Retail Order Fulfillment: Is there a better way?
Thursday, November 30, 2017

Retail Order Fulfillment: Is There A Better Way?

The other day, a prospective client asked us about optimized retail order fulfillment. Specifically, he asked if our order management system could optimize orders based on the availability of products at different locations. In this case the customer had been doing so manually for some time, and knew there had to be better options.

Order Routing is All About Optimization

An OMS should be capable of both automating and optimizing retail order fulfillmentSimply put, the answer is yes. OrderDynamics’ DOM (distributed order management) system has an optimizing order routing engine at it’s core. In fact, all reasonably powered order management system (OMS) should be capable of both automating the routing from multiple locations with varying inventory levels, while ensuring it optimizes the retail order fulfillment. The optimization should be according to a set of business rules that the retailer would have configured within the system.

Business Rules?

Business rules make sure the DOM routes orders according to the priorities desired by the retailer. For example, at the beginning of the season a retailer may want their in-store inventory levels fully loaded, for the fresh rush of shoppers. For this case, the business rules may optimize retail order fulfillment such that home delivery, online orders route directly from the nearest distribution center. Do this ONLY if the distribution center is within 50 miles of the shopper’s delivery location. Otherwise, route the order from the nearest store to the customer’s location, and rather use ship-from-store inventory.

Such a rule, would route the order from the distribution center as often as it makes sense. Shipping from a nearby store, however, may provide significant savings in certain cases. Because this rule fulfills most items from the DC, in-store inventory is kept for the in-store shoppers.

Flexible Rules

Brainstorming Retail Order FulfillmentAt the end of the season, retailers may need to change their retail order fulfillment strategy. Now, the retailer’s priority is to deplete in-store inventory as quickly as possible, and to do so while minimizing the need to discount merchandise. A good DOM gives the system administrator the ease of being able to change the business rules on the fly. A good system is neither hard coded, fixed for standard rules only, nor does it require a consultant or specialized coder to change the system. Rather, good DOM solutions are built with flexibility and ease in mind – letting a system administrator change the rules with a few Boolean functions (using and / or commands, for example).

In our example, at the end of the season the retailer will want as many orders as possible to ship-from-store. That means most online orders for delivery will route from the nearest store with enough stock to fulfill the request – to the shopper. Here, the advantage is that retailers can bulk ship the DC inventory back to the manufacturer or designer (depending on their contract stipulations), and can sell as much of the field inventory out to customers as possible. By selling it through there is no need to double ship the items (from DC to store, then store back to DC at end of season). This also reduces the pressure to discount in-store inventory, by depleting it as quickly as possible to both online and in-store orders.

Common Order Routings Flaws

Retail Order Consolidations - What is it? Read the Brief.Today, almost all DOM systems in the field have a critical flaw, which an advance order management system corrects. That flaw emerges when a customer order multiple items, and the retailer tries to fulfill all items from field inventory. Most systems will review the request, and send it to the nearest store from the shopper that has MOST of the items on their list. It then puts that list of items into a box, and ships it to the customer. If there are more items that the first store did not have in stock, the remaining order is routed to the next nearest store with the most inventory to fulfill the order. That inventory is taken from location two, put into a box, and shipped to the customer. If there are still items left unfulfilled, the process is repeated for field location three, and so on.

Does That Really Matter?

Amusingly, I recounted a story about my wife purchasing seven pair of socks, and two lipstick balms in an earlier post. The total order was valued at about $26. It qualified for the retailer’s free shipping cutoff being orders over $25 in value. In this case, the retailer shipped this miniscule order in three separate boxes, on three separate shipments, and over the span of three consecutive days. Stunned, I estimate the retailer spent $40 – $45 to ship the entire $26 order to our door. It does not take much to figure out that this was a margin depleting sale.

Good DOM solutions are built with flexibility and ease in mind

From a customer’s perspective this was mildly amusing on the one hand, and thoroughly irritating on the other. Most customers have a hopeful expectation that they will receive their entire order in one box. Many customers also become irritated and even angry with the retailer from an environmental waste perspective. Three large shipment boxes for seven small pair of socks is quite excessive.

From a retailer’s perspective – this is a huge miss. Not only has customer satisfaction dropped, but so has the shopper’s respect and loyalty to the brand. Of course, there is also the massive negative margin that these orders incur. How quickly will a retailer’s margins and profitability erode when this happens?

Consolidation: Advanced Order Routings

To fix this flaw, OrderDynamics invented order consolidation. Ok. Ok. We did NOT invent it. Rather, one of our clients requested this as a new capability for our DOM. This client noticed this flaw, spoke with every significant OMS vendor on the market, and asked us to design a solution to fix it. We said “YES” – got to work – and launched order consolidation as part of our standard out-of-the-box offering. It is a built-in feature of the advanced order routing engine. Retail clients can turn it on when they want to minimize shipments so all parts of a shoppers order ships in one box. They can also save on shipping costs, and improve customer satisfaction. Yet, at other times they may choose to turn it off and split shipments for maximum delivery speed.

Optimized Order Routing

Thinking of a better way of doing retail order fulfillment

If you are in the market for a new order management system, most will have an order routing engine. Ensure that it is an intelligent one that is using flexible business rules that you set, to optimally route orders. Insist on the flexibility of letting you change these rules as your business needs.

There are many systems on the market. Many of them are called ‘platform’ solutions. Platform solutions always require programming to create an OMS on the platform that the vendor provides. Many such vendors may do the coding for you the first time. But beware, because when you need the flexibility to change the business rules to adjust to your seasonality or changing business conditions – platform systems need a consultant or specialized programmer to re code the system for the business rule changes. Not only is this time consuming, it does not keep up with your need for nimble flexibility. Retail is hyper-competitive. The last thing you need are additional delays, and extra consulting costs you did not expect, and which are not in your budget.

Also ask your vendor about whether their system hard codes the business rules. We have heard from several customers who were livid to find out their OMS system was a hard-coded solution. Every time they needed a business rule change to adapt the order routing rules to the new season – they have to call the vendor, get a quote, and pay for the programming time to hard-code the new rules into the system. Imagine what the senior executives think about the person who recommended this choice.

Finally, look for systems with more advanced capabilities, like the order consolidation function described above. It will save retailers enormously, as an increasing level of retail order fulfillment ships from store inventories. Beyond that, choose to work with retail technology vendors who are willing to work with you, and accommodate their systems to suit your retail needs.

 

Author:

Charles Dimov - Director Marketing OrderDynamicsCharles Dimov is Director of Marketing at OrderDynamics. Charles has 21+ 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.

 

 

Related: 

What Exactly is Retail Order Consolidation?

Want to Know More About Distributed Order Management?

Retail Order Routing - What Exactly is it?