Curbing Fulfillment Costs HOW OMNICHANNEL RETAILERS CAN IMPROVE EFFICIENCY TO REDUCE THE FINANCIAL IMPACT OF SERVING THE DIGITAL CONSUMER. S A RA H J O N E S
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hroughout Covid-19, e-commerce use has skyrocketed, with retailers seeing the equivalent of multiple years of growth in mere months. However, fulfillment costs have risen, too. A pre-pandemic Capgemini survey of supply chain executives found that last-mile delivery accounts for 41 percent of retailers’ total supply chain costs. “Not only are inventory and shipping among the biggest costs in a retail supply chain, but these are also the most challenging to manage,” said Rafay Ishfaq, W. Allen Reed associate professor in the Department of Supply Chain Management at Auburn University. Meeting online shopping demands may be an expensive endeavor, but retailers can optimize their processes to cut costs and improve margins while also satisfying shoppers.
MULTICHANNEL MARGINS
For multichannel retailers, in-store shopping represents the least expensive fulfillment option. And replenishing goods to stores has been optimized for efficiency. “Traditionally, store-based retailers have built their
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supply chain prowess on sourcing and moving products in large quantities across their distribution networks,” said Ishfaq. “They developed efficient supply chain processes to keep logistics costs low by moving products in bulk…But now, omnichannel has disrupted this retail strategy.” The next best option for reducing cost is adding buy online, pick up in store (BOPIS). With in-store or curbside pickup, retailers eliminate shipping costs since the consumer does the traveling for them. BOPIS also boosts impulse add-on sales. An International Council of Shopping Centers survey found that 67 percent of customers purchase additional items when they pick up their online order. BOPIS also offers a level of instant gratification that pureplay e-tailers can’t match. “What the [pandemic] did for retail, is it forced them to find a more cost-effective way of fulfilling those orders. And in so doing… they also have created an enormous advantage against Amazon and other e-commerce companies,” said Antony Karabus, CEO of HRC Retail Advisory. Delivering merchandise to consumers’ homes is costlier than BOPIS. McKinsey es-
