The Real Cost Of In Store Fulfillment
By Matt Sinn
Vice President of Food and Beverage, MonarchFx
MonarchFx’s distributed network of fulfilment centers (FC) can boost profits by shifting eCommerce order fulfillment to FCs and away from stores.
Several retailers including WalMart, Target, The Home Depot, Lowe’s, and others are fulfilling eCommerce orders from store stock. Service providers who support the fulfill from store model are advocating its expansion. For supply chain and eCommerce decision makers, this raises the question of how to think about the role that fulfill from store should have, if any, in eCommerce fulfillment, versus fulfilling from a FC.
We are focused in this blog on non-grocery orders and on both the buy online pickup in store (BOPIS) and the buy online direct to consumer (DTC) paths. We provide guidance to decision makers in this blog on when they should use fulfill from store and how they can shift their fulfillment volume toward the lower cost fulfill from FC model through a distributed network of FCs close to where customers reside.
In short, fulfilling from a store is best suited when speed of fulfillment is necessary to win the sale. Fulfilling from FCs is a lower cost, albeit slower, method than fulfilling from stores. Items in stores used for in store fulfillment have incurred transportation and handling costs to get placed into the retail environment that can be avoided if fulfillment is done out of a FC. Therefore, fulfillment from stores cost more. However, when fulfilling from a store makes a difference between getting a sale and not, even though it is slightly more expensive, fulfilling from store should obviously be used. Furthermore, in the case of BOPIS, often more than the immediate online sale is at stake. When customers do BOPIS, typically 30%-50% of customers purchase additional items in the store when they arrive to pick up their online order. Again, when speed makes the difference between a sale and not, then fulfillment from store is a good choice for both DTC and BOPIS.
Due to space limitations and other effects, decision makers should think of fulfilling from stores as a network-based approach to service vs trying to be in stock at every store on every item. The retailers mentioned above all perform in store fulfillment for BOPIS across all stores in a given search radius, showing which stores offer BOPIS for a given item and which do not, based on store inventory. When local inventory does not support same day availability, those same retailers offer DTC from one of their FCs.
When speed is not necessary to gain the sale, retailers should steer customers to lower-cost FC based fulfillment for both BOPIS and DTC. For BOPIS, orders can be batch picked and shipped to stores efficiently and sometimes can even be combined with store replenishment shipments on one truck. Fulfilling from FCs will be lower cost than fulfilling from stores because the merchandise in stores has already picked up additional transportation and handling costs vs merchandise in the FC. For DTC, the landed cost from a regional FC will be lower than in the fulfill from store model due to parcel shipping costs being very similar between the fulfill from store and fulfill from regional FC models.
Clearly for a given sale, decision makers will want their supply chain to fulfill from FCs when possible. The key enabler to being able to leverage the lower cost FC model is having FCs close to where customers reside, so one-day, two-day, and similar order to delivery/pickup speeds can be offered. Some retailers today use fulfillment from stores because they cannot offer better than three-day or four-day order to delivery/pickup and/or the costs of being faster are prohibitive. If those retailers were able to offer one-day order to pickup/delivery out of their FCs they could reduce their costs and increase their profits, while having no impact on customer service and speed.
Many retailers’ FCs are too far from where customers reside and/or lack the systems and equipment to offer fast pickup/delivery, hence these businesses are pushed to using fulfill from store for a majority of orders. MonarchFx was created to solve this gap in capabilities and distance between legacy FCs and where customers reside. MonarchFx is a network of FCs across the U.S. close to all customers that offers fast shipping of eCommerce orders.
Building internal eFulfillment capabilities requires capital expenditures, IT projects, and opportunity costs. MonarchFx can provide eFulfillment for a company with no capital expenditures, no IT projects beyond integration, and requires only one-year commitments. MonarchFx offers sellers tools to optimize inventory levels and minimize working capital. MonarchFx offers rapid fulfillment of eCommerce orders for either BOPIS or DTC.
Finally, because MonarchFx FCs are close to customers and can often offer faster delivery times, delivery speeds on DTC orders with MonarchFx can be faster than under other DTC options. In today’s environment where ~40% of eShoppers require two-day or faster shipping, faster DTC shipping increases the number of customers being accessed, hence increased sales.
- White Paper: Achieving Revenue Gains from Distributed Logistics
- Article: Transportation Innovation 2018
- Video: Get To Know MonarchFx