DC Velocity - IdeaBook 2017

2017 dB

Another approach is to view inventory as a singular enterprise resource that can be accessed to meet demand from any channel. With online sales growing rapidly, retailers are finding that they need to utilize all available inventory, including that stored in distribution facilities as well as in stores. To meet this growing need, they are linking inventory across the entire network to function as a single pool of inventory that is available to support multiple demand streams. This one-inventory strategy must be supported by fulfillment agility if customers are to be effectively served. An agile fulfillment process can dynamically review and allocate inventory across the network, on a per-order basis, to fill online demand in a way that is efficient and cost-effective.

The ease of purchasing items online and dynamically selecting home delivery or store pickup further complicates retailers’ inventory forecasting and positioning efforts. Supply chain organizations are trying to solve this demand-inventory coordination puzzle using a variety of methods. Some retailers put more emphasis on centralizing orders, and thus inventories, while other retailers are striving to push as many e-commerce orders to stores as possible. Time will tell, but we anticipate that it will take multiple attempts by retailers to reach some level of optimal inventory positioning.

4. IMPROVE OMNICHANNEL VELOCITY AND VALUE The goal of omnichannel fulfillment is to have product readily available whenever and wherever the customer wants. Remaining competitive requires omnichannel retailers to move product more quickly to the point of sale, often in small quantities, while keeping logistics costs under control.

The longstanding focus of retail supply chain professionals has been to ensure that stores were fully stocked with their merchant-defined product assortment. On-shelf availability was the priority that drove the development of high-volume, case-pick distribution centers and truckload deliveries to stores. This bulk-oriented, limited-location fulfillment network generated low operating costs in support of low-price strategies.

While this store-based replenishment network will endure, supply chains must adapt to the realities of omnichannel retailing. Mobile apps and websites allow customers to order product from anywhere for delivery to anywhere in single-unit quantities at customer-de-fined transit times. Such highly fragmented buyers with dynamic service requirements can be tremendously difficult to serve at a profit.

This fulfillment challenge is not new. Some retailers have dealt with direct customer orders for more than a century via catalog shopping. However, omnichannel retailing has exponentially expanded order volumes and the number and type of organizations involved in direct fulfillment. These retailers have experimented with a wide variety of fulfillment processes to meet omnichannel demand. The goal of these experiments has consistently been to identify the process(es) that provide the best, most rapid service for the customer at an effective cost.

Lower-volume retailers expedited their e-commerce initiatives by outsourcing fulfillment to third parties. Larger-scale retailers like Wal-Mart Stores and The Home Depot have invested in dedicated e-commerce fulfillment centers to accommodate their volume and expand their online offerings. Both options offer advantages but may miss the opportunity to leverage inventories across channels. Inventory duplication generates higher carrying costs.

Another option is to establish integrated fulfillment centers that support both store replenishment and e-commerce orders. Integrated fulfillment leverages a single inventory for both demand streams and avoids facility duplication. This option is best suited to retailers that support extensive break-pack fulfillment of