Customers demand an omni-channel shopping experience that allows them to order from anywhere at anytime. Retailers who want to compete must therefore be able to fulfill orders from anywhere to anywhere, whether it’s the consumer’s home or the retail store. Plus customers want their orders by the next day, or they will order products from someone who can meet their delivery schedule requests. This creates significant new demands on the retail supply chain. 

    In the past, retailers built two types of distribution centers, one (or two) on the East and West coasts of the US to handle store fulfillment, and another to handle strictly e-commerce orders. These distribution centers were built to handle their own specific type of fulfillment and none other. The retail stores on the East coast were fulfilled from the closest DC, while the outlets on the West coast were fulfilled from a DC located in the Western US. Fulfillment typically took one to two days, but stores in the Central US had to live with 3-5 day delivery schedule. 

    If the retailer received an e-commerce order, regardless of the location of the buyer, that order was fulfilled out of the e-commerce-only warehouse. The consumer could be located next door to the West coast distribution center, but since he ordered his item online, it would only be shipped from the e-commerce DC, and he’d have to wait to receive it. This scenario was a more customer “no satisfaction” situation, than a customer satisfaction one. 

    Today’s consumers are browsing and buying in brick-and-mortar stores, via mobile devices, on e-Commerce web sites, and sharing their favorite items across social networks. As a result, these savvy shoppers are expecting the same prices, products, shipping times, and offers regardless of the channel being used. 

    Retailers need to get a handle on omni-channel fulfillment immediately as e-commerce orders grow. Brick-and-mortar retailers are embracing e-commerce as a valuable, and profitable, channel for growth. In the 2nd quarter of 2012, the U.S. Department of Commerce reported that U.S. e-commerce sales reached $51 billion, and for the first time accounted for more than 5% of seasonally adjusted retail sales. This is a year-over-year growth of 15.1% and shows no signs of slowing.

    Retail Systems Research recently did a study on what retailers deem to be very important in regards to consumers and omni-channel fulfillment:

    • Empowering consumers to purchase, take delivery or return a product through the channels of their choice (79%);
    • Allowing inventory allocated for one channel to be used for fulfillment within another channel (67%); and
    • Leveraging product knowledge/information assets across channels (66%).

    Omni-channel retailers need to change their distribution facilities to handle the new order of customer orders. Distribution centers (DCs) must now supply a mix of products to retail stores along with filling e-commerce customer orders. Omni-channel-enabled DCs allow retailers to take advantage of pooled inventory, which will reduce safety stock and inventory carrying costs.

    Stores can help to satisfy customer needs by improving inventory levels in response to forecasted demand to reduce the likelihood of out of stocks. Shipping direct from stores can help save on transportation costs, which is especially important as fuel costs remain high and show no sign of coming down. To enable ship from store and a myriad of other omni-channel fulfillment paths, retailers need to increase inventory visibility across all channels to ensure that each order is being fulfilled from the smartest location. Distributed order management is one potential solution to help use inventory availability to route orders based on business goals and customer preferences. 

    The Men’s Wearhouse estimates that they save over 1,000 orders per day by leveraging inventory from other stores to fulfill demand when a local store is out of stock. Assuming a conservative average ticket of $50, this adds $18 million of top-line revenue.

    Omni-channel distribution facilities of today are designed to handle it all – store replenishment, e-commerce fulfillment, returns processing, specialty labeling, in-store pick-up, ship-to-store, ship-to-consumer, and product customization. As a result, retailers must turn to material handling equipment automation to meet these challenging demands to increase fulfillment rates, improve worker productivity, decrease out-of-stock inventory, and lower operating costs.

    Automating processes for replenishment, fulfillment, cross-docking, order management, enterprise inventory visibility, picking and packing, etc. are all keys to success for the omni-channel distribution environment. Many retailers may be best able to meet omni-channel fulfillment challenges by retrofitting existing operations or adding new processes and technology. However, very few existing distribution centers of more than a few years old are set up to accommodate the needs of an omni-channel distribution strategy.

    Typical equipment used in omni-channel fulfillment:

    • Inventory management system that spans the entire supply chain for achieving real-time visibility
    • Distributed order management system to decide cost-effectively whether to drop orders into a DC, e-commerce fulfillment center, combination DC, or store to meet customer service levels
    • Warehouse Management System
    • Warehouse Control System to direct the flow of materials within the warehouse and communicate with all the material handling equipment
    • Conveyors for moving products around the warehouse to appropriate locations
    • Sortation units that deliver items to shipping locations
    • Picking/Packing Systems for directing workers what to pick, how many, where to pick or pack, etc. Some DCs are starting to use robotic picking technology, too.
    • Automatic Storage and Retrieval Systems (AS/RS)
    • Miscellaneous: Robotics, goods-to-person, transportation management systems, RFID, equipment to apply labels to cartons, etc. 

    The process of setting up a strong omni-channel supply chain is a major undertaking for retailers, but those that fail to pursue omni-channel retailing and fulfillment have little chance of success in the new world of consumer expectations. Despite the challenges, retailers can’t afford not to work toward an omni-channel organization. As con¬sumer expectations around cross-channel experience, assortment and fulfillment continue to grow, the only retailers able to meet these needs will be those supported by an organization designed with an omni-channel world in mind.
    Done right, the result is a win-win for distribution and supply-chain providers, retailers and consumers.

    Chris Castaldi is Director of Business Development, W&H Systems. Visit www.whsystems.com for more information.

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