Background

The client was evaluating their current fulfillment network and needed to investigate the impacts on costs and speed by adding a West Coast fulfillment node. This retailer fulfills ecommerce orders from both the distribution center and their retail stores, however, a low overlap in store and online assortments along with Order Management logic drove most ecommerce orders to be fulfilled from their only distribution center on the East Coast. Due to the primarily East Coast fulfillment, both the client’s retail stores and customers were experiencing long delivery times to the West Coast.

Approach

Summit Advisory Team deployed a team of Supply Chain Analysts, a Program Manager and an Executive Advisor to analyze the optimal fulfillment network based on the existing physical footprint, current state requirements and future state growth plans. The network assessment considered impacts to speed and costs of adding an additional fulfillment node. The team assessed multiple options and locations for a node to service West Coast retail and ecommerce customers, which included scenarios that used large stores, 3PL’s and greenfield locations for fulfillment. Multiple components were assessed in the modeling exercise such as; aligned goals and targets, current demand, long range plans, fixed/variable costs and transportation spend.

Challenges

• Current merchandising systems could not support a multi-node network.
• Inventory management and planning systems would need augmented to adequately support two nodes with differentiated inventory assortments.
• Only 23% of demand was present in the Western United States which presented a minimal overall network speed improvement.
• The large store format was eliminated due to increases in parcel and labor rates as compared to to DC fulfillment.
• No capacity constraints existed until 2030 at the client’s current East Coast distribution center.
• Upgrading speed within a geographical segment of customers was more cost effective than adding another fulfillment node.

Outcomes & Actions

• Recommendation was to not open an additional node but to improve inventory assortment and upgrade packages to geographical areas of sales growth potential.
• Move to parity with other like retailers in free shipping options to improve customer experience.