Adjusting distribution centers for omnichannel success at the retailer John Lewis

An article in CSCMP’s Supply Chain Quarterly (Quarter 2, 2014) titled “A Supply Chain Redesign for Omnichannel success” describes changes to the distribution center at the retailer John Lewis to ensure omnichannel success – a 7.2% sales increase in the 2013 season over the 2012 season with a 22.6% increase in online sales. The changes include reducing the number of distribution centers, coordinating the click and collect (at the store) with store shipments to ensure a smooth flow, and merging all items in an order to ensure the customer gets to pick up the entire order in the 41 retail locations. Given that the flows to the store are batched boxes or pallet loads while customer orders are for eaches, will the merging of these flows generate efficiency ? Should customers be encouraged get deliveries directly in their homes instead of store pickup to increase system efficiency ? Or will store sales increase as customers stop by to shop in the store when they come to pick up online orders ?

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28 Responses to Adjusting distribution centers for omnichannel success at the retailer John Lewis

  1. Sean Michael says:

    If the flows, in this case, mitigate bottlenecks while balancing the setup costs, then I would say that merging the flows were definitely generate more efficiency. The tradeoff here would be analyzing the impact to the customer (if any) and understanding how the process flows enable more convenience. That being said, and leading into the next question, customers should have the option to choose how they want their orders delivered (store vs home). Some customers may not have the ability to pick up at the store for whatever reason, and therefore choose the convenience of delivery. But from the retailer perspective, I would want to encourage customers to come into the store because it would have a higher yield for additional sales. In this case, the retailer can entice customers to pick up in the store by not having to pay a shipping or delivery fee. So there are definitely ways around it.

  2. Tyler Le Roy says:

    Merging of the two flows should be able to increase efficiencies due to the number of redundancies in the current process. By shortening the processing time of customer deliveries, inventories can be kept at lower levels. A clear win-win for the customer and the business. Much like Sean said, the customer should have a choice for where they would like to pick up their purchases. This is the whole philosophy behind omnichannel success. If a service is not offered that a customer wants, they will likely bring their business elsewhere. There are things the business can do to attract the customers to stores for better yield, such as “in-store only” deals or free shipping offerings if delivered to the storefront.

    • It also provides customer the flexibility to try the product in store and get a replacement in store if sizes do not fit

      • David says:

        Without a doubt this would create efficiencies, but only if the customers choose to use the in-store pickup. It been stated, but if the customers aren’t happy they will go elsewhere and just have the items delivered. I feel that they would need to incentivize the customer to want to pick the items up in the store. While free shipping is nice, it’s almost expected in today’s market, they may need more that just that to entice customers to opt out fo the convenience of just having it arrive at their home.

  3. Andrew Tigulis says:

    I would think merging these two flows would increase both throughput and operator efficiency. It would optimize order delivery by maximizing quantities and minimising operator walking distances. Orders are sorted/consolidated by order, which reduces manual handling. I think customers would be encouraged to get deliveries directly in their homes instead of store pickup to increase system efficiency. I also see store sales increasing as customers stop by to shop in the store when they come to pick up online orders.

  4. Jason Meridew says:

    I believe merging the flows will increase efficiency and improve their cash position. With “click and collect”, I assume the retailer is actually receiving the cash for the product prior to delivery thereby improving their cash position. Additionally, the firm will benefit by encouraging ship to store. This will reduce shipping and handling costs. If the firm can find ways to encourage ship to store such as no shipping cost for this option they could see more customers choose this option. This will reduce costs for the customer and firm.

  5. Brett Damisch says:

    I would believe that merging the flows will generate efficiency as well as capacity. The retailer ought to be able to minimize warehouse space and use the retail avenues for inventory. These stores ought to be able to transfer items from store to store quite easily. I believe that store sales will increase if customers are sold on the in store pickup option. If free shipping and free in store returns are implemented, this will drive customers to visit the retail store. The retailer ought to see a larger amount of exchanges than returns as well if the products to not work out for the customer.

