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Focus: Distribution/Materials Handling

Feature Article from Our Distribution and Materials Handling Subject Area - See All

From SCDigest's On-Target E-Magazine

- May 23, 2012 -

Supply Chain News: Logistics Savvy May Determine Multi-Channel Success, as Macy's Revamps Fulfillment Network by Empowering Stores

Move Can Lower Inventories, but are Labor Inefficiencies Worth It?


SCDigest Editorial Staff

A few weeks ago, the SVP of Logistics for one of the largest retailers in the US told SCDigest editor Dan Gilmore that he firmly believes the challenges of multi-channel commerce will be disruptive and really separate retail winners and losers. He added that the big issue really was technology, and who has the best vision for what technology is needed and how fast and effectively that supporting technology is deployed will be key.

SCDigest Says:

Unlike a distribution center, there is no defined location fora given color on the store floor, and the actual markings on the tag may not use the same word for the color. Wow.
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That perspective was in a very real sense echoed relative to recent news about what department store chain Macy's is doing to bolster its capabilities in multi-channel commerce - and the challenges and risk/reward tradeoffs are complex.

At the JDA Software user conference in Las Vegas a few weeks ago, a Macy's executive said that the retailer was building its multi-channel commerce strategies and technology investments against 16 distinct demand-supply point combinations. In other words, order from web, pick up in store would be one combination, order from web fulfill from DC would be another. The executive said there are actually several more possibilities, but they are uncommon enough they are not worth systematizing now.

Now, an article in the Wall Street Journal last week said that Macy's is turning 292 of its more than 800 retail outlets into multi-channel fulfillment centers.

Those changes include expanded backrooms to hold more inventory, and enhanced software that better keeps track of real-time perpetual inventory levels. Not stated in the article was that Macy's had earlier committed to rolling out item-level RFID tagging by the end of the year, which will clearly also support high levels of inventory accuracy.

These and other types of changes are critical to manage the complexities of multi-channel fulfillment. If customers are promised that inventory will be available at a store for pick-up, or that an e-commerce order can be sent from a store acting as a fulfillment operation, near 100% inventory accuracy is a necessity - levels almost never achieved at store level today.

Without much detail, the WSJ article also said new enhanced software that will dynamically allocate inventory across channels. So, if sales from one channel are below expectations, it will be made available to other channels.

Interestingly, for example, out-of-stock items won't disappear from Macy's website if they are out-of-stock at the DC level, but can be found in a physical store. On-line orders will also be filled by stores closest to consumers, reducing shipping costs and delivery times.

Macy's executive Peter Sachse, for example, said that last year when Macy's carried a limited-time line of products from Chanel creative director Karl Lagerfeld last year, half the on-line inventory sold out in the first day, yet Macy's had to discount the collection to get it sold in its stores. He said that if Macy's had been able at the time to meet on-line demand with Lagerfeld items shipped from its stores, sales would have improved.

(Distribution/Materials Handling Story Continues Below )


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The Wall Street Journal noted that the move is not without risks. "Picking" at store-level is usually a lot more expensive than picking in distribution centers, though we will note true additional costs can be muted by having store employees grab merchandise in "down time",  though most retailers are experimenting with different store fulfillment models and processes.

For example, the WSJ article said that picking and fulfillment at a Macy's store in Paramus, New Jersey indicated both the promise and the challenges of this approach.

Macy's Manager Dealing with E-Fulfillment Orders at New Jersey Store




Source: Wall Street Journal

"In the store's back recesses, Macy's converted an area where it once took telephone orders into a dimly-lit, makeshift packing area. There employees packed handbags, kitchen appliances and shoes into cardboard Macy's boxes. By noon or so, employees filled some 400 boxes, which were then put into plastic bags awaiting afternoon pickup," the article said. "By 2:30 pm, 100 more orders had come to the store, totaling $5,091 in sales. Danya El Zein, director of store fulfillment, scoured the sales floor for a white Michael Kors purse for a customer in Bowie, Md., and a Fossil wallet for a customer in California."

Macy's employees find, for example, that identifying specific colors for a given SKU on the store floor can be challenging. Unlike a distribution center, there is no defined location fora given color on the store floor, and the actual markings on the tag may not use the same word for the color. Wow.

The article notes that Macy's rival Nordstrom was one of the first retailers to fill on-line orders with goods shipped from its stores, beginning the practice in 2009. Nordstrom now ships from all 117 of its full-line outlets.
Last holiday season, Toys R Us kicked off its own program in all 800 of its Toys R Us and Babies R Us stores.

"We're able to sell more without having to buy more inventory," said Jamie Nordstrom, president of Nordstrom's online operation. Mr. Nordstrom said shipping from stores has cut the level of markdowns and improved margins, and has sped up the rate the rate at which the chain turns over its inventory.

One complexity with this kind of approach is which channel gets credit for the sale: is it the on-line channel or the store that ships it? Toys R Us counts the orders as online revenue. Macy's says it is still sorting that out.
"We are struggling with compensation across the company, like any other omni-channel retailer is," Mr. Sachse told the WSJ.

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