Executive Briefings

Designing Distribution Channels to Meet Consumers' Omnichannel Demands

Omnichannel retailing is here to stay, and retailers not using it successfully are losing sales and profits to those that do. In devising an omnichannel strategy, the natural starting point is the point of purchase "” brick-and-mortar stores and/or e-commerce sites for online and mobile shopping. But customer expectations don't stop when the sale is made. Order fulfillment is every bit as important to winning repeat business. Now more than ever, a well-developed supply chain strategy is vital to retailers' success.

Designing Distribution Channels to Meet Consumers’ Omnichannel Demands

It's no surprise that retailers are working hard to integrate websites, brick-and-mortar stores and social media channels into one seamless communication stream for customer interaction, aka omnichannel.  Consider these recent statistics:

"¢ 72 percent of U.S. and U.K consumers ages 20 to 40 use mobile devices to compare prices in-store, and most leave before making a purchase, according to an Accenture Interactive study.

"¢ More than 35 percent of Home Depot customers' mobile purchases, and approximately two-thirds of HH Gregg online orders, are picked up at store locations, according to earnings reports issued by those firms in the past year.

To compete for customers who expect a seamless omnichannel experience, retailers are adding store features such as pickup stations for products bought online or by phone, as well as in-store options on their mobile apps designed for customers using both channels simultaneously.  These features amount to a customer promise that can only be fulfilled with a supply chain strategy that integrates all channels.

Developing an omnichannel supply chain strategy requires rethinking the number and location of distribution centers, as well as their layout and design features.  The most in-demand type of industrial real estate is designed to combine e-commerce and traditional store distribution channels.  These "big box" distribution centers are more than 250,000 square feet with clear ceiling heights of 36 to 40 feet to accommodate multiple mezzanine levels for processing and shipping individual orders.

The growing demand for big box distribution has site selection implications in terms of markets as well as specific sites.  Such big box development for omnichannel facilities tends to cluster in areas where merchandise can reach the most consumers and stores quickly and cost-effectively.  As a result, there is a greater concentration of big box product along the periphery of major metropolitan markets, including Chicago, New Jersey, Long Beach, Philadelphia, Dallas and Atlanta. Strong second-tier big box hubs include cities with strong transportation infrastructure and growing populations, such as Indianapolis, Memphis, Houston, Phoenix and Kansas City.

Land cost and availability can also be a concern for omnichannel retailers. These distribution centers are extremely land-intensive; they not only require a larger footprint for the building but they also employ more workers per square foot than traditional distribution centers, necessitating more land for parking.

Rethinking Distribution Design

The omnichannel trend requires retailers and supply-chain industry leaders to reconsider the optimal design of distribution centers.  Historically, distribution to stores and for individual order deliveries has been handled on separate tracks.  Store-based distribution systems have become highly automated"”when a customer makes a store purchase, the transaction is noted by the bar code reader at checkout and the product is automatically back-filled in the next delivery cycle.

Product picking is accomplished by automated systems and added to the next scheduled delivery from the warehouse to the store. Merchandise bought from stores one day is back on the shelf often the very next day, with little or no direct human action involved between the scanning of the sale and the restocking of the shelf by store employees.

However, a different system is required for e-commerce order fulfillment. Products are picked from warehouse shelves at the direction of distribution workers. When multiple products are purchased in one order, workers must consider the size of the box and special packing considerations of combining products in one shipment.  If the customer has ordered gift-wrapping, that must be handled by workers at the distribution center.

Distribution centers designed for e-commerce users include larger mezzanine areas for operations such as back-office tasks, gift wrapping, call centers and returned merchandise.  These tasks are best handled in mezzanine office spaces. The inclusion of two or even three mezzanine levels requires ceiling clearance heights of 36 to 40 feet.

E-commerce centers also require a much larger workforce than traditional warehouses. The presence of more people means that building systems, such as lighting and ESFR fire protection, must be upgraded. Heating and cooling systems, that in traditional distribution centers are driven by inventory, must now meet a higher standard in centers with e-commerce fulfillment for employee density.

Big box distribution centers designed for omnichannel fulfillment must combine these two very different supply-chain processes into one seamless solution.  Maintaining two complete side-by-side inventory systems would be inefficient, so omnichannel distribution centers need to be able to accommodate both processes in one fluid system. Omnichannel fulfillment requires significant capital investments in material handling, conveyor sortation and controls, optimized racking systems and lift equipment, inventory management software and picking/packing technology.

Centers must be larger overall to accommodate multiple distribution channels, and typically require separate staging and loading areas for e-commerce and store distribution. That is likely to mean a cross-dock building to accommodate more truck docks as well.

This new wave of big box development also comes at a time when owners and tenants of all property types are focused on reducing operating costs and creating sustainable workplaces.  High-efficiency HVAC systems and upgraded insulation are examples of typical building features that reduce energy consumption, which serves both cost-containment and sustainability goals.  Another new feature that is gaining popularity in big box development is the installation of prismatic skylights that capture and disperse natural light to all corners of a center, improving lighting and thermal comfort throughout the building - rather than having hot spots and glare from concentrated sunlight.

Very few existing distribution centers of more than a few years old are set up to accommodate the needs of an omnichannel distribution strategy. Furthermore, the distribution networks which retailers have in place to handle traditional store distribution, e-commerce or both must be reconsidered in optimizing the supply chain to all types of customers.

The process of setting up a strong omnichannel supply chain is a major undertaking for retailers, but those that fail to pursue this aspect of omnichannel marketing have little chance of success in the new world of consumer expectations.  Leaders in the supply-chain industry have an unprecedented opportunity to help retailers make the logistics work for this increasingly complex process.  Done right, the result is a win-win for distribution and supply-chain providers, retailers and consumers.

