Is it better for retailers to ship their customers’ online orders from a nearby brick-and-mortar store or from a more distant distribution center?
It may seem counter-intuitive, but the latter is often the correct answer, says Rafay Ishfaq, associate professor of supply chain management.
Ishfaq evaluated each option and built a decision model that retailers can use to select their best fulfillment options and delivery processes. His co-authored paper “Evaluation of Order Fulfillment Options in Retail Supply Chain” was accepted for publication in Decision Sciences, an elite journal.
Ishfaq found out that many retailers erroneously believe shipping directly from a consumer’s neighborhood store is better.
“Because they are closest to the customer,” he says. “If I’m ordering from Target, why ship it from Ohio when they can ship it from the store in Opelika? They’re focusing on reducing the last mile delivery cost.”
Ishfaq’s study revealed a flaw in that line of thinking. “If you don’t factor in the inventory cost, the sales associates’ cost of taking time out and putting orders in a box and preparing the order, and all of the supply chain-related costs already built in, stores right now are not the best way to do it,” he says.
Instead, the best option for retailers to ship online orders is from distribution centers, Ishfaq believes. “The cost of the retailer to ship orders from the stores was two times the $10 threshold,” he says. “If a retailer can fill and deliver online orders from the store for less than $10, then stores become a viable fulfillment method.”
Ishfaq says if retailers choose to use actual brick and mortar stores as their online fulfillment points, then they would need improvements in store efficiencies. Ishfaq and co-author Uzma Raja, a professor of information systems at the University of Alabama, created an intensive case study of the fulfillment process, its costs, and delivery expenses that allows retailers to plug in their data and find which distribution method works best
“They can review the results to see how much they need to improve their cost structure, fulfillment and shipping processes, and training of their associates, so that they can cross a certain threshold—a break-even threshold,” he says. “So when an order comes in, they have a data-driven way of making that determination.”