Omnichannel fulfillment has always been a challenge for retailers and its complexity is only growing. Covid-19 changed our world and retailers have faced renewed difficulty maintaining an attractive assortment and stock availability, balancing online orders with weaker demand in some store locations. The resulting imperative has been a logistics shift to fill web orders from stores as well as web fulfillment centers to optimize cost and speed to customer — all while operating within capacity constraints. As a result, the consumer behavior changes brought about by Covid have triggered new retail operational efficiencies. Smart retailers now have an opportunity to optimize fulfillment and increase productivity in the process.
Initial Investments Offer Untapped Opportunity
In the desire to meet customer expectations, retailers across verticals have incorporated a combination of BOPIS, BORIS, self-managed fulfillment, 3PL, drop shipping, and pickup outlets with tech systems that enable these offerings. Most retailers have made – or are in the process of making – significant investments in enhancing their web presence and order management systems (OMS).
Implementing these innovations, however, is just the first step. While web order routing happens in an OMS, most retailers have older systems and processes for core functions like assortment, allocation, replenishment and pricing. These legacy systems are typically not optimized and often incapable of responding to the more complex sales scenarios that are part of the present-day retailing landscape. The fact is that many systems and processes associated with the supply chain require significant changes and updating, and retailers must implement them constrained by human and financial resources.
Order Fulfillment Challenges Post-Covid
The order fulfillment supply chain consists of web fulfillment centers, designated hub stores and regular stores. Designated hub stores are designed to hold extra stock for geographic proximity, often with limited fulfillment capacities. Brick-and-mortar stores that are not hub stores can be tapped for their proximity to the customer and to opportunistically minimize MDs. Managing these touchpoints can be complicated and failures in routing orders in the OMS can have a disastrous impact.
From the consumer’s perspective, they don’t care where their online purchases come from and expect inventory in store when they want it. From the store’s viewpoint, stock needs to be fulfilled seamlessly either in store or for web fulfillment routed to a particular store. Therefore, stocking levels need to meet two different demand streams, a fulfillment process that has not been the case in the past.
As always, distribution centers (DCs) need to supply the web fulfillment centers, hub stores and regular stores. In addition to the demand complexities across the two channels, retailers also face supply challenges.
- Prepacks minimize handling when supplying the stores but are not ideal for web-fulfillment needs.
- Depending on the fulfillment landscape, protecting one channel (the web) from being compromised by distribution decisions for another channel (stores) needs to be managed.
- There is an overarching need for balancing stock availability for different channels based on the demand projections in these channels.
- An optimal supply balance is dynamic at the SKU level as the demand patterns emerge and the demand-supply balance shifts daily.
Buying and Assortment Considerations
Buying and assortment is a large operation, and there are a few key things retailers should consider.
- Many retailers have used channel-specific purchase orders (POs) in the past but have found that strategy to be unsustainable after the onset of Covid. While retailers have had to improvise to respond to the new challenges, the single omnichannel PO is now an imperative to manage assortment planning, allocation and replenishment and markdown processes.
- If the retailer has multiple DCs in different geographies, web demand needs to be managed regionally ensuring that stock is readily available.
- Size and pack is another issue. As mentioned, prepacks are less suitable to web-fulfillment functions as opposed to bulk packs. Furthermore, it is important to understand that the expected apparel size profile for the web channel differs from the in-store channel. This presents both a challenge and an opportunity. In-season automated assortment management prevents misalignment in sales across channels and increases merchandise productivity.
Today’s Unique Retail Scenario
The systems for assortment, allocation, and replenishment are not well positioned to deal with this new, complex scenario. Pre-Covid, the web fulfillment stream was limited and could be largely ignored; but that is no longer the case. There are a few best practices that can mitigate fulfillment supply and fulfillment challenges.
- Better understanding and forecasting of web demand at the zip code level.
- Estimating how much of web demand will be fulfilled at each potential fulfillment location.
- Consolidating a view of total demand faced at each fulfillment location, which involves both the local store demand as well as the web fulfillment demand sourced at the store.
- Responding to the deviation in apparel size selling between pre-season versus in-season includes revising size profiles and positioning stock appropriately.
Strategies for Today and Tomorrow
The range of strategies retailers can deploy will vary based upon their specific situations. However, the overall challenge and the need for retailers to reorganize their processes and systems is undeniable. Outdated existing systems cannot respond directly to consumers’ needs. While replacing them can be very expensive and disruptive, it is often possible to enhance these systems with forecasts and other analytical information to make smarter decisions. The pressing need for omnichannel supply chain fulfillment strategies and mastering them will separate the retail winners from the losers.