Empowered 21st century customers are forcing retailers to change the way they operate. Shoppers still enjoy browsing in stores in the traditional way, but increasingly they are looking toward omnichannel models that present a plethora of fulfillment options. Over the past 12 months we’ve witnessed yet more growth in the online sector, specifically with the Click and Collect option. Whilst promising much in regards to meeting customer expectations, we’ve come to realize that meeting this proposition presents challenges that eat into retailer margins.
Giving customers the fulfillment service that they demand traditionally uses a central warehouse for online orders, combined with overnight parcel carriers to get the completed order to the store for collection. Unfortunately, each part of this supply chain is expensive – and since consumers are increasingly price-savvy, it’s usually the retailer margin that gets squeezed.
Decentralized – the new online model
A new model that is gaining traction, particularly in the United States, is centered on moving online picking into the store where the customer collects. Where retailers leverage the stock that is already in the store, and drive synergy efficiencies from in-store labor hours, the cost to fulfill is lower. But to make this new model work, each store needs to have good stock accuracy in-store – and increasingly retailers are using RFID to achieve this – as the technology has matured, becoming significantly more cost effective. In addition, retailers who use this decentralized model need to invest in an order management system. This helps to confirm stock availability on the website and route orders to the appropriate store.
Replenishing stock into each store is a core function of a retail supply chain, and retailers have invested over the years in making this as cost-effective as possible, both in terms of how replenishment orders are picked in the warehouse, and also in terms of their onward transport to each store. Retailers optimize their replenishment picking, and ship to stores in roll-cages, on pallets or on hanging rails, whereas online orders picked centrally are usually shipped to the store as individual parcels – often using an overnight parcel carrier.
Make the best use of your human resources
Looking how best to utilize staff is key for retailers looking to reduce margin erosion in omnichannel fulfillment. For example, when a store opens up first thing in the morning there often a minimal amount of footfall. However, for security and staff safety, there is a minimum level of in-store staffing needed, and often these staff can simultaneously be used for in-store picking and traditional customer service. This increases efficiency without increasing costs. In comparison, in a centralized warehouse model, each order drives incremental labor hours.
In our recent Point of View piece [Omnichannel fulfillment: Avoiding the margin squeeze], we explore some of the above topics, as well as looking at transformational solutions to help reduce margin erosion when fulfilling orders efficiently for the retailer, and conveniently for the customer.