Recent research on omnichannel distribution undertaken by our sister publication, DC Velocity, and ARC Advisory Group found that filling orders at stores rather than at distribution centers is likely to create logistics challenges for retailers.
The research was based on the information provided by 177 qualified respondents who indicated that their companies sell merchandise through both traditional bricks-and-mortar retail outlets and websites. Almost 60 percent of those respondents worked in the supply chain function, while another 11 percent were in store operations. Ten percent said their main job function involved e-commerce, 7 percent were in information technology, and the remaining respondents either cited "other" as their job function or did not specify one.
As for how retailers are filling their online orders, the study found that stores are playing a significant—and growing—role. Thirty-five percent of retailers fill Web orders from stock in their retail stores, and another 18 percent are doing so but only at selected stores. However, 56 percent of the respondents who are not currently filling online orders from store stocks said they plan to begin doing so within the next few years.
The study also found that while most respondents understand the costs associated with distribution center operations, they don't have a similarly clear understanding of the costs involved in store-based fulfillment. For example, 78 percent of respondents said they knew the cost of picking individual items, or "eaches," by stock-keeping unit (SKU) or product class in their e-commerce distribution center. But only 38 percent could pin down the corresponding costs for the back room of a store, and only 29 percent said they understood the expenses associated with picking eaches in the front of the store. In addition, while 70 percent said they could break out their transportation costs by SKU or product class for deliveries from an e-commerce DC, only 57 percent had that same level of understanding for shipments from a store.
While retailers may be shifting more of their e-commerce fulfillment activities to the stores, it's not clear they have the proper groundwork in place, particularly where inventory accuracy is concerned. Today, cycle-count accuracy levels at DCs that use warehouse management software in conjunction with automatic identification exceed 99.9 percent. Accuracy at the stores, however, seems to be falling far short of that mark. Only 30 percent of respondents said their store inventory accuracy level was 98 percent or higher. Another 32 percent said store inventory accuracy rates fell between 95 and 97.9 percent, while 15 percent characterized their accuracy rates as between 90 and 94.9 percent. At the low end of the spectrum, 17 percent said it was below 90 percent and, surprisingly, 6 percent did not measure inventory accuracy at the store.
The study also looked at how retailers are getting online orders filled at the store into customers' hands. Eighty percent rely on parcel carriers, 51 percent are doing "drop shipping" with partners, and 43 percent use third-party logistics (3PL) delivery services. Of note was the fact that 31 percent engaged couriers and another 21 percent relied on a store fleet. Three percent reported that the store staff was making deliveries either with their own vehicles, or by travel via subways or on foot.
Based on the research, the study concludes that store fulfillment activities, at the moment largely under the control of store operations, lack the precision of execution found in distribution centers. Unless they adopt established distribution practices in the store, retailers will continue to struggle with omnichannel distribution.