DC Velocity - IdeaBook 2017

store orders. Leveraging a single inventory to fulfill customer-direct orders alongside store replenishment orders allows retailers to save on their overall inventory investment.

The latest trend is fulfillment of customer orders at the store. Stores maintain the desired inventory in cus-tomer-proximate locations.

Delivery costs can be reduced through local delivery or eliminated with store pickup. The challenge is to accurately conduct fulfillment operations without rapidly depleting inventory levels. That may require more frequent store replenishment. To minimize the impact on store operations and customer service levels, a “hub store” concept may be deployed. Under this strategy, a single store acts as a fulfillment center for a densely populated region to minimize disruption of activities at other stores in the area.

Among our study participants, the current practice is to leverage multiple fulfillment strategies to meet speed and cost goals. On average, they deploy three methods. Figure 3 reveals that store pickup, deliver from store, and integrated fulfillment are the most widely used options. The use of these options is anticipated to grow over the next three years.

Clearly, there is no single fulfillment strategy that is best for all retailers. Each offers advantages and disadvantages based on a retailer’s SKU assortment, sales volume, store sizes, and distribution network. Strategy selection and deployment should be based on the ability to simultaneously meet service commitments and contain fulfillment costs for a given set of customer order characteristics. If those characteristics trend toward same-day fulfillment and delivery-fee avoidance, excellence in store-based fulfillment must become an even greater priority for retailers.

FOUR STEPS TO LONG-TERM SUCCESS

Retailing has been forever changed by the rapid evolution of e-commerce. Customers have readily embraced technology in their product search, analysis, and purchase activities for everything from perishable groceries to durable furniture. Savvy retailers are responding with creative solutions to protect and expand their markets. And that means looking beyond the buying offices and stores for success. Supply chain management must be a cornerstone of these initiatives to keep the competition at bay.

As revealed by our research, robust supply chains will help retailers seize the omnichannel growth opportunity. It starts with elevating supply chain management to a boardroom focus. Next, change management is needed to facilitate buy-in to the expanded role of SCM. Then, execution on the promise is required, with better alignment of inventory with demand and simultaneous achievement of fulfillment velocity and value.

Delivering on these supply chain priorities will drive future success and allow retailers to rightfully claim, “No need to call the doctor, because I’m not yet dead!” c

Notes:

1. Stefany Zaroban, “U.S. E-Commerce Grows 14.6% in 2015,” Internet Retailer, February 17, 2016, www. internetretailer.com/2016/02/17/us-e-commerce- grows-146-2015 .

2. Nandita Bose, “Target to Invest Billions to Improve Supply Chain, Ramp Up Online Growth,” Reuters, March 2, 2016, http://www.reuters.com/article/us-tar- get-outlook-idUSKCN0W42Q3 .

RAFAY ISHFAQ IS ASSISTANT PROFESSOR AND RESEARCH FELLOW IN SUPPLY CHAIN MANAGEMENT, BRIAN J.

GIBSON IS EXECUTIVE DIRECTOR OF THE CENTER FOR SUPPLY CHAIN INNOVATION, AND C. CLIFFORD DEFEE IS EBSCO INDUSTRIES ASSOCIATE PROFESSOR IN THE HARBERT COLLEGE OF BUSINESS AT AUBURN UNIVERSITY.