  6. Nathan Pennington says:

    Merging the flows will create better production rate and more than likely higher profits with better efficiency in place. I think allowing the customers to make the choice if they want the products delivered to their home or if they prefer to pick up at the store is wise. The customer is always right. If any company is going to be successful they will first ensure the customer is happy with service so I think keeping those lines of communication open is key for profitability and long-term growth. I would suggest creating up-sell capabilities within the John Lewis website as this would increase sales and profits. Would customers coming into the store create similar results? Of course, that being said, everything is moving to online nowadays. Companies are seeing the power in e-commerce and any strong company is not going to look at all angles if they want to continue to grow.

  7. Vinutha Ram says:

    The outcome of the merged flows could be efficiency for both the business and the customer, but I believe that the merged flow itself would be more complex than before. Adding in home delivery to this equation, would make the flow even more complex. While it may create more efficiency for the customer, I don’t believe it will increase overall system efficiency. However, in order to build brand loyalty and differentiate themselves based on superior service, companies should support the in-home delivery option and form strategic partnerships that could allow them to outsource home delivery.

    Having customers pick up orders from stores does have the added benefit of increased sales. If this option could be promoted by offering additional incentives, it could potentially lead to greater overall system efficiency.

    Omnichannels are the new reality. Customers today want a seamless experience across various channels – it would be foolhardy for a company to pursue all avenues, instead they need to pick the experience that they want to promote and focus on making that worthwhile. This choice could then allow the development of an efficient supply chain process for the company.

  8. nehapurohit13 says:

    Click and collect fulfilment simplifies inventory management challenges. It allows the stores to have accurate, real-time product availability. The stores can improve efficiency in every process to validate, correct, or improve inventory accuracy.
    Radiofrequency identification, or RFID, f dramatically improves the accuracy of the information that supply chains depend. The store needs infrastructure, advanced technology and customer service for click and collects fulfilment. Even if the sales increase as customer stops by to shop the operating expense, infrastructure expense will increase.
    In today’s reality, the customers want to order anytime, anywhere and from any device; to home delivery and able to return items conveniently. The customer prefers convenience, speed, quality and flexibility to home delivery than traditional shopping

    • Some of the infrastructure costs would anyway be incurred because with improvements in supply chain and logistics, stores would need to upgrade their existing processes for example RFID based sorting of merchandise

  9. Click and Collect improves supply chain efficiencies as last mile delivery costs are prevented and most of the times this benefit is transferred back to the customer. The consolidation of packages into pellets and then segregation at stores is probably increasing utilization of resources in store during off peak hours. In store merchandising, promotion of latest products (visible in store) is additional benefit to the seller. It is a novel approach and is adopted by more stores. The only demerits are if the the store is too far or if it takes longer times to process the order at stores

  10. Jennie Killian says:

    As online ordering increases (computer and mobile phones), it has become increasingly important to provide many options for customer preference. To be able to order something online and pick it up in store is a great-I’ve used it myself for large items that I didn’t want delivered to my home. It certainly would open the door for customers to make other point of purchase selections. Although these days-with all of the big data-online stores can also help you make impulsive, unintended purchases as well.
    In terms of efficiency, I suspect there would be a significant increase. I previously worked at a vet clinic that had a main clinic, and then also a satellite. All inventory was sent to the main clinic, and then driven with the doctor to the satellite office. This was horribly inefficient and also lead to shrinkage-whether intentional or accidental. It also made tracking inventory and reorder points/levels much harder to keep track of. These days with next day delivery, there is no reason for having a multiple step process that can be accomplished in 2 simultaneous actions.

  11. Tony Merlie says:

    I would anticipate that customers placing online orders would prefer to have deliveries directly to their homes, or would prefer to make the pickup as convenient as possible (much like you see at many Targets now, where associates bring orders to customers in the parking lot so that customers don’t have to leave their vehicle). As a result, I think the excitement about customer pickups generating additional retail location sales should be tempered.

