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Leveraging Stores as Fulfillment Nodes in the Supply Chain

cross-channel-fulfillment-moduleA recent study by Retail Systems Research (RSR) reveals that while more retailers are employing cross-channel distribution models, retailers are still not fully leveraging perhaps their biggest source of inventory - stores.

The finding is perplexing. After all, if cross-channel distribution models are successfully being enacted, then retailers would be able to find and pull inventory from the most efficient location and then ship the goods via the most efficient fulfillment channel, whether it is a central warehouse, drop ship provider, or yes, even a store.

But in RSR’s study, “Retail Supply Chain  2012:  Globalization, Localization, and Cross-Channel,” which came out in March, RSR managing partners Nikki Baird and Brian Kilcourse noted that only 25 percent of retailers identified as winners said they leverage stores (winners in the study are identified as those retailers that outperform their peers in sales; RSR determines the winners by reviewing year-over-year comparable store/channel sales improvements and assuming industry average comparable store/channel sales growth of  six percent in 2011 compared to 2010).

Compare that number – 25 percent – to the 78 percent of survey respondents identified as winners who said their merchandise is purchased and maintained centrally, meaning that they will pull from one channel to fulfill unexpected demand in another channel. As RSR points out in the study, if retailers were truly able to leverage their inventory as a single virtual pool across channels, wouldn’t more of them be leveraging stores as inventory sources?

Treating stores as nodes within the supply chain is critical for successful ecommerce and overall retail operations. Retail chains do leverage pools of inventory, at least to in-store shoppers, by manually checking for wanted items by either calling other stores or logging into an inventory system. Many large retailers are adopting technologies that let them locate and sell inventory from anywhere in their company, according to RSR’s “The 2012 Retail Store: In Transition,” a benchmark report that came out in May. Treating inventory as a shared resource by using stores as distribution centers and online inventory for in-store fulfillment was cited as a top opportunity by 80 percent of mega retailers and 46 percent of those with $1-$5 billion in annual sales cite this as a top-three opportunity.

But cross-channel distribution models that are capable of leveraging stores as inventory sources requires more automated processes, integrated order fulfillment across all channels, a thoroughly integrated supply chain with visibility into inventory, and holistic fulfillment processes that include in-store, ecommerce and partner shipping and distribution models.

In addition, RSR recommends that companies give stores credit when they fulfill orders initiated in other channels, such as the ecommerce channel. Interestingly, RSR found in its “The 2012 Retail Store: In Transition” report that almost two-thirds of respondents in the survey do not give stores credit for sales initiated in other channels – a practice that report authors and RSR managing partners Paula Rosenblum and Steve Rowen write “doesn’t bode well for retailers who are relying on stores to help alleviate potential out-of-stocks and improve customer service in a timely fashion.”

Companies are making inroads. Sporting goods retailer Modell’s just announced this month that through a new distributed order management platform – which is integrating its more than 150 stores into its ecommerce operations – it will be able to fulfill online orders through by shipping orders from one of its retail locations, distribution centers or third-party vendors.

Forrester Research expects more companies to leverage a host of locations to fulfill orders. In his blog, Forrester VP and principal analyst Brian Walker writes that orders will no longer be fulfilled from a single fulfillment center (FC). “Tomorrow's orders will be sourced from a wide variety of locations that include that FC, but also include vendor drop-shippers, distributors, stores, and third-party logistics providers who may either regionally stage high-demand products or support seasonal inventory volumes, or both.” The benefits, Walker notes, include lower transportation costs and faster time to delivery – all of which can boost customer satisfaction and profits.

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