Multi-channel retailing has become a way of life, and it is an essential customer offering for store retailers. One third (18 million) of all UK consumers have purchased online. More and more retailers are online, even in those retail sectors where the web experience was previously less appealing – 55 per cent of the top 130 UK fashion and footwear retailers now have transactional web sites.
But many retailers are still offering multiple channels, rather than a truly integrated multi-channel offer, particularly when it comes to order fulfilment. When established store retailers set up online retailing, for the first few years they usually handle customer orders outside the main distribution chain, in separate fulfilment centres. This is a sensible way to launch a new channel, because it reduces complexity, investment and risk.
But when online sales reach any sort of scale, the additional cost of a bolt-on fulfilment solution becomes high, compared with integrated distribution centres with the capability to store, pick and dispatch product for both stores and online customers. Running separate fulfilment centres can cost twice as much per order as fulfilling from integrated distribution centres and erode up to six per cent of margin.
The analysis counts the end-to-end cost of order fulfilment, and highlights in particular the high cost of offering in-store collection options. The reason for such a significant extra cost to run fulfilment centres is that the overall process becomes much more complex, with duplicated product handling and storage. The more complex processes can also lead to slower customer response times and increased risks of stock-outs or unsold stock at the end of the season. The argument for integration is compelling, so how can retailers bring fulfilment into their established distribution centres?
Achieving integrated fulfilment is challenging, even for sophisticated retailers. The barriers to overcome are in physical infrastructure and processes, inventory management and organisation, as well as IT systems.
Retailers will need to modify the layout and processes of existing DCs serving stores, to be able to pick products for individual customers, and collate and pack these for cost-effective delivery. Requirements need to be assessed for seasonal peaks, which will often coincide with the busiest times for store replenishment. The solution will depend on typical order profiles, the size of product range and IT system capabilities. The integrated multi-channel retailer needs to change its whole way of planning and inventory management. Direct channels are no longer a separate product order, or treated as an additional large store. They need to be incorporated into all forecasting and planning, and there will be a constant dynamic between store and direct channels. The organisational structure may need to change to support new ways of working. If there are separate merchandising teams for stores and for direct channels, these should be integrated, and will need enhanced training and systems.
In terms of IT, the starting point for integrated fulfilment is the warehouse management system. Many leading WMS systems now enable picking of individual customer orders as well as store orders, with the associated stock management functionality. Interfacing with the web front-end (and call centre systems) is critical, especially if accurate product availability is displayed to customers.
There are three initial steps that can benefit every retailer embarking on the journey to multi-channel integration: analyse your current business, review what’s in place and identify the gaps, and take action to generate immediate benefits.
Ray Fowler, Director, CVL