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Same-Day Fulfillment: The Value of Speed to Retail

Analyst Insight: Next-day delivery is the new normal. And fulfillment windows are compressing even further as companies like Amazon continue to raise customer expectations. But companies wrestle with what level of service makes sense, and how to justify investments. It's not about making every process in the DC faster. It's a delicate balance of revenue gains and improved customer service against investment and operating costs. - Helgi Thor Leja, Industrial & Electrical Industry Leader, Fortna Inc.

Same-Day Fulfillment: The Value of Speed to Retail

Customer expectations are driving shorter order-to-delivery cycles. Speed is the new game changer. Businesses that can't compete on speed are at risk. But companies that master accelerating fulfillment and later order cut-off times are gaining competitive advantage.  They're seeing larger, more profitable orders, lower safety stock, broader inventory selection and higher inventory turns for cash-to-cash cycle improvements. But the business case is even broader than that. Rapid replenishment and faster fulfillment can deliver additional benefits like enabling growth and new channels, potential sales and margin lift, and even overall network flexibility.

And therein lies the challenge with the business case. How do you place a value on things like enabling growth, competitive advantage and network flexibility? These conversations typically require broader stakeholder involvement than your traditional supply chain investments. While most of the burden of accelerating fulfillment falls on the distribution center, the ripple effects of speed can be felt throughout the organization. Speed impacts culture, processes, systems, equipment, inventory, transportation strategy and even how you handle seasonal and promotional peaks. It affects finance, merchandising, marketing, engineering and human resources.

The goals of distribution have always been to reduce processing time, reduce touches, increase speed and reduce cost. But same-day fulfillment may require more parallel processing of orders to get them through the DC faster.  And that could drive you to do things that seem counterintuitive, such as adding more "good" touches to your processes.  Or you may require a change from batch order processing to event-driven processing. It may require investments that seem out of line with the ROI, until you start to look at the broader business case.

The bottom line: You can speed up some processes using technology and operational improvements, but others require balance. This is especially true of areas like picking, order planning and replenishment. Are you willing to accept the penalty of a less optimal process in order to get to a shorter fulfillment time for the customer? The challenge will be in choosing an operational solution that can handle wide swings in demand, particularly in the complex e-commerce portion of the business, without sacrificing productivity and profitability.

                                                 The Outlook

Customer expectations for shorter order-to-delivery cycles will drive companies to further accelerate fulfillment. Justifying investments will require new ways of looking at the business case. And the ripple effects of speed will be felt throughout the organization. The key is to weigh the potential revenue gain and/or service improvement against the investment and operating costs.

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