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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 and Mortar Success for Breakthrough Omni-Channel Fulfillment
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
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
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
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
Fo
cu
s T
od
ay
Note: range reflect observed average of larger retailers
Observed Performance Impact
Fulfillment must start with a clear segmented view of future consumer promise
Consumer Expectations Illustrative
Grocery Fresh Personal
Care/Beauty Apparel Electronics
Home & Furniture
<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
eC
om
me
rce
Ch
an
ne
l S
tore
Ch
an
ne
l
1.1
More Important Less Important
Trade-offs are key: where will you place strategic bets to truly differentiate?
Example: Consumer promise of fast delivery speed can impact your network footprint and asset needs
Delivery Speed (in business days)(1)
Same Day 9 3 5 6 8 2 1 7 4
Big & Bulky
Consumables& Baby
Toys
Electronics
Hardlines
Apparel
Media 2
da
ys
de
live
ry
1-2
da
ys
Sam
e-N
ex
t D
ay
3-5 days
Emerging “table stakes” in future Current industry range
Retailer A
Retailer A
Retailer A
Retailer A
Retailer A
Retailer A
Retailer A
Retailer B
Retailer B
Retailer B
Retailer B
Retailer C
Retailer C
Retailer C
Retailer C
Retailer C
Retailer C
1.1
• Store fulfillment
• 15-20 New DCs
• Store fulfillment
• 7-10 new DCs
• “Sweat” store network assets
• Some new DCs
The “solve” grows complex as you design against the multiple “consumer promise” bets you have placed
Rigorous mapping of customer promise to clean-sheet
supply chain requirements is critical
1.1
Category
…
Clear Customer Promise by Category …
Demand Profile
Seasonality
Delivery Time
Assortment Depth / Breadth
Returns
Ensure Optimal Design
• Product Cube Profile
• Peak Profile
• SKU Count
Asset
• SKU Velocity
• SKU Cycle
• Reverse Logistics
Inventory
• Footprint and flow
• Sizing, capacity
• Eaches picking solution
• Technology/ CapEx
• Roll-out Sequencing
… Inform Clean-Sheet Fulfillment
Requirements
• Item volume
• SLA Profile
Network
Category Bottoms-Up Clean-Sheet Mapping
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
Suppliers Suppliers Suppliers
Lead Time
Minimal Split Orders
Assortment (SKU profile)
Seasonality
1.1
Illustrative
9
Stores/Lockers
Volume Predictability
… 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
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
Focus on the “invariant” aspect of future strategic scenarios when building out a solution
Geo-Demand
Fuel Cost
Category SLAs
Picking vs. Ship Cost
Future Commercial / Market Scenarios
• Metro/East Coast
• $4/Gal Diesel
• Avg. 2 Day Lead Time Req.
• East/West Balance
• $2/Gal Diesel
• Avg. 3 Day Lead Time Req.
• Larger Rural Impact
• $4/Gal Diesel
• Next Day moving to Same Day
Focus on the “invariant” portion of future solution to maximize flexibility
Optimal Solutions (Future Solution Sets)
• Warehouse pick cost ~ TPT cost
• Warehouse pick cost ~ TPT cost
• Warehouse pick cost >> TPT cost
Potential Future Scenarios
Illustrative
1.2
Leverage partnerships and 3PLs as flexible channels
and assets
1.2
Nature of Category Demand Inform In-House vs. Outsourced Option
>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
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
• Optimize cost vs. service
• Minimize over-investment
• Invest with demand, not ahead of it
• Disciplined learning and capability build
Define shared incentives to drive integrated actions
and behaviors
Shared Incentive
Operational Performance Financial Incentives Continuous
Improvement
• Compensation bonus tied to cross-functional financial targets
• Balanced financial targets
Revenue and profit
Incorporate “leading” KPIs
• Leading KPIs to enable growth and lowest possible cost
Inventory turn
Net SKU productivity across channels
• Transform store KPIs to drive integrated-channel experience:
Track incremental store sales from click and collect
• Track and compensate for continuous improvements
Inventory turn
Cost per Unit
etc.
• Track and compensate 360 learning/info sharing behaviors
Emerging best practice
14
2
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
Self diagnostic – is your fulfillment ready?
More Prepared = 5 Less 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
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 [email protected]
Contacts
Sumit Chandra [email protected]
Michael Hu [email protected]