If you think that consumer goods supply chains are complex now, then you are about to get overwhelmed. Based on the sessions at the recent Retail Industry Leaders Association (RILA) Logistics Conference, multi-channel has become the name of the game in retailing. Every session I attended addressed the topic either directly or indirectly, and it’s clear that there will be repercussions up and down the supply chain.
Though multi-channel retailing is the hot topic of the moment, thanks to smartphones and mobile commerce, it really isn’t a new phenomenon. Current definitions of multi-channel retailing apply to Sears, which opened brick and mortar stores in 1925 to complement its catalog activities, as well as Apple, with its iTunes online store, brick and mortar stores, and mobile apps. Example definitions include:
“…the set of activities involved in selling merchandise or services to consumers through more than one channel.” Zhang, et al. “Crafting Integrated Multichannel Retailing Strategies.”
“…the art of buying, selling, and fulfilling customer needs for products or services in more than one sales channel such as operations of stores, online, call center, catalog, wholesale, and mobile or a combination of these channels.” Aberdeen Group. “The Roadmap from Multi-Channel Retailing to Cross-Channel Retailing.”
In fact, the Zhang, et al., working paper indicates that 80 percent of US retailers claim to sell goods through multiple channels. The goal is to tap into the emerging mindset of consumers—78 percent of whom claim to use two or more channels to shop, according to a NRF Stores article. Thus, to be customer centric and capture a high share of wallet, retailers must have their product and information available anytime, anywhere.
Of course, multi-channel retailing creates significant challenges for the fulfillment function. Retail supply chain executives have long worked to optimize their distribution networks in support of brick and mortar store needs. Hence, many networks are adept at moving full cases of inventory to stores in truckload quantities on a fairly static schedule. But what about those single unit orders from individual customers whose order cycle requirements vary from next day to next week?
In the early stages of our Accenture-sponsored 2011 State of the Retail Supply Chain research, we have found that multi-channel fulfillment strategies and processes vary widely from retailer to retailer.
Some retailers perceive order integration to provide the best mix of fulfillment efficiency and inventory optimization. They seek to leverage existing facilities and inventory for all orders. This strategy works well for a retailer like CVS Caremark who was already shipping most products from DCs to stores in selling unit level quantities. Transitioning to Internet and mobile orders from individual customers did not dramatically change their fulfillment processes.
Other retailers adhere to an order segmentation/segregation strategy to avoid process incompatibilities and customer service problems. They fulfill store orders from traditional high-volume DCs with full cases and pallets delivered to stores. Individual orders originating from catalog, call center, Internet, or mobile commerce are handled by DCs that are tailored to individual customer order fulfillment. Best Buy uses a dedicated facility in Louisville, Kentucky, near the UPS hub for these types of individual orders. They view this Louisville DC as a standalone “store” that ships directly to customers.
Between the two extremes are retailers who use a hybrid approach. Some products are stored at traditional DCs and used to fill both store and individual orders. Other products are kept in dedicated DCs that fulfill individual orders. Some retailers also fulfill some individual orders from store inventory. Lowe’s uses this hybrid approach, choosing the fulfillment location based on product characteristics, customer service requirements, and cost. Given the wide variance of product shape, size, and weight in the home improvement retailer’s inventory, a flexible network is appropriate.
Clearly, there is not a one-size-fits-all strategy for multi-channel fulfillment. Retailers and their suppliers (in the case of drop ship fulfillment opportunities) must analyze both the benefits and drawbacks of potential fulfillment options. Gerald Lang provides an interesting analysis of the cost and service impacts of various fulfillment methods in Fulfillment Systems in Multi-Channel Retailing. Robert Mann and Ian Lomas also discuss the pros and cons of different methods in eFulfillment: Turning the Virtual into Reality.
Regardless of the fulfillment strategy and method(s) chosen, execution is the key to success. Customers don’t care where their order originates—integrated DC, dedicated DC, retail store, or manufacturer DC—as long as the order is on time, damage free, and low cost. Hence, retailers must work to make their fulfillment operations as seamless and efficient as possible.
It’s no longer just about making your supply chain better, faster, and cheaper. It also has to support customer requirements 24/7 that originate from virtually anywhere. This makes for a complex, difficult situation and begs the question, is your supply chain capable of supporting today’s multi-channel retailing environment? If not, it’s time to get busy!