Where are the weak points in in-store fulfillment?
A new McKinsey study finds retailers can significantly benefit from using their stores for online fulfillment or pickup, including enabling greater overall inventory productivity, quickening speed to customer and avoiding markdowns. However, it also comes with challenges.
The five in-store fulfillment challenges to overcome identified in the study were:
- Inventory accuracy: McKinsey finds stores generally have lower inventory accuracy rates (70 to 90 percent) than distribution centers (typically more than 99.5 percent).
- SKU complexity: With online assortments typically including channel exclusives, endless aisles and third-party drop-shipments, minimizing margin-eroding split shipments across the network becomes challenging.
- Demand forecasting. McKinsey finds that, given the challenges inherent with positioning inventory across distribution centers, various store types and market fulfillment centers, accurate demand forecasting and distributed inventory placement remains one of the greatest struggles outside of network changes.
- Picking costs. For a majority of retailers, the cost of in-store picking is typically 1.5 to 2 times higher on a cost-per-pick basis than picking at distribution and fulfillment centers.
- Execution quality. Stores weren’t designed to do online fulfillment at scale. Particularly during peak times, managing exceptions, ensuring accurate picks and tightly controlling cycle times to customers present challenges.
Retailers regularly tout the benefits of in-store fulfillment, which includes not only the shopper convenience and cost savings related to in-store pickup but speedier outbound deliveries, as well.
A DC Velocity article from last year, “Downsides Of In-Store Fulfillment,” pointed to the cost inefficiencies of filling online orders from stores versus warehouses in low-rent areas, as well as the risks to the in-store customer experience from delivery pickers crowding aisles.
Target, where stores fulfill about 80 percent of online orders, just announced it was getting ready to open two new sortation centers in October, followed by two more after the holidays, to support its ship-from-store capability.
“These new facilities offer faster delivery times at a lower cost in markets with a high density of shipments,” said John Mulligan. Target’s COO, on its second-quarter conference call. “In addition, they free up backroom space at store locations they serve, expanding capacity for more digital growth over time.”
- Retail’s need for speed: Unlocking value in omnichannel delivery – McKinsey
- In-Store Fulfillment Creates ‘New and Unusual Workloads’ for Retailers – Pymnts
- The downsides of in-store fulfillment – DC Velocity
- Target (TGT) Q2 2021 Earnings Call Transcript – The Motley Fool
- What’s the formula for e-commerce profitability? – RetailWire
DISCUSSION QUESTIONS: Where do you see the biggest pain points or obstacles to overcome as stores increasingly rely on in-store fulfillment for online orders? What technological and non-technological solutions do you see?