Fulfillment is both more complex and mission critical in a multichannel retail setting. Brick & mortar retailers must overcome their “burden” of traditional store channel focus to achieve multi-channel fulfillment excellence

1. Beating the Burden of Brick and Mortar for
Omni-Channel Fulfillment Success

2. Fulfillment is a critical enabler of a differentiated multi-
channel strategy
What
consumers
want – the
winning
promise
Fulfillment Enablers
Seamless
Experience
• Eaches picking
efficiency
• Last mile efficiency
• Managing peak
• Same/next day
delivery
• Time definite delivery
• Minimized splits
• Flexible returns
• Flexibility to
changing mix
• Channel decision
• One-view inventory
• Real-time demand
management

3. Many fulfillment solutions emerging … but breakthrough
performance remains challenging
Elements of Fulfillment – Which is the Right Mix?
Goods to Man Picking
Last Mile Delivery
KIVA AS/RS
Automated
Picking
“Eaches” Picking
within Asset
• Random
Put-Away
• Wave &
Batch
Picking
WMS
Network / Asset Type
3
Footprint and Flow
Fulfillment Assets
Lockers Store DCs
Network Drop
ship
Managed
inbound
Home Delivery
Store Pick-Up
Drive-through
Click &
Collect
Crowd source

4. Leading brick & mortar retailers must overcome several
challenges to unlock full potential performance
• Visibility at pallet level
• Fewer, higher velocity
SKUs
• Limited need for real-time
integration
• Visibility at basket level
• More, thin SKUs
• Integration critical
Inventory
Management
Front & Back-End
Systems
Challenge
Traditional Brick &
Mortar Focus Multichannel Focus
• Store location key
• Less demand volatility
• Store+ warehouse key
• More demand volatility
Network Footprint
• High volume cases
• Replenish stores
• Low volume eaches units
• Building consumer baskets
Eaches Picking

5. 3 guiding principles for breakthrough fulfillment
• 2-3X service
improvement
• >25% fulfillment
cost efficiency
• Unlock category
growth
• Reduce risk of
throw-away
investment
5
Design a fit-for-purpose solution
Define shared incentive to mobilize the
organization
Balance near-term IT solutions with end-
state design
3
1
2
Clean-sheet design anchored on consumer
promise
Build for flexibility
1.1
1.2
FocusToday
Note: range reflect observed
average of larger retailers
Observed
Performance Impact

6. Fulfillment must start with a clear segmented view of
future consumer promise
Illustrative
Customer Promise Grocery Fresh
Personal
Care/Beauty
Apparel Electronics
Home &
Furniture
Delivery Speed: <2 Day
Delivery Lead Time
Endless Aisle
Assortment
Free Shipping Cost
Subscription/Auto refill
Product
Recommendations
Product Sampling
M-checkout and text
Click & Collect
No Hassle Returns Any
Channel
eCommerceChannelStoreChannel
1.1
More ImportantLess Important
Trade-offs are key: where will you place strategic bets to truly differentiate?

7. Example: Consumer promise of fast delivery speed can
impact your network footprint and asset needs
Delivery Speed (in business days)(1)
Same Day9 3568 2 17 4
Big & Bulky
Consumables
& Baby
Toys
Electronics
Hardlines
Apparel
Media
2daysdelivery
1-2days
Same-Next
Day
3-5 days
Emerging “table stakes” in futureCurrent industry range
1.1
• Store based
fulfillment
• 15-20 .com
warehouses
• Store based
fulfillment
• 7-10 .com
warehouses
• 4-7 .com
warehouses
• Leverage
existing
store (case
picking)
warehouses
Fulfillment
Network Needs

8. Rigorous mapping of customer promise to clean-sheet
supply chain requirements is critical
1.1
Category
…
Customer Promise /
Strategy…
 Demand Profile
 Seasonality
 Delivery Time
 Assortment
Depth / Breadth
 Returns
Ensure Optimal
Design
• Product Cube Profile
• Peak Profile
• SKU Count
Asset
• SKU Velocity
• SKU Productivity
Inventory
• Footprint / flow
• Capacity
• Eaches picking
solution
• Technology/
CapEx
… Inform Optimal
Fulfillment Requirements
• Throughput
• Delivery Speed
Network
Capital
Cost to
Serve
Traditional B&M
Retailer Define strategy Pilot Roll out
Multi-channel
Define (Many)
Strategic Scenarios
Model
(Should-cost,
benchmarking) Pilot
Sequenced Roll-Out

9. Your future customer promise requirements will drive
optimal network and flow strategy …
Nature of Demand
More Centralized
Facility
Single Tier Network Multi-Tier Network
>3 Days Ground or Air 2 Day Ground Next day Ground
Mostly Long Tail
Mostly Fast Movers
(90/10)
70/30
Critical Low-Moderate Moderate
Irregular Stable Highly Seasonal
FC FC FC
HVFC
LVFC
High Velocity FC
(Fulfillment
Center)
Customers
Low Velocity FC
HVFC
Customers
Customers
SuppliersSuppliersSuppliers
Speed
Minimal
Split Orders
Assortment
(SKU profile)
Seasonality
1.1
Illustrative
9
Stores/Lockers
Volume
Predictability

