In-store Fulfillment: Justifying the Cost, Considerations and ROI

Today's consumers expect a seamless omnichannel experience from every retailer, whether pure-play e-commerce or brick-and-mortar. According to Forrester Research, 71 percent of shoppers expect to view in-store inventory online, while 50 percent expect to buy online and pick up in store. However, most retailers have not operationalized even the basics, such as store pickup, cross-channel inventory visibility, and store-based fulfillment. There is a significant disconnect between what consumers want from retailers and the omnichannel capabilities retailers are prepared to provide.

While providing an omnichannel experience has been on the list of strategic initiatives for retailers for years, executing on that strategy has represented more of a dream than a reality. The solution? According to industry analysts, retailers should fulfill orders and ship from the store.

The past few years have seen an increasing number of brick-and-mortar retailers leveraging their stores as part of their e-commerce fulfillment operations to preserve customer loyalty and gain a competitive edge. However, in the process, many have faced a handful of very real operational challenges ranging from integration and visibility across the supply chain, to technology limitations and poor operational execution.

The business case for in-store fulfillment
Brick-and-mortar retailers have an advantage over pure-play e-commerce retailers that few acknowledge: more and better-placed distribution centers (DCs) - in the form of stores. Those organizations that are leveraging this asset have been able to cost effectively move order fulfillment closer to the consumer, offering a more timely and personalized service.

As retailers implement in-store fulfillment, however, they are finding that turning stores into e-commerce fulfillment centers cannot be improvised. Managing the pick-and-pack processes manually - with no or varying levels integration to store systems - is not a sustainable, long-term solution when online sales continue to rise and are expected to account for 11 percent of total U.S. retail sales by 2018, according to Forrester research  from 2014. The right technology and processes must support consumers and operations simultaneously.

The ROI of implementing the right in-store fulfillment technology
As omnichannel fulfillment initiatives multiply and start chipping away at retailers' supply chain operation costs, calculating the ROI becomes critical. Retailers that have been successful in implementing e-commerce fulfillment solutions to support their efforts have full top-level management involvement and buy-in. A compelling business case and ROI calculation can help get executives on board.

An in-store fulfillment solution offers huge benefits to a retailer in terms of efficiency, accuracy and speed. Standardized processes and centralized systems ensure better communication; greater inventory visibility means faster, more accurate fulfillment; and a labor force that can move more efficiently will fulfill an order faster while preserving the brand-right, in-store experience. These three areas form a foundation for a superior customer experience, no matter the channel.

Increase efficiency by standardizing processes. An in-store fulfillment solution can streamline processes to allow for the uncommon picking requirements of e-commerce orders. As processes are standardized for managing orders, POS systems, and even store replenishment all with speed and customer satisfaction in mind, retailers gain efficiencies that keep manual processes to the minimum and operational costs down. Retailers that have invested in in-store fulfillment software have quickly doubled efficiencies.

In addition, an in-store order fulfillment solution operates on a platform that can integrate with the systems in the retailer's stores and in their warehouses. This is critical for standardizing processes and increasing efficiencies and speed across multiple locations. This integration can include order management, store replenishment, supply chain planning, POS, planogram and ERP systems for better process consistency and automation. If a retailer has stock-out situations, item substitution logic that follows customer-directed rules can help with fulfillment efficiency and ultimately deliver a satisfying customer experience that builds additional brand equity.

Move inventory faster. Efficiently managing inventory across locations and channels is at the heart of multichannel retailing and a successful in-store order fulfillment plan. An in-store order fulfillment solution can maintain real-time inventory visibility at every stocking location from which fulfillment can occur, as well as track what inventory is on its way into those locations and when it will arrive. Retailers can track and trace products down to the lot and item level, conduct periodic cycle counts, inventory look-ups, and capture key data along the way to find merchandise quickly and efficiently. This provides instant knowledge of exactly where products are at all times for better-decision making around order fulfillment. Built-in algorithms help retailers determine from where to pull inventory to ensure they're moving idle inventory first.

Optimize the in-store labor force. Managing the order and managing the store team go hand-in-hand in an omnichannel environment. An in-store order fulfillment solution is fluent in both warehouse and in-store processes, so it can direct the store team to optimize pick tasks, keep labor costs low and meet customer expectations for a seamless experience. It also provides work queue, labor, and productivity management to support the management of store associates.

The time it takes to fulfill an order in the store won't be as predictable as in the warehouse, or as easy to control. An in-store order fulfillment solution sets realistic – and flexible – expectations for the store team, who will likely be interrupted by shoppers or will have to check multiple locations to track down an item. With this flexibility, retailers can preserve the in-store experience for customers and efficiently fulfill the order for customers outside of the store.

Cut down overhead costs. Turning a store into a fulfillment center allows retailers to move order fulfillment closer to consumers without having to open additional distribution centers. This way, they can maximize existing resources while serving a larger customer base across channels – and improve the buying experience with speedier delivery times.

Increase store traffic and consumer spending. The buy online/pickup in store model can drive incremental trips to the store, where consumers may decide to purchase more items. Indeed, many retailers are seeing this benefit as a result of their in-store pickup program. The CFO of a large department store reported to analysts that 15-20 percent of the retailer's in-store pickup customers make another purchase, and an office supply retailer told a publication in a recent article that they see a "significant percent" of customers buying more items from the store when they go in to pick up their online purchases.

Increase gross margins. Retailers know the key to their success is to maximize gross margins. E-commerce sales present an opportunity for additional revenue, but unless the operational cost to support the fulfillment of these orders is kept to a minimum, they can easily turn into an expensive nightmare. An in-store fulfillment solution operationalizes e-commerce order fulfillment in the store to drive efficiency and profitability, while also providing the resources to scale and effectively respond to increasing online demand.

Final thoughts
An omnichannel "buy anywhere, get anywhere" strategy requires retailers to rethink virtually every aspect of the operational model, from order management to fulfillment, last-mile delivery and the store operations. Those retailers that are successfully competing in today's marketplace are simply focusing on what the customer wants and how to deliver that experience in a way that makes good business sense.

Consumers have broken down the walls between commerce channels, forcing retailers to view the omnichannel challenge holistically. The supply chain assets currently in place can all be leveraged to work in unison and provide the better, faster and cheaper experience consumers crave today. To accomplish this, however, a shift in how retailers view their stores is key. In-store (and even hybrid) fulfillment promises a lot of benefits when done right. However, improvising can have the exact opposite effect intended. On the flip side, the right investment can lead to greater customer satisfaction, inventory optimization, cost effectiveness and higher margins.

When considering if this is the right step for their organization, retailers should leave with this one thought: only by standardizing and optimizing every step in the e-commerce fulfillment process will they keep all stakeholders happy – from customers to top management who are likely to be closely watching how they'll remain competitive and profitable in an omnichannel world.

Chad Collins is COO for the supply chain execution business unit of HighJump, which helps customers stay agile, with adaptable, connected solutions that harness the power of their trading partner community. He has been named a Pro to Know by Supply and Demand Chain Executive magazine and leads the sales, professional services and customer support activities for HighJump's enterprise and mid-market warehouse management, EDI and retail management product lines. Collins can be reached at [email protected]
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