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Multi-Channel Distribution Center Considerations

Re-evaluations of DC Network strategy and 4-wall DC design often occur as customers shift from traditional brick and mortar and adopt cross-channel capabilities.  In yesterday’s supply chain, retailers built Distribution Centers (DCs) to be channel-specific where they either fulfill retail or eCommerce orders. Many leverage 3rd party DCs (3PLs) entirely for eCommerce orders due to how different fulfillment needs can be from a traditional store replenishment DC.  As the supply chain has become a key differentiator in retail today, distribution centers are now increasingly becoming “multi-channel.”

So, what does that mean to the 4-walls of your DC? Here are three things to consider when moving to a multi-channel operation:

  • Flexible Order Fulfillment Engines
  • Labor and Workflow Planning
  • Omnichannel Capabilities

Flexible Order Fulfillment Engines:  A retail order looks quite different from an eCommerce order, therefore, they are fulfilled in very different ways.  Retail orders have the same SKUs being fulfilled to multiple stores in different quantities while an eCommerce order may be 1 or 2 separate SKUs.  One of the most common retrofit activities that occur when a DC becomes multi-channel is ensuring there is an appropriate fulfillment engine for each order profile.  For example, when implementing eCommerce orders into a retail DC, you may see Put Walls introduced. In eCommerce or retail operations, a Put Wall is basically a shelving system (fluid or static) outfitted with put lights. Each shelf slot, or tote, represents an order for an eCommerce customer or part of a store order in a retail operation. In a higher volume eCommerce operation, you could also see advanced material handling equipment like a unit sorter or automated storage & retrieval system (AS/RS) used to process many orders using similar concepts.   A successful multi-channel operation must consider how each fulfillment engine will support a mix of demand across each channel during each seasonal peak and valley, factoring expected growth for the next 3-5 years.

Labor & Workflow Planning:  Introducing a new channel in a DC can make labor and workflow planning a challenging task as it is primarily driven by the forecasted demand.  Retail and wholesale channel demand is usually more predictable than eCommerce demand. Wholesale orders have known ship-by dates that can be planned weeks in advance. Retail orders are generally less subject to unplanned demand spikes given the large number of stores to which common inventory is distributed. eCommerce demand is much more volatile; just think about how a snow storm in the northeast U.S. usually increases online demand.  Therefore, when introducing eCommerce into a relatively predictable retail operation, it is imperative that your labor plan includes the ability to flex labor from one channel to another and there is a centralized view of workflow to optimize labor when real-time conditions dictate.

Omni-Channel Capabilities:  One of the key advantages of having multiple channels fulfilled from the same DC is the ability to share inventory across those channels and enable customer-facing supply chain capabilities.  While there are channel-specific SKUs, most often the same SKU is sold in multiple channels. This is where the Omni-Channel DC starts to come to life. One of the must-have capabilities in retail today is “buy online, pick-up in store” (BOPIS). This capability allows a customer to pick up their order in a retail location down the street and avoid shipping costs while generating foot traffic in the store.  This “free shipping” offer is, of course, not free, but is financially feasible when fulfilled from a multi-channel DC where the eCommerce order can be included with replenishment product shipments to a retail location. Inside the 4-walls the inclusion of BOPIS and replenishment lines in the same fulfillment flow introduces operational challenges and highlights the realities of a multi-channel DC. It requires thoughtful coordination of people, process, and technology.  Advanced warehouse management software, warehouse control systems and material handling equipment are synchronized to identify a single eCommerce unit (of several hundred thousand) to be placed into a single retail replenishment carton before it is shipped to the store.

Michael Murrison is the SCApath Distribution Practice lead and specializes in solution design and implementation for Omni-Channel Retailers.  Contact us to learn more.