    I don’t see a great deal of efficiency gained by combining retail shipments and individual order shipments made online for pickup at stores. While there may be cost savings in shipments (which certainly is not cheap), I still think that there would be additional processing costs that may outweigh those savings.

    Holding costs of individual orders in retail locations, cost of staffing to separate orders in retail locations, plus the risk that individual orders don’t make it resulting in customer pickup delays all seem to be costs that outweigh the savings in combined shipments. I do like the comment made by Brett about returns is realistic, in that if the incorrect size is received then replacement with a new item may be made easier via the store pickup channel.

  12. Brian Long says:

    I think the merging of the flows will generate efficiency and could help to boost sales while at the same time reducing costs. The numbers may increase at the 41 retail locations with added inventory and manpower to process orders, but the company overall would most likely recover, and then some from closing the distribution centers.

    Not sure if encouraging customers not to pick up deliveries would increase efficiency’s, but it is a good selling point for many that may not live close to one of the retail locations, or just like to convince of online shopping.

    I do however agree with other suggestions that sales will increase because of the extra foot traffic of customers who come to pickup orders. It should be setup like many tourist attractions where you must walk through the entire store, “gift shop”, to get to the location where he or she picks up the order. Could inspire a few impulse purchases!

  13. Dan Halverstadt says:

    I don’t believe there would be any significant increase in efficiency in shipping times. Instead of releasing product as it is available you have potentially added unneeded bottlenecks in a shipment. My concern would be lead times and wait times for some products that maybe back ordered that I don’t have a pressing need for, while items I need are waiting in a queue.

    Additionally, driving people to a brick and motor store will more than likely be an issue. I would prefer to make an online purchase and have items delivered to my house as they are available, instead of them being batched and I have to take time to go to a store. This will also add waiting and a queue at the store that will have to be managed as well. I personally avoid brick and motor stores at all cost and will many times not order from a company that requires me to go instore to pick up an item.

  14. Amy Phillip says:

    Conceptually, increasing the number of places that can serve a customer pick up would improve satisfaction for the customers. I don’t believe there will be a gain in efficiency. The company has reduced the number of distribution centers but now the stores are acting as mini-distribution centers by housing the pallets of inventory that then get broken down into individual orders. They have not actually reduced their distribution points. In fact, by the stores handling volume if they are not equipped to do so, could actually decrease efficiency because they are trying to add an additional process flow into the stores including storage of orders if customers are allowed to show up whenever they would like for the customer pick up.

    Direct to consumer deliveries would prevent the extra component of storing orders waiting for customer pick up. However, this reduces potential foot traffic in the store increasing sales from in store purchases.

    One can argue having multiple pick/ship locations in the store increases operational expense at the store level instead of mass order processing through distribution centers. The sales volume would need to compensate for the additional services at the store level.

  15. Bryan M Corbin says:

    Their choices should depend more on how John Lewis feels they add value to the customer. If the in-store experience creates certain points of differentiation by directly interacting with their customers they will need to elect options they feel will maintain or drive foot traffic. If their value is derived simply by curating products their customers are interested in they can use the stores simply as additional distribution points.

    That said, adding additional handling steps and distribution points is likely to reduce efficiency; each of the stores will now be a somewhat redundant distribution center. If they want to keep customers coming to the stores a possible solution would be to pick and assemble the complete order at the distribution center, then ship to the store as a complete order for customer pick up. Or, like many retailers are doing now, allow items to ship directly to the customer in the most efficient way possible. In some cases this might be individual items directly from a manufacturer, or from one of their own distribution centers if it is an item that they carry in inventory. The correct balance would allow John Lewis to manage inventory on high-volume items that sell both in store and online, and allow the lower traffic SKUs (or, perhaps even the high-value items) to be direct shipped from non-John Lewis assets.

    With direct ship to customers you could manage foot traffic by offering free in-store returns. Kohl’s, for example, is pioneering ways for brick and mortar to stay relevant by offering free in-store returns of Amazon purchases. This could have serious working capital concerns but is an interesting approach to keeping traffic in the stores.

