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The Fulfillment Chain: Planning’s Final Frontier

Fulfillment

The season is looking great. The Assortment Strategy the merchandise office signed off on created a great starting point. Design and Buying selected the right product candidates to create the perfect, curated, customer focused collection. Demand Planning led to the order of exactly the right amount of those perfect products. Hundreds of correct, critical decisions were made at the right time across the entire merchandise office and supplier teams. Time to put your feet up on the desk and wait for the first sales results?  Well, not exactly.

In the world of satisfying today’s shop anywhere, pick up everywhere and return wherever customer, there are a host of new critical decisions to make before that product is ready to sell. Where will the customer pick up the product? What’s the most cost effective location for shipping direct to customer? How to quickly deal with the inevitable returns?

Perfecting the Fulfillment Chain is the new discipline and critical success factor for Retailers to master, if they want to both grow their customer base and ensure that their interactions with their shoppers are profitable.

In simpler times, inventory went to the stores selling the product, and to the few fulfillment centers that handled customer direct shipments in support of online sales.  The decision making was intricate but well understood, dealing with display factors, delivery timing issues (sun belt stores vs late selling stores’ store capacity and some special treatment stores), and have separate inventory available for web orders. Today, the inventory decisions are more complicated. Ship from store, pick up from store, potential wholesale/franchise needs, and of course the decisions as to sending goods to Amazon for fulfillment on their website.

Planning the Fulfillment Chain is an exercise in network planning, where the placement of inventory by location is driven by a variety of factors with important economic tradeoffs. The Fulfillment Chain layers inventory into different locations based on a goal of getting the right (economical) amount of product closest to the customer to maximize visualization, service levels and delivery times, while minimizing the cost of carrying inventory and shipping and handling. Setting up stores with a good looking supply of inventory for supporting sales is a well understood requirement, as is allocating product to fulfillment centers for expected customer shipments.  This constitutes the first layer in the Fulfillment Chain. The next layer is the positioning of inventory for newer modes of customer fulfillment including pick up in store, ship from store. This requires placing additional inventory behind strategies such as ship from any store, ship from hub stores, regional hub DC’s, 3PL Fulfillment etc.  For most of these cases, the primary concerns are speed to the Customer delivery point and cost. Complicating factors include variables such as “save a sale” benefits vs. potentially assembling an order from multiple locations with commensurate costs.  Save a markdown might mean shipping product from overstocked stores, and trading margin gained for additional shipping costs.

Unfortunately, there is no single best practice that will fit most retailers. Optimizing a Fulfillment Chain requires taking into account the particular assets, goals and capabilities of each Retailer.  However, it should be obvious to most retailers that planning and in-season management of this Fulfillment Chain is a key competitive capability that requires full time resources and attention, and is the next frontier in the disciplines of Merchandise Planning.

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