Source: Jones Lang LaSalle


Keywords: supply chin management, logistics services, logistics management, logistics & supply chain, 3PL, third party logistics, transportation management, warehouse management, WMS

It's no surprise that retailers are working hard to integrate websites, brick-and-mortar stores and social media channels into one seamless communication stream for customer interaction, aka omnichannel.  Consider these recent statistics:

"¢ 72 percent of U.S. and U.K consumers ages 20 to 40 use mobile devices to compare prices in-store, and most leave before making a purchase, according to an Accenture Interactive study.

"¢ More than 35 percent of Home Depot customers' mobile purchases, and approximately two-thirds of HH Gregg online orders, are picked up at store locations, according to earnings reports issued by those firms in the past year.

To compete for customers who expect a seamless omnichannel experience, retailers are adding store features such as pickup stations for products bought online or by phone, as well as in-store options on their mobile apps designed for customers using both channels simultaneously.  These features amount to a customer promise that can only be fulfilled with a supply chain strategy that integrates all channels.

Developing an omnichannel supply chain strategy requires rethinking the number and location of distribution centers, as well as their layout and design features.  The most in-demand type of industrial real estate is designed to combine e-commerce and traditional store distribution channels.  These "big box" distribution centers are more than 250,000 square feet with clear ceiling heights of 36 to 40 feet to accommodate multiple mezzanine levels for processing and shipping individual orders.

The growing demand for big box distribution has site selection implications in terms of markets as well as specific sites.  Such big box development for omnichannel facilities tends to cluster in areas where merchandise can reach the most consumers and stores quickly and cost-effectively.  As a result, there is a greater concentration of big box product along the periphery of major metropolitan markets, including Chicago, New Jersey, Long Beach, Philadelphia, Dallas and Atlanta. Strong second-tier big box hubs include cities with strong transportation infrastructure and growing populations, such as Indianapolis, Memphis, Houston, Phoenix and Kansas City.

Land cost and availability can also be a concern for omnichannel retailers. These distribution centers are extremely land-intensive; they not only require a larger footprint for the building but they also employ more workers per square foot than traditional distribution centers, necessitating more land for parking.

Rethinking Distribution Design

The omnichannel trend requires retailers and supply-chain industry leaders to reconsider the optimal design of distribution centers.  Historically, distribution to stores and for individual order deliveries has been handled on separate tracks.  Store-based distribution systems have become highly automated"”when a customer makes a store purchase, the transaction is noted by the bar code reader at checkout and the product is automatically back-filled in the next delivery cycle.

Product picking is accomplished by automated systems and added to the next scheduled delivery from the warehouse to the store. Merchandise bought from stores one day is back on the shelf often the very next day, with little or no direct human action involved between the scanning of the sale and the restocking of the shelf by store employees.

However, a different system is required for e-commerce order fulfillment. Products are picked from warehouse shelves at the direction of distribution workers. When multiple products are purchased in one order, workers must consider the size of the box and special packing considerations of combining products in one shipment.  If the customer has ordered gift-wrapping, that must be handled by workers at the distribution center.

Distribution centers designed for e-commerce users include larger mezzanine areas for operations such as back-office tasks, gift wrapping, call centers and returned merchandise.  These tasks are best handled in mezzanine office spaces. The inclusion of two or even three mezzanine levels requires ceiling clearance heights of 36 to 40 feet.

E-commerce centers also require a much larger workforce than traditional warehouses. The presence of more people means that building systems, such as lighting and ESFR fire protection, must be upgraded. Heating and cooling systems, that in traditional distribution centers are driven by inventory, must now meet a higher standard in centers with e-commerce fulfillment for employee density.

Big box distribution centers designed for omnichannel fulfillment must combine these two very different supply-chain processes into one seamless solution.  Maintaining two complete side-by-side inventory systems would be inefficient, so omnichannel distribution centers need to be able to accommodate both processes in one fluid system. Omnichannel fulfillment requires significant capital investments in material handling, conveyor sortation and controls, optimized racking systems and lift equipment, inventory management software and picking/packing technology.

Centers must be larger overall to accommodate multiple distribution channels, and typically require separate staging and loading areas for e-commerce and store distribution. That is likely to mean a cross-dock building to accommodate more truck docks as well.

This new wave of big box development also comes at a time when owners and tenants of all property types are focused on reducing operating costs and creating sustainable workplaces.  High-efficiency HVAC systems and upgraded insulation are examples of typical building features that reduce energy consumption, which serves both cost-containment and sustainability goals.  Another new feature that is gaining popularity in big box development is the installation of prismatic skylights that capture and disperse natural light to all corners of a center, improving lighting and thermal comfort throughout the building - rather than having hot spots and glare from concentrated sunlight.

Very few existing distribution centers of more than a few years old are set up to accommodate the needs of an omnichannel distribution strategy. Furthermore, the distribution networks which retailers have in place to handle traditional store distribution, e-commerce or both must be reconsidered in optimizing the supply chain to all types of customers.

The process of setting up a strong omnichannel supply chain is a major undertaking for retailers, but those that fail to pursue this aspect of omnichannel marketing have little chance of success in the new world of consumer expectations.  Leaders in the supply-chain industry have an unprecedented opportunity to help retailers make the logistics work for this increasingly complex process.  Done right, the result is a win-win for distribution and supply-chain providers, retailers and consumers.

Source: Jones Lang LaSalle


Keywords: supply chin management, logistics services, logistics management, logistics & supply chain, 3PL, third party logistics, transportation management, warehouse management, WMS

Designing Distribution Channels to Meet Consumers’ Omnichannel Demands