Omni-Channel Fulfillment in the Changing Retail World Tips to streamlining your warehouse operations | By Chris Castaldi
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ustomers demand an omni-channel shopping experience that allows them to order from anywhere at anytime. Retailers who want to compete must therefore be able to fulfill orders from anywhere to anywhere, whether it’s the consumer’s home or the retail store. Plus customers want their orders by the next day, or they will order products from someone who can meet their delivery schedule requests. This creates significant new demands on the retail supply chain. In the past, retailers built two types of distribution centers, one (or two) on the east and west coasts of the US to handle store fulfillment, and another to handle strictly e-commerce orders. These distribution centers were built to handle their own specific type of fulfillment and none other. The retail stores on the east coast were fulfilled from the closest DC, while the outlets on the west coast were fulfilled from a DC located in the western US. Fulfillment typically took one to two days, but stores in the Central US had to live with 3-5 day delivery schedule. If the retailer received an e-commerce order, regardless of the location of the buyer, that order was fulfilled out of the e-commerce-only warehouse. The consumer could be located next door to the west coast distribution center, but since he ordered his item online, it would only be shipped from the e-commerce DC, and
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he’d have to wait to receive it. This scenario was a more customer “no satisfaction” situation, than a customer satisfaction one. Today’s consumers are browsing and buying in brick-and-mortar stores, via mobile devices, on e-Commerce web sites, and sharing their favorite items across social networks. As a result, these savvy shoppers are expecting the same prices, products, shipping times, and offers regardless of the channel being used. Retailers need to get a handle on omni-channel fulfillment immediately as e-commerce orders grow. Brick-and-mortar retailers are embracing e-commerce as a valuable, and profitable, channel for growth. In the second quarter of 2012, the U.S. Department of Commerce reported that U.S. e-commerce sales reached $51 billion, and for the first time accounted for more than five percent of seasonally adjusted retail sales. This is a year-overyear growth of 15.1% and shows no signs of slowing. Retail Systems Research recently did a study on what retailers deem to be very important in regards to consumers and omni-channel fulfillment: } Empowering consumers to purchase, take delivery or return a product through the channels of their choice (79%); } Allowing inventory allocated for one channel to be used for fulfillment within another channel (67%); and } Leveraging product knowledge/information assets across channels (66%).
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
Omni-channel retailers need to change their distribution facilities to handle the new order of customer orders. Distribution centers (DCs) must now supply a mix of products to retail stores along with filling e-commerce customer orders. Omni-channel-enabled DCs allow retailers to take advantage of pooled inventory, which will reduce safety stock and inventory carrying costs. Stores can help to satisfy customer needs by improving inventory levels in response to forecasted demand to reduce the likelihood of out of stocks. Shipping direct from stores can help save on transportation costs, which is especially important as fuel costs remain high and show no sign of coming down. To enable ship from store and a myriad of other omni-channel fulfillment paths, retailers need to increase inventory visibility across all channels to ensure that each order is being fulfilled from the smartest location. Distributed order management is one potential solution to help use inventory availability to route orders based on business goals and customer preferences. The Men’s Wearhouse estimates that they save over 1,000 orders per day by leveraging inventory from other stores to fulfill demand when a local store is out of stock. Assuming a conservative average ticket of $50, this adds $18 million of top-line revenue. Omni-channel distribution facilities of today are designed to handle it all — store replenishment, e-commerce ful-