Retail Order Routing - What Exactly is it?
Tuesday, May 21, 2019

Retail Order Routing – What Exactly is it?

Editor’s Note: This post was originally published in August 2016 and has been updated for freshness, accuracy, and comprehensiveness. 

Retail Order Routing is the efficient allocation and fulfillment of customers orders based on a set of predefined business rules. Basically, it means getting a customer order, finding the item in a retailers inventory and getting the product to the customer – fast! Naturally, routing intelligence figures out the best stock location from which to source the product. As such, an item can be found in available stock at a Distribution Center (DC), on store shelves, in backroom stock, direct from the manufacturer, and so on. It’s a simple exercise when you have one or two stores. But, the complexity grows exponentially as you add stores, stock location, geographic dispersion, and business rules. Once you are over 15 or more potential stock locations (like the multitude of rubber ducks in the image), you need much more than a spreadsheet or light order routing system.

Seriously? It can’t be THAT Complicated!

Millions of Retail Order Routing permutations

A one store case is simple. One place from which to route. It’s a no-brainer. No need for retail order routing at this stage. One rubber duck from one store. It is either in-stock, or it is not.

Then you open your second location. Okay, if it is not in stock in store one, then ship it to the customer from store two. It is still just that simple.

Now imagine your business starts to boom. You continue to grow. You open 5 new stores, and before you know it, are on the way to your 25th store. Add to this that your eCommerce site is driving even more orders. Life is good. Plenty of orders for your variety of rubber ducks, and related accessories.

As you grow you expand your options. You can now fulfill duck orders off-the-shelf, from backroom store stock, either of your TWO DC’s, or directly from your distributor. BUT, not all items are available at every location. You don’t want all your latest product inventory to be depleted from your stores. Drop shipping is an option, but it is expensive. Plus, it means losing your unique branding. On top of all that, what happens when a customer wants to just reserve a special ‘purple’ rubber duck online, but pick it up from one of your stores in the next 2 hours?

Lightweight or Robust Retail Order Routing?

Retail Order Routing Permutations - Exponential Curve

This is where you break out in a cold sweat. Suddenly you are faced with a much harder problem. What used to be a simple, explodes into mass complexity as you grow. Now you have thousands of rubber ducks and accessories shipped from multiple locations, every day.

Keeping it as simple as possible, we took a stab at estimating the complexity a retailer faces. A brand with 25 stores, 1 DC, 1 online site, and one drop shipper can have over 1.6 MILLION retail order routing permutations – DAILY! Keep in mind this ONLY accounts for your Out Of Stock (OOS) item routing. The model does not account for varying routing rules to coordinate and balance inventories across channels. It also does NOT account for limiting stock depletion from physical stores, or other business rules. Graphed out, it shows the exponential growth of possible routing decisions. Just thinking about it generates a bead of sweat on your forehead. Now imagine facing this challenge weekly… daily… hourly!

Can you Handle it?

25 Store - 1.6Million Retail Order Routing Permutations

Now the big question is, can you do this in real-time. The scenario above used an 8.3% stock out rate estimation (Retail Out-of-Stock Study), with 1,500 monthly orders per store or sales location. And Out-of-Stocks has not improved since this study was done as a 2017 Gartner report still shows an 8% Out-of-Stock in North America and between 4% – 12% Out-of-Stock in Europe.

Imagine trying to run this volume of decisions in real-time, EVERY SINGLE DAY. Can a simple spreadsheet handle it? Can even a lightweight POS (Point of Sale system) or eCommerce pre-integrated order management system keep up?

Even if you were getting by with an existing pre-integrated, simple order management system, could it be harming your business? With this level of complexity – retailers need robust solutions that optimize your business. That means flexing to the business rules you set out and having the power to deliver on them. Simpler engines might barely keep up. Even then, these engines might be keeping up by just allocating against the easiest route. Or maybe it is just defaulting to one routing rule (always ship from DC). Here, the big question is whether this is costing you money? Is a lightweight retail order routing system costing you margin by not giving you an optimal solution?

Intelligently Running Your Business

To run Retail Effectively - can you afford NOT to think Retail Order Routing?

Intelligent retail order routing helps you run your business. It takes the burden and frenzy out of finding, allocating, and fulfilling an order – effectively. Good retail order routing will route orders to the optimal location following your business priorities. A good system helps lower your costs, balance your inventory, and improve customer service.

To run retail effectively – can you afford not to think about order routing?

 

After all, it will help you keep your ducks in a row…

 

For more on this read the two-page Retail Order Routing Brief. It will help you focus on what you need to consider.

Editor’s Note: This post was originally published in August 2016 and has been updated for freshness, accuracy, and comprehensiveness

Author: 

Charles Dimov, VP of Marketing at OrderDynamics

Charles Dimov is VP of Marketing at OrderDynamics. Charles has 23 years experience in Marketing, Sales and Management across various IT and Technology businesses. Previous roles include Chief of Staff, Director Product Marketing, and Director Sales. Charles has held roles in brand name firms like IBM, Ericsson, HP, ADP, and OrderDynamics.

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