Beating the Burden of Brick & Mortar for Omnichannel Fulfillment Success


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Fulfillment is both more complex and mission critical in a multichannel retail setting. Brick & mortar retailers must overcome their “burden” of traditional store channel focus to achieve multi-channel fulfillment excellence

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Beating the Burden of Brick & Mortar for Omnichannel Fulfillment Success

  1. 1. Beating the Burden of Brick and Mortar for Omni-Channel Fulfillment Success
  2. 2. Fulfillment is a critical enabler of a differentiated multi- channel strategy What consumers want – the winning promise Fulfillment Enablers Seamless Experience • Eaches picking efficiency • Last mile efficiency • Managing peak • Same/next day delivery • Time definite delivery • Minimized splits • Flexible returns • Flexibility to changing mix • Channel decision • One-view inventory • Real-time demand management
  3. 3. Many fulfillment solutions emerging … but breakthrough performance remains challenging Elements of Fulfillment – Which is the Right Mix? Goods to Man Picking Last Mile Delivery KIVA AS/RS Automated Picking “Eaches” Picking within Asset • Random Put-Away • Wave & Batch Picking WMS Network / Asset Type 3 Footprint and Flow Fulfillment Assets Lockers Store DCs Network Drop ship Managed inbound Home Delivery Store Pick-Up Drive-through Click & Collect Crowd source
  4. 4. Leading brick & mortar retailers must overcome several challenges to unlock full potential performance • Visibility at pallet level • Fewer, higher velocity SKUs • Limited need for real-time integration • Visibility at basket level • More, thin SKUs • Integration critical Inventory Management Front & Back-End Systems Challenge Traditional Brick & Mortar Focus Multichannel Focus • Store location key • Less demand volatility • Store+ warehouse key • More demand volatility Network Footprint • High volume cases • Replenish stores • Low volume eaches units • Building consumer baskets Eaches Picking
  5. 5. 3 guiding principles for breakthrough fulfillment • 2-3X service improvement • >25% fulfillment cost efficiency • Unlock category growth • Reduce risk of throw-away investment 5 Design a fit-for-purpose solution Define shared incentive to mobilize the organization Balance near-term IT solutions with end- state design 3 1 2 Clean-sheet design anchored on consumer promise Build for flexibility 1.1 1.2 FocusToday Note: range reflect observed average of larger retailers Observed Performance Impact
  6. 6. Fulfillment must start with a clear segmented view of future consumer promise Illustrative Customer Promise Grocery Fresh Personal Care/Beauty Apparel Electronics Home & Furniture Delivery Speed: <2 Day Delivery Lead Time Endless Aisle Assortment Free Shipping Cost Subscription/Auto refill Product Recommendations Product Sampling M-checkout and text Click & Collect No Hassle Returns Any Channel eCommerceChannelStoreChannel 1.1 More ImportantLess Important Trade-offs are key: where will you place strategic bets to truly differentiate?
  7. 7. Example: Consumer promise of fast delivery speed can impact your network footprint and asset needs Delivery Speed (in business days)(1) Same Day9 3568 2 17 4 Big & Bulky Consumables & Baby Toys Electronics Hardlines Apparel Media 2daysdelivery 1-2days Same-Next Day 3-5 days Emerging “table stakes” in futureCurrent industry range 1.1 • Store based fulfillment • 15-20 .com warehouses • Store based fulfillment • 7-10 .com warehouses • 4-7 .com warehouses • Leverage existing store (case picking) warehouses Fulfillment Network Needs
  8. 8. Rigorous mapping of customer promise to clean-sheet supply chain requirements is critical 1.1 Category … Customer Promise / Strategy…  Demand Profile  Seasonality  Delivery Time  Assortment Depth / Breadth  Returns Ensure Optimal Design • Product Cube Profile • Peak Profile • SKU Count Asset • SKU Velocity • SKU Productivity Inventory • Footprint / flow • Capacity • Eaches picking solution • Technology/ CapEx … Inform Optimal Fulfillment Requirements • Throughput • Delivery Speed Network Capital Cost to Serve Traditional B&M Retailer Define strategy Pilot Roll out Multi-channel Define (Many) Strategic Scenarios Model (Should-cost, benchmarking) Pilot Sequenced Roll-Out
  9. 9. Your future customer promise requirements will drive optimal network and flow strategy … Nature of Demand More Centralized Facility Single Tier Network Multi-Tier Network >3 Days Ground or Air 2 Day Ground Next day Ground Mostly Long Tail Mostly Fast Movers (90/10) 70/30 Critical Low-Moderate Moderate Irregular Stable Highly Seasonal FC FC FC HVFC LVFC High Velocity FC (Fulfillment Center) Customers Low Velocity FC HVFC Customers Customers SuppliersSuppliersSuppliers Speed Minimal Split Orders Assortment (SKU profile) Seasonality 1.1 Illustrative 9 Stores/Lockers Volume Predictability
