Fulfillment as a Competitive Advantage

From the January-February 2015 edition of Supply Chain Management Review.

January-February 2015

As long as there have been boats and beasts of burden, intrepid business professionals, governments, and marauders have sought fame, fortune, wealth, and value by going global. Think the Phoenicians, Marco Polo, and…

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The bar has been raised. Almost every company is working to reduce the time it takes to get an order to a customer’s home or to its stores.

They are following Amazon’s lead in offering next-day, and even same-day delivery. A recent survey showed that 65 percent of buyers want next-day delivery. And another survey showed that 24 percent of online buyers said same-day delivery was important to them. All of this is putting pressure on retailers as well as industrial distributors to rev up their cycle times for fast, faster, and fastest fulfillment times compared to their competitors.

While Amazon is in the news, this is not just an e-commerce arms race. Companies are moving faster to replenish their stores too, in order to keep less inventory at each retail location and cut inventory across the entire network.

It’s not just cycle and fulfillment times that are changing; there has also been a fundamental change in the profile of those orders being fulfilled. E-commerce orders are typically one to two items. Store replenishment order profiles are also getting smaller, and are beginning to resemble e-commerce orders, as stores receive cartons and mixed cartons several times a week rather than pallets and mixed pallets less frequently. One specialty retail client now carries only a single unit of its slowest-moving products on its retail shelves. Yet, thanks to a faster store replenishment model, the retailer has increased its in-stock position from 90 percent to 97 percent while decreasing inventory by 25 percent. As with e-commerce, single item and partial case orders are harder and more expensive to process. Any company in the retail or industrial fulfillment business has to balance the competitive pressures to satisfy its customer expectations while minimizing the costs of extra handling and speedier delivery. We believe the following methodology demonstrates that an investment in faster fulfillment can deliver a competitive advantage for a wide variety of companies.

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