10. … as well as your assets and technology configuration
Lead Time
Fulfillment
Cost Req.
Volume
Assortment
Store / Locker
Store
Converted
Warehouse
High Velocity
Eaches Facility
Low Velocity
Eaches Facility
Same/Next Day Same/Next Day Next – 2 Day 2 – 3 Days
Medium Low Medium-High Very High
Med-High Low-Med Low Med
<1MM
units/year
<5MM units/year >5 MM units / year >5 MM units/year
Nature of
Demand

11. Build for Flexibility to manage inherent uncertainty in
future market
The only constant
is change
• Consumer
expectations
changing
• Commercial plan
constant flux:
 Geo-Demand
 Product mix
 SKU breadth
 SKU profile
Build for Flexibility
Network/Footprint Design
Smart In vs. Outsource
Identify and focus on the “invariant” portion of
solution
Leverage partnerships and 3PLs as a flexible asset
Systems Design
Apply advanced systems architecture design that
provide reusable components
1.2
11

12. Focus on the “invariant” aspect of future strategic
scenarios when building out a solution
Geo-Demand
Assortment
Speed / SLA
Picking vs. Ship Cost
Future Commercial / Market Scenarios
• Larger Rural
Impact
• Conveyables
• Avg. 2 Day
• East/West Balance
• Consumables
and Apparel
• Avg. 3 Day
• Freight > Pick
Cost
• Pick Cost >
Freight
Illustrative
1.2
S1 S2

13. Leverage partnerships and 3PLs as flexible channels
and assets
1.2
Nature of Category Demand Inform In-House vs. Outsourced Fulfillment Channel
>25K orders/day 1-25K orders/day <0.5K orders/day
Low Seasonal peak Moderate Seasonality Highly Seasonable
Fast Moving SKUs
Fast + Medium
Moving SKUs
Long Tail SKUs
Extensive In-House
Experience
Developing In-House
Experience
New Category or
Market
High x-Category
Affinity
Medium x-Category
Affinity
Low x-Category
Affinity
In-House Operations 3PL Outsourced Supplier Direct Ship
Volume
Peak
SKU
Type
Exp.
Affinity

14. Define shared incentives to drive integrated actions
and behaviors
Shared Incentive
Cross-Channel Operational KPIsCross-Channel Financials
• Compensation tied to multi-
channel targets
 Trading area not store
specific sales
• Balanced targets
 Revenue and profit
• Introduce leading KPIs
 Multi-channel transactions
(e.g. click and collect at
stores)
 Cross-channel customer
retention
• Track continuous
improvements
 Store INV availability for
online orders
 Eaches picking unit cost
14
2

15. Fulfillment guiding principles much more difficult to get
right and more mission critical vs. traditional channel
Why Its More Difficult vs. B&M
1. Stores and warehouse need to
be ambidextrous in design and
capabilities
2. Increased seasonal peak (8-12X
ratio not uncommon)
3. 2-10X more assortment (2-10X)
4. Thinner SKUs - harder to
forecast demand
5. Enabling IT/system and
capability gaps:
 More back-end
 More front-end
 More integration
Why Its More Mission Critical
1. Direct and immediate brand impact
2. More impact on operating-profit
Missed B&M
cross-dock =
small likelihood
of shelf OOS
Missed .com
order fulfillment
= 100%
unhappy
customer

16. Self diagnostic – is your fulfillment ready?
More Prepared = 5Less Prepared =1
Calculate
Your Score:
• Leading:
30-35:
• Learning:
20-30
• Lagging:
Under 20
Fit-for-Purpose Design
Systems Enablement
Demand Planning
Inventory Management
Organization Design
Network and
Asset Design
Front and back-
end integration
Customer Analytics
Integrated Planning
Historic sales driven
Ad-hoc CRM solutions
Forecast at category level
based on historic . sales
Push based replenishment
SKU level integrating historic and
predictive analytics across channels
Pull based replenishment across
channels
CRM and Social Network signals
inform planning
Built and grew out of store network
Lack of segmented network design
Ad-hoc use of 3rd party 3PLs
Design based on future consumer needs
Segmented roles for assets
Rigorous Make vs. 3PL vs. drop-ship
logic
Limited .com only KPIs /
incentives
Money tied to P&L profit
.com incentives shared x-functions
Money tied to profit, growth and y-o-y
.com operational targets
Technology saviness
Common item file
One-inventory view
Best in class front-end (Big Data,
search algorithm) and backend
(operations research) capabilities
Lack common item file
Lack one-inventory view
Limited strength in Search,
Network Optimization, Big Data
analytics

17. A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers immediate, meaningful results and long-
term transformative advantage to clients.
Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading organizations across all major
industries and sectors. A.T. Kearney’s offices are located in major business centers in 39 countries.
Raj Kumar
raj.kumar@atkearney.com
Contacts
Sumit Chandra
sumit.chandra@atkearney.com
Michael Hu
michael.hu@atkearney.com