considering the consumer experiences that occur across multiple channels and we integrated in order to make decisions on the supply side as to how we are going to fulfill the consumers requirements in terms of purchase as well as fulfillment. So, with this we come to the conclusion on our discussions for channel structures within the supply chain which include brick and mortar systems, dual channels, multiple channels as well as omni channels. So, thank you and see you in the next lecture.