  10. 10. … as well as your assets and technology configuration Lead Time Fulfillment Cost Req. Volume Assortment Store / Locker Store Converted Warehouse High Velocity Eaches Facility Low Velocity Eaches Facility Same/Next Day Same/Next Day Next – 2 Day 2 – 3 Days Medium Low Medium-High Very High Med-High Low-Med Low Med <1MM units/year <5MM units/year >5 MM units / year >5 MM units/year Nature of Demand
  11. 11. Build for Flexibility to manage inherent uncertainty in future market The only constant is change • Consumer expectations changing • Commercial plan constant flux:  Geo-Demand  Product mix  SKU breadth  SKU profile Build for Flexibility Network/Footprint Design Smart In vs. Outsource Identify and focus on the “invariant” portion of solution Leverage partnerships and 3PLs as a flexible asset Systems Design Apply advanced systems architecture design that provide reusable components 1.2 11
  12. 12. Focus on the “invariant” aspect of future strategic scenarios when building out a solution Geo-Demand Assortment Speed / SLA Picking vs. Ship Cost Future Commercial / Market Scenarios • Larger Rural Impact • Conveyables • Avg. 2 Day • East/West Balance • Consumables and Apparel • Avg. 3 Day • Freight > Pick Cost • Pick Cost > Freight Illustrative 1.2 S1 S2
  13. 13. Leverage partnerships and 3PLs as flexible channels and assets 1.2 Nature of Category Demand Inform In-House vs. Outsourced Fulfillment Channel >25K orders/day 1-25K orders/day <0.5K orders/day Low Seasonal peak Moderate Seasonality Highly Seasonable Fast Moving SKUs Fast + Medium Moving SKUs Long Tail SKUs Extensive In-House Experience Developing In-House Experience New Category or Market High x-Category Affinity Medium x-Category Affinity Low x-Category Affinity In-House Operations 3PL Outsourced Supplier Direct Ship Volume Peak SKU Type Exp. Affinity
  14. 14. Define shared incentives to drive integrated actions and behaviors Shared Incentive Cross-Channel Operational KPIsCross-Channel Financials • Compensation tied to multi- channel targets  Trading area not store specific sales • Balanced targets  Revenue and profit • Introduce leading KPIs  Multi-channel transactions (e.g. click and collect at stores)  Cross-channel customer retention • Track continuous improvements  Store INV availability for online orders  Eaches picking unit cost 14 2
  15. 15. Fulfillment guiding principles much more difficult to get right and more mission critical vs. traditional channel Why Its More Difficult vs. B&M 1. Stores and warehouse need to be ambidextrous in design and capabilities 2. Increased seasonal peak (8-12X ratio not uncommon) 3. 2-10X more assortment (2-10X) 4. Thinner SKUs - harder to forecast demand 5. Enabling IT/system and capability gaps:  More back-end  More front-end  More integration Why Its More Mission Critical 1. Direct and immediate brand impact 2. More impact on operating-profit Missed B&M cross-dock = small likelihood of shelf OOS Missed .com order fulfillment = 100% unhappy customer
  16. 16. Self diagnostic – is your fulfillment ready? More Prepared = 5Less Prepared =1 Calculate Your Score: • Leading: 30-35: • Learning: 20-30 • Lagging: Under 20 Fit-for-Purpose Design Systems Enablement Demand Planning Inventory Management Organization Design Network and Asset Design Front and back- end integration Customer Analytics Integrated Planning Historic sales driven Ad-hoc CRM solutions Forecast at category level based on historic . sales Push based replenishment SKU level integrating historic and predictive analytics across channels Pull based replenishment across channels CRM and Social Network signals inform planning Built and grew out of store network Lack of segmented network design Ad-hoc use of 3rd party 3PLs Design based on future consumer needs Segmented roles for assets Rigorous Make vs. 3PL vs. drop-ship logic Limited .com only KPIs / incentives Money tied to P&L profit .com incentives shared x-functions Money tied to profit, growth and y-o-y .com operational targets Technology saviness Common item file One-inventory view Best in class front-end (Big Data, search algorithm) and backend (operations research) capabilities Lack common item file Lack one-inventory view Limited strength in Search, Network Optimization, Big Data analytics
  17. 17. A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers immediate, meaningful results and long- term transformative advantage to clients. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading organizations across all major industries and sectors. A.T. Kearney’s offices are located in major business centers in 39 countries. Raj Kumar Contacts Sumit Chandra Michael Hu