Leveraging Supply Chain Design to Create a Responsive Omni-Channel Distribution Network
A large multi-billion dollar specialty retailer has more than 400 stores across the United States. In addition to the brick and mortar store presence, they also have a rapidly growing online ecommerce presence. The online customers seek any product, delivered anywhere at any time. The challenge for this retailer is to have the available capacity to satisfy the nearly immediate whims of the consumer searching for fashion items. Its single distribution center (DC) location in the Midwest was an impediment to achieving the goal of fulfilling orders within two days of placing an order. The one DC design left 20 percent of the retail stores not serviced within two days and 75 percent of online customers were serviced from three to five days after the order was received.
This large retailer was faced with the challenge to create a cost effective supply chain to ensure that the available capacity is sufficient to fulfill ecommerce customer expectations within a two-day period and create a faster replenishment of stock in stores.
The retailer worked with LLamasoft partner Kurt Salmon Associates (KSA) to build a LLamasoft® Supply Chain Guru® model to simulate various potential network
configurations and identify the most efficient and cost-effective omni-channel solution.
There were four primary objectives:
- Two-day Ecommerce Fulfillment Target
The first model objective: two-day fulfillment for 90+ percent of ecommerce orders. Model consideration were to either add fulfillment nodes or pay expedited parcel shipping costs. The model showed the single campus solution was able to provide two day coverage of 77 percent with an increased budget for ground transportation. The two-day fulfillment promise for ecommerce orders could only be achieved with a significant investment in air transportation.However, it was proven that 100 percent of the online orders could be accommodated within two days through regional distribution centers.
- Faster Retail Transit
The second model objective was reduce West Coast transit time to retail outlets and consider expedited unit replenishment to increase in-stock rates. The model shows benefits of reducing line haul to pool time, increasing the frequency of deliveries and leveraging daily parcel shipping.
- Demand Shift in Selling and Fulfillment Channels
The third model objective was to leverage stores and vendor drop ship to fulfill online orders and establish flexible fulfillment models. The model showed how all selling channels—store, ecommerce and mobile—could be fulfilled through a combination of in-store stock, fulfillment center replenishment and vendor drop-ship delivery.
- Inventory Placement Strategy
The fourth model objective was to determine inventory placement so orders could be shipped to any customer or store from any node with a minimum of split shipments and costs. The model determined operational complexities that included volume of split orders, out-of-zone shipments, allocation planning, distribution center inventory transfers and safety stock increases.
The national omni-channel distribution strategy will meet the retailer’s goals of providing better customer delivery times and will help retain customers. The two distribution center model will enable the company to service 95 percent of its retail stores within two days, and fulfill 92 percent of all online orders within two days.
The retailer considered the impact on sales and margin, not just on costs. The omnichannel solution provides a sales lift, an increased assortment of products, helps retain customers and provides consumers with a consistent experience.