While the prevalence of omni-channel retail continues to rise, so do competitive pressures, supply chain complexity and consumer expectations. To deliver, retailers must offer consumers rapid fulfillment at a lower shipping cost. An e-commerce supply chain model used to be that all orders would be fulfilled from an e-commerce specific distribution center (DC). Now, with stores, suppliers and third party logistics (3PL) partners increasingly becoming shipping locations, there are increased transportation options and agility for retailers. Yet, while more fulfillment locations can effectively improve customer service and fulfillment times, selecting the best fulfillment option that balances cost and service can be incredibly complex.

For example, if a retailer has more than 100 stores across the country, more than 100 vendors that they can ship from, and a DC, they effectively now have more than 200 potential distribution points to choose from, versus the one DC they previously had. The traditional methodology of shipping from a DC no matter what should no longer be commonplace, but acclimating to the omni-channel customer’s expectations should. 

Adapting to the Omni-Channel World
Omni-channel strategy has been a topic of conversation within the industry for the past several years. Omni-channel capabilities are now expected by the customer. Consumers want the flexibility to utilize any channel for browsing, orders, and possible returns. Returns and orders are also expected to be very affordable or free, and arriving within hours or days, not weeks. That said, there are some instances when a business will not want to utilize all the capabilities of omni-channel commerce. The level of omni-channel adaptation when it comes to rating and routing will depend on a multitude of factors including number of DCs, cost of products, size of products, the point you are at in a season, and more.

The good news for brick-and-mortar retailers is that the omni-channel world — which has consumers expecting to receive what they want, when they want it and where they want it — actually has the ability to make it more affordable to continue to combat against companies that run online-only stores. In a time when in-store sales are steadily decreasing, the brick-and-mortar store is becoming a differentiating advantage, offering another option to provide customers the items they want faster and possibly, cheaper.

Transportation Rating and Routing Changes in an Omni-Channel World
Customer Pickup from Store:
The first determination is when/how to drive the customer to come pick product up at a store versus shipping it from the store to their home. Customers may want to pick up from store for a variety of reasons, including the convenient position of the store to the customer, the desire for the fast timing of the goods, and the size of the product. The most important aspect is to ensure the product is physically in the store before the customer drives to pick it up. Once in-store product availability is verified, the lowest cost method is always for the customer to actually pick the product up in the store versus shipping it. 

Ship from Store:
There are some products that will work well in a ship from store model while others will not. Products that are higher in price and margin usually lend themselves well to ship from store, but that is not always the case. For example, if a product’s assembly varies greatly from DC to store, shipping from stores may not make sense. Perhaps bicycles are shipped broken down in multiple parts in boxes from DCs, but all bicycles sold in stores are already put together, meaning employees would have to spend significant time breaking down and packaging the product in this instance.

There are many great benefits to shipping from stores, including:

  • More flexibility in shipping options as a result of more location options (customers can chose overnight, next-day, or 2-day shipping, for example, all at varying price points)
  • Lower costs (potentially, assuming the shipping distance generally decreases if there are more distribution points. If the customer wants same-day or next-day shipping, the price is likely higher)
  • More items listed as in stock online, since there are more options for locations that could possibly have the item in stock 
  • Less need to discount from a margin perspective because a retailer’s affordable and fast shipping options will entice customers on their own
There are undoubtedly benefits to shipping from stores, but there are some aspects to consider, too, including:
  • Packaging costs can increase if all the items needed are housed in each store, including equipment, boxes, tape, tissue, bubble wrap, and more
  • Additional training may be needed for in-store employees now being tasked with packaging and shipping
  • Additional associates may be needed in stores during busy shopping periods to handle increased numbers of orders. Customer service in the store for consumers shopping in the store is still a key priority
  • Storage space may need to be added or reconfigured to make room for packing and shipping activities
  • Software, including parcel manifesting and labeling systems, might need to be added
  • Additional store replenishments could be required in order to replenish the depleted stock 
Product Shipped from a Vendor:
There are a couple of reasons why product might be shipped from a vendor. One could be that a retailer is out of a particular product, and they make arrangements for the vendor to ship products as a last resort. The other reason is that a retailer may want to strategically add to their online product assortment to increase sales opportunities, but not take on more inventory carrying costs or physically hold inventory in their distribution network.

Some aspects of shipping from a vendor to consider:
  • How transportation costs are handled
  • The information exchanged with the vendor on the order
  • The packaging of the product (retailers will want the same look for these products as they would have if shipped from store)
Shipping Strategies for the Modern Retailer
There are countless configurable factors that go into making these rating and routing decisions. Order management systems use complex algorithms that take into account inventory in stores, margin, timing within the buying season, and more to determine which option is best. Sometimes shipping from store is the best option, other times it is not. Retailers have two options: (1) implement a ship from store program and work through the trials and tribulations, or (2) have an outside vendor or qualified internal team perform a strategic analysis on the business ahead of time to see how ship from store would affect customer service and profits and losses.

In an omni-channel world, retailers can take advantage of new channels—like a ship from store option—or vendor drop ship. These new options will also cause additional challenges related to the rating and routing of orders, including whether or not to split ship. Hosting product at multiple locations may mean that a particular customer or client will order product that isn’t entirely housed in a single location. In this instance, many businesses will offer splits, where items are shipped from multiple locations. This can be confusing to consumers who receive more than one tracking and shipping email, even though all items were placed in a single order. For the most part, the industry preference is not to utilize splits, although there are situations when it makes sense, including when a business offers high end items with minimal inventory which might not be in stock in all locations.

Same-day delivery is another option to consider, though the cost can often outweigh the benefits for many businesses. By having deliveries going out more frequently, the process tends to not be green from a transportation standpoint, and costs for shipping will undoubtedly increase. That said, there are many benefits for businesses willing and able to take the plunge, including:
  • Competitive advantage over other companies not offering a same day shipping option
  • Customers affinity bolstered by delivery in less than 24 hours
  • Improved service levels resulting in reduced customer service calls/inquiries
  • Faster delivery with fewer costs
  • Increased margins to help cover added shipping costs

In conclusion, despite the challenges, the world of rating and routing has changed thanks to omni-channel and businesses need to adapt or face losing customers and diminishing brand loyalty. In the end, it’s all about pleasing the customer by getting the right product to the right person at the right time, all while maximizing margin. It is a tall order indeed, but with the right experts by your side, the effort is absolutely attainable and worthwhile.

Davison Schopmeyer is a Senior Managing Partner of enVista's Supply Chain Solutions practice. enVista delivers innovative solutions that improve profitability, enhance customer service and reduce waste from source to consumption. enVista’s unrivaled consulting experience, deep vertical industry expertise and comprehensive solutions portfolio, enable clients to leverage one strategic partner that consults, implements and operates across Supply Chain, Transportation, Retail, IT and ERP.  For more information, visithttp://www.envistacorp.com