RETAIL IN-STORE FULFILLMENT OF E-COMMMERCE ORDERS, SUPPLY CHAIN MANAGEMENT VIEW

RETAIL IN-STORE FULFILLMENT OF E-COMMERCE ORDERS

--From the Supply Chain Management View--

In-store fulfillment, sometimes called click and collect, for e-commerce has been written about Details as to what is done, how beyond employees wandering through stores picking products and the costs are sketchy. They are written from the retailer point of view. They are not written from the supply chain management perspective. 

Online sales are about customer expectations and convenience for order-delivery velocity. That is the sum of order picking, preparation, and shipping delivery.

Stores are close to customers.  That can mitigate adding warehouses to handle online orders. So, how does this method satisfy that customer-centric metric of perfect order performance? How does it compare with shipping from warehouses? Also, how many retailers know their order performance against this KPI? Given where dominant e-commerce growth is, this is a valid question.  And performance is not a cost measure.  It is a work/productivity.

Four parts of the fulfillment issue are:

1)     Order pick performance

2)     Cost to pick and prepare

3)     Inventory availability and capability to position inventory where needed

4)     And

Performance. This can be a stark comparison.  A warehouse for picking orders versus a store. The distribution center, with a specific layout for products and their order frequency, can be highly mechanized with conveyors and technology, including robotics. Even a small-medium enterprise can have a dedicated area with products and roller conveyors.  The layout, whatever approach, recognizes that picking time has an element of lean waste—travel time.  The performance is picking products and preparing orders quickly and correctly.  

Products are placed in stores by product category, and the layout is meant to expose customers to other items so they can buy more.  Employees wander the store picking products for orders.  They may group their search for multiple orders.  But, either way, wander is the key term.  As a result, fewer orders are picked per employee.   It is not an effective approach.  Spreading online orders across many stores can mask how inefficient this method is and the implicit picking cost.

Cost. Online order cost is a factor of order picking and delivery.  Drawing on the order preparation performance noted above, and assuming comparable employee costs at both stores and warehouses, the order picking cost is higher at stores.  

Another part of the picking costs may be the overhead cost of the store building as compared to the distribution center and how or if to recognize it.  This is a shaky cost in that is not directly attributable to online order preparation.  Any kind of fixed cost allocation for the store has a degree of arbitrariness, even bias, and can assume some greater portion for normal store activity. That places a smaller allocation and smaller cost to store e-commerce orders as compared to a warehouse. 

The offset for in-store order picking is not paying to deliver orders to store customers.  The common practice is click and collect.  Here, customers, in effect, are the last mile delivery method and pay the cost themselves by driving t and from the store for their orders.  Here is a customer perspective.  Whether there is any loss of customer loyalty—and hence future sales revenue--is an unknown for this different convenience versus orders delivered free.

Avoiding paying for delivery, BOPIS, may be the motivator for having stores do order picking. Customers drive to stores to pick up their orders.  No delivery payment. No sharing of the savings. 

Inventory.  This is a critical issue of whether online orders are filled from stores or distribution centers—aligning and positioning inventory with customer sales and orders.  It is about dual-channel inventory for regular store sales and for e-commerce orders. For perfect orders, that means no stock outs.

One option is placing all inventory at stores to meet the sales of both channels.  The other, more common presently, is putting products at stores for regular sales and at warehouses for online orders/sales.

The two channels are different.  Online sales have specificity; the customers' identities are known.  For that, it has greater value.  All this means there is greater reason to have perfect order performance. There can also be unalike as to how customer perceive each and their expectations.

From a channel take, inventory in the two channels differs, especially as to turns. The channels also have dissimilar growth rates, slow, possibly negative, for stores and dynamic for e-commerce.  That difference can provide space in stores—and in warehouses—to use online products to fill empty spaces in stores and distribution centers.  So both methods may mitigate having to add space for e-commerce sales.

As a side, cosmetic benefit to the impact of the in-store fulfillment is using the online inventory to mask possible empty shelves with reduced store sales.  It is a viable alternative to putting C or D products there to hide sales deficiencies.

Another consideration is that using stores for two channels extends the e-commerce supply chain which can mean carrying more inventory.  This is shown in buffer stock.  The more locations inventory is placed at means additional buffer stock across the enterprise.  Extra inventory is a

cost defined by the lost opportunity cost / lost ROI for working capital.  The alternative is being inventory rich which lean views as waste.

Questions include:

·       How to replenish and restock it.

·       Whether the retailer has end-to-end inventory visibility, beginning at suppliers and ending at the store.

·       How greater speed can be placed on the end-to-end inventory/supply chain, especially to match online sales growth.

·       Where positioning products can do the least damage if stockouts and/or end-to-end inventory velocity is a problem.

·       How responsive the supply chain is to placing inventory.  Note, repositioning/moving inventory between/among stores or warehouses is a symptom of a serious problem and is waste from the lean supply chain perspective. 

·       How well the supply chain handles replenishments from distribution centers to all stores.  Out-of-stocks,  sometimes store sales problem, is a no-no for perfect customer orders.

And.  There are many issues to online orders, their fulfillment, and the speed of order delivery.  Some are based on where orders are handled, and some are regardless of where filled.  

Time is a factor in e-commerce order results.  Speed is the new competition. This is shown in many ways throughout the end-to-end supply chain.  Achieving the needed order speed begins at the upstream supply chain with suppliers.

Customers expect order delivery velocity. That speed means placing inventory close to them, or having more facilities to handle orders. Stores are established as compared to adding distribution centers. A positive. The trade-off is that customers must do the "delivery"/pickup themselves.

If visibility, velocity, and responsiveness are problems, then a shorter e-commerce supply chain may better for perfect order performance. That means order fulfillment at distribution centers.

The drawdown of extra inventory resulting from the forward buying with the trade war should be monitored. Less on-hand inventory will test operational design and performance, especially with store fulfillment.

Things to consider.  Supply chain e-commerce fulfillment design should recognize the different service requirements of the channels. The solution may be a combination of approaches. One way may not answer all needs, for cost and service. That may require data analytics, such as regression analysis, to understand order size, number of SKUs per order, which products are likely to be ordered together, and other questions.

Design and construct the supply chain and its network for what is the best way to meet customer demands—warehouses—how many, where located, size; or warehouses of different sizes

depending on order volume; or a mix of warehouses and stores. Segment based on a common supply chain or other significant issues. The monolithic purpose, the one-size-fits-all supply chain is counterproductive to creating velocity.

A consideration is to blend the two fulfillment methods—warehouse and store—with defined roles and practices.  For example, one option for areas with a large number of orders. And another for smaller order zones.

  

Think about different scenarios.  For example, the economy slows. Purchase orders and inventory drop. Yet against this backdrop, unlike regular store reaction, e-commerce and order delivery velocity continue. View it as a conflict in the New Selling. How are these supply chain conflicts resolved while meeting customer expectations? And does one fulfillment option work better?

Recognize that all this is evolving and growing. The shelf life of today's answer may be short.

Now about those customer returns.

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For more on the strategic, weaponized Supply Chain that drives e-commerce success, go to www.ltdmgmt.com