DC Velocity - January 2019

42 DC VELOCITY JANUARY 2019 www.dcvelocity.com
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demand for both in-store customers and online customers is more complex. Small-store formats have little space for inventory storage and processing, increasing the need for more frequent store replenishment to avoid stockouts and the likelihood of congestion inside and outside the store.

ESTABLISHED FULFILLMENT ALTERNATIVES

To offset these different issues, 89 percent of the SRSC study participants use two or more fulfillment methods to serve city-based shoppers. Of those fulfillment methods, there are two primary types in wide use: 1) fulfillment from stores, and 2) fulfillment from distribution centers. In-store fulfillment includes the options of click-and-collect and deliver-from-store. For store fulfillment, orders are filled using in-store inventory and are either picked up by customers or delivered to a customer-chosen location. Alternately, distribution center fulfillment leverages the staff expertise and operational capabilities of a facility operated by the retailer, product vendor, or logistics service provider. Orders are processed and shipped directly to the customer-chosen location. Each urban fulfillment method offers distinct retailer benefits and challenges. (See Exhibit 2.)

Among the SRSC Report participants, the store-based fulfillment options are very popular, with a slight preference for the deliver-from-store option. (See Exhibit 3.) Fulfillment by retailer-operated regional distribution centers is also very popular. Fulfillment from non-retailer distribution centers, however, is not as widely used. Less than half of the retailers surveyed rely on vendors for fulfillment, and only a quarter use logistics service providers’ facilities for urban fulfillment.

Store-based fulfillment

Viewed by many supply chain executives as logical
extensions of the distribution network, city stores pro-
vide the footprint needed for a quick launch of urban
fulfillment. Brick-and-mortar stores provide an existing
infrastructure that is close to urban customer delivery
points, and store inventory can serve demand that orig-
inates from any channel. Additionally, the responses to
the SRSC survey show that store fulfillment best enables
same-day delivery. (See Exhibit 4.) This is because store-
based fulfillment largely avoids the longer distances and
potential delays associated with delivery from regional
distribution facilities.

These advantages foreshadow a growing role for stores in urban fulfillment, according to multiple SRSC interviewees. Along these lines, a discount retailer supply chain executive revealed: “We think that over the next three years, 80 to 85 percent of our e-commerce will be fulfilled from our stores.” Store-based fulfillment is particularly popular among grocery, pharmacy, and apparel retailers.

Store-based fulfillment is not without its challenges, however. A key concern is inventory management, as retailers are now relying on a single inventory pool to support both store and e-commerce demand. One executive commented: “You need the right balance of inventory to support both the omnichannel experience and the in-store experience. It takes different thinking about demand forecasting than the way we’ve viewed it in the past.” That is, retailers must engage in a more complex level of demand planning to determine inventory allocation. On top of their store-level forecasting for walk-in customer demand, retailers must accurately predict e-commerce demand by each urban fulfillment method and then by fulfillment location within each method.

Furthermore, urban stores have limited space for safety stock, and as a result, stockout risks accelerate when a demand spike occurs. To address this issue, many companies have increased their store-order and delivery frequency to enhance product availability and order fill rates. For example, some retailers are switching from a weekly single-store truckload delivery to multistop routes

Fulfillment Method
Store – Click & Collect Proximity to customers
Access to in-market inventory
Final-mile delivery by customer
Fewer stores involved in fulfillment
Customer convenience
Off-hours fulfillment possible
Home delivery expense incurred
Minimal staff expertise in pack & ship
Customer delivery planning & execution
Greater control over order fulfillment
Inventory pooling effect
Reduced interference with store operations
Lower proximity to customers
Limited same-day service opportunities
Cost of picking & packing “eaches”
Reduced infrastructure investment
Variable cost of operations
Logical solution for bulky goods
Reduced control of fulfillment process
Very difficult to provide same-day service
Low prioritization of individual orders
Competition for on-shelf inventory
Aisle congestion in stores
Peak periods for customer pickups