  16. Allan McNear says:

    Emerging the flows together can improve the efficiencies of the system but there may be additional bottlenecks created by this move. Logistics may be potentially strained due to the increase in shipments and scheduling for customers.
    Customers receiving deliveries to their home can improve the systems efficiency and reduce the handling cost of products sent to stores. Subsequently, the home deliveries will increase the complexity for logistics and the additional issues that come along with meeting customer satisfaction with on time deliveries.
    Foot traffic in stores has proven to increase sales for retailers. Implementing surveys and asking customers what they would like to see more of in stores is a way to increase sales that invigorate the bottom line.

  17. Jason Jackson says:

    Customer should be encouraged to place orders from their homes and receive delivery there as well. Reducing the number of brick and mortar stores helps reduce fixed, capital, and variable costs. This reduction will certainly increase the firm’s efficiency. By making the stores now a “distribution center” you’re also increasing storage requirements at the facility and other handling costs associated with now having the customer’s packages delivered and stored at the stores.

  18. Michael Morad says:

    Merging bulk retail store inventory replenishment orders with individual consumer orders to flow to each store may provide some cost savings and efficiencies as the organization is shipping to their stores regularly regardless if customers place orders online. This merging of small eaches and bulk orders may prove to be challenging because the eaches may not integrate well to bulk pallets and things will inadvertently get mixed together, which may create a bottleneck at the retail store warehouse where employees will need to spend extra time to sort through all the pallets and separate the eaches orders. This could lead to delays for customers and result in dissatisfaction. On a personal note I once placed an order with REI online and it gave me the option to have it shipped to a store or my home. The store was free, but it took 3 days longer to get the item. When I went to the store I had to wait in a customer service line and then it took the employee over 20 minutes to get me the item as they searched for it in the back. This was the last and only time I tried that in-store delivery. I rather pay $10 for shipping and not deal with the huge hassle.

    Given my experience and how much time it took of an employee’s time to help people with their customer pickups I would imagine that retailer should encourage people to ship to their homes rather than pick up in store due to the high overhead costs of their employees. With that said if a retailer got smart like Amazon and had pickup lockers for their online orders then I could see greater satisfaction for the customers picking up their orders and lower overhead costs for the retailer. In that scenario in-store pickup should be promoted as it could lead to the consumer doing some window shopping while they are in the store doing their pickup. In addition to this the retailer could offer a 10% discount coupon taped to the pickup order that is good for that day only to promote the consumer to shop in the store and pick up more goods.

    In today’s technological age with so much access to data via our mobile phones it is necessary for retailers to use omnichannel methods to attract customers and produce sales. With all the online shopping increasing year after year and the fierce competition among retailers it is important to get people into the brick and mortar stores as much as possible and offer them an “experience” to bring them back and attract them to your offerings.

  19. bernardinm says:

    Since flows to the store are batched boxes and customer orders are for each good, this indicates the need of a place for sorting the goods and gathering all that pertains to a customer order in the same place, which is the classical role of a distribution center. So, if we reduce their number, we need to ensure that the ones we have left are located at strategic points, facilitating a shipment all across the distribution channels. Assuming this is under control, then yes, it could be advantageous to pursue such a strategy. The experience of face to face sale at a store location also contributes to the positive image of the brand, a place where people can make inquiries and receive explanations and advice on a product, so keeping some would also definitely make sense. Let alone because there is a fair amount of people who aren’t yet that accustomed to online shopping. The sales will increase depending of the quality of service (word of mouth, promotions and special offers, after sales services,…etc).

