There were two recent stories about Amazon vs. Walmart when WalMart announced it was opening two new distribution centers to fill e-commerce orders. One story, in the Wall Street Journal (WSJ), got it mostly wrong (Wal-Mart Builds Warehouse for Web Orders), and a story in USA Today got it mostly right (Retail stores become shipping hubs to battle Amazon).
Here are some excerpts from the WSJ article:
[Walmart is] building a pair of dedicated warehouses to handle Internet orders and speed up shipments, its latest move as it tries to catch up to online rival Amazon.com Inc.
Wal-Mart got into e-commerce more than a decade ago, but it’s online sales still account for just a fraction of its $469 billion in total revenue. Wal-Mart’s Web sales came in at $7.7 billion last year, compared with more than $61 billion for Amazon, according to trade publication Internet Retailer.
In short, Walmart still badly lags Amazon in e-commerce and it is playing catch up. You have to go pretty deep into the article before you see this excerpt:
Wal-Mart maintains that it isn’t trying to replicate Amazon’s business model, which it believes would be a mistake considering it has 4,100 stores within five miles of two-thirds of the U.S. population, Mr. Anderson [president of Walmart.com] said. Instead, Wal-Mart plans to combine its stores, existing distribution centers, and new facilities into what it calls its “next generation fulfillment network.”
But this afterthought, placed at the bottom of the article, is really the heart of a retail strategy known as Omni-channel Commerce, being implemented by not only Walmart but by many leading brick and mortar retailers. (Ann Inc.’s efforts are profiled in Omni-channel Momentum; Macy’s in Macy’s Wins with Omni-channel Fulfillment; Best Buy’s in Best Buy Embraces Omni-Channel Commerce; and Home Depot in Home Depot Drops the “E” Off of E-Commerce).
Omni-channel is an initiative by brick and mortar retailers to better integrate their stores and e-commerce channels. So a retailer might support buy online, pick-up at store; or order online, deliver to home from a store; several other fulfillment paths are also possible.
The USA Today article got this right, and focused specifically on one omni-channel fulfillment strategy, perhaps the most promising one, known as ship from store. Here are some excerpts from USA Today:
Some of the world’s largest retailers are turning their stores into mini distribution hubs to help them compete better online against Amazon.com.
Instead of fulfilling Web orders from warehouses hundreds of miles from shoppers’ homes, companies including Wal-Mart, Best Buy and Gap are routing orders to stores nearby.
Store employees pick products from shelves, pack them into boxes and drop them into waiting FedEx and UPS trucks that zip off to homes a few miles away.
The trend, known as Ship from Store, saves money through shorter delivery routes. More important, it speeds deliveries, avoids costly markdowns and recoups sales that have been lost to Amazon, the world’s largest Internet retailer.
This ship from store strategy won’t be easy. In order to intelligently allocate inventory from stores, retailers need to implement a technology platform known as distributed order management (DOM). Walmart is investing $430 million in what it calls its “global-technology platform.” A major piece of the investment will be in a proprietary DOM, although commercially available DOM solutions can be bought from companies like Manhattan Associates, Oracle, and IBM (Manhattan Associates and Oracle are ARC customers).
Secondly, retailers need to be able to execute the “perfect order” from the store. This means they need to implement, in effect, miniature warehouse management systems (WMS) in the back room of their stores. A WMS is a real-time fulfillment solution that can ensure virtually 100 percent accuracy in picking, something that will be very difficult to achieve if picking is done in the front of the store or if the store does not use “WMS light” type solutions. The article The Evolution of Omni-Channel Logistics describes the inventory accuracy hurdles involved with store picking.
Thirdly, retailers need to take the culture of the perfect order as practiced in distribution centers, and graft it into the store. This culture change is likely to be far more difficult than implementing new technologies (see Walmart’s Omni-Channel Dilemma).
Finally, I disagree that the best way to ship from the store is by using UPS or FedEx. Because brick and mortar retailers in metropolitan areas have stores in close proximity to large numbers of consumers, they could use a paratransit style dynamic routing solution to compete on speed, delivering goods in as short as 90 minutes of the order being placed.
Omni-channel commerce is driving the most interesting set of logistics challenges the supply chain field has seen in a generation. The most effective strategies and technologies are not known yet. Consequently, this will be an area closely examined for years to come.
(I’ll be giving a webinar “Are retailers ready for omnichannel commerce” on October 15th and a speech on Omnichannel Logistics at the CSCMP Annual Global Conference on October 22).