  20. Vish Thottingal says:

    Batched boxes to store will increase efficiency in logistics cost by increasing the package size. With high volumes loads can optimally leverage LTL or TL. The additional cost which comes in by this strategy are the processing time for sorting and packaging at retail stores for customer specific orders. By having a store pick we shall also be bringing in additional foot fall which could result in additional sales.
    With Amazon effect all retailer needs to adopt innovative ideas to increase the sales. One such example is Target which bought acquired company to provide same day delivery, and now their retail store is also served as warehouse location. Companies like SHIPT which offers logistics solutions for same day or within an hour delivery from a local store will see increased tie ups with major retailers in the coming years.
    Strategy should be driven by customer preference and behavior. Every year hundreds of retail stores are getting closed which clearly explains that customer preferences over retail shopping is declining. While there is no doubt that physical stores are losing its charm over online shopping, the existing retailers should find an optimum number of physical stores and leverage with multiple services like retail shopping, delivery pick up , same day delivery services, drive in pick up etc.

  21. Maya Devakiamma says:

    OmniChannel experience increases customer engagement as the channels are integrated. Optimizing the capacity of distribution and shipment network helps retailers to save cost and share those as incentives to their customers. Merging the flows helps the company to use a single facility, resources, and inventory even though the packaging sizes could be different. Shipping and handling rules and process modifications would be dictated by the channels. Existing fulfillment process to be re-evaluated to create new steps in packaging, and to be modified to use possibly smaller batch sizes in outbound shipping to meet the needs and timing of the click and collect.

    Provide customers with a choice to deliver in their homes or store pickup and an incentive to come to the stores would be more attractive, such as free shipping. Reward those customers who choose the store pickup and those store visits would generate additional revenue opportunities!

  22. Ken Kibler says:

    Merging these flows should bring better efficiencies to the current process. Anytime you are able to consolidate output flows and find ways to better serve your customer you have accomplished the end result. Moving to the omnichannel retailing has become the gold standard for success in retail. This embarkment is a testament that demonstrates their commitment to not just surviving but creating a better experience for the customer. The key will be to continue to give the customer the option of how they would like their packages to be delivered (in store or home). When it comes to order pickups, I believe it’s to their advantage to keep giving additional incentives to bring them back in store.

  23. Jennifer Cline says:

    Compared to how John Lewis has handled into store shipments and online orders in the past, there should be efficiency improvements. The article’s description of the current process in the non-hybrid distribution centers seems inefficient and complex, requiring stock received at the 3rd party fulfillment centers be returned to the initial distribution centers before shipping to the customer. In the new process, having all shipments flow from a location whether to store for stock replenishment or for online orders, enables batched shipping to store locations, vs back and forth movement of material. By incorporating a lean replenishment strategy, delivering individual items to stores to replenish stock, versus cases of inventory per item, the process for replenishment and for online orders (individual items) is similar and show reduce disruption to process flow between the two types of orders. From the perspective of John Lewis, I would encourage customers to pick up online orders in the store, as this could drive incremental sales. Similar to going to Target, and leaving with much more than intending to purchase when you went in, with a store layout and marketing strategy, the stores could optimize shelf space to drive those add-on sales purchases at customer pick-up.

  24. Paul Mukherjee says:

    In todays world people are looking for getting the products at their doorsteps. Amazon’s immense growth is the evidence of that change. Merging of flow will definitely bring efficiency and performance enhancement to the process. Again sometimes we have to think of different ages of people while designing the business model. Although the new generations are always looking for doorsteps delivery but some customers are also looking to pick up the orders from the stores. There are some cost efficiency is also attached to it, if you deliver to doorsteps, the shipping charges will be more but store pickup will reduce that as company will send the products in bulk. Moreover the store pickup will also helped the company to increase the sales at the store level.
    Most importantly, we are at the age of hybrid business where both online and store selling should go hand on hand.

  25. Gaurav Kumar says:

    Merging of both the flows will increase both throughput and efficiency. The customer will get well benefitted through online and store pickup facility. Tech savvy people can utilize the system as per their own need and on the other hand people will lesser technology-oriented will not be neglected. Again thinking about the most part, if all shipping will be done at the doorsteps, it will be more expensive than store pickup. Above all, store pickup will also increase the sales performance of the stores and employees will get more incentives from that. Overall it is a win-win situation in doing optimization in both the flows.

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