Fulfillment Centers

April 13, 2020
Fulfillment Centers

As online orders are becoming a more important part of many retailers’ business, how those online orders are fulfilled is increasing in importance.

Many organizations take an omni-channel approach.  In this approach, regardless of the purchase method used (online from desktop or mobile device, social media selling, or brick and mortar), the experience is seamless.  The various methods are combined together to work with each other so that the customer experience is similar.

Another approach is multi-channel.  In this case, the retailer is selling through a variety of approaches, with each operating separately.

One approach for online orders is to use fulfillment centers.  Fulfillment centers have changed from the traditional warehouse primarily dealing with pallets shipments to and from the warehouse. Today’s fulfillment center ships out individual orders to customers.

Because of all these differences, a variety of approaches are being used.  For example, Home Depot has decided that a fulfillment center should be used for professional customers and large consumer orders of lumber.  Its Dallas fulfillment center will serve a 75-mile radius with flat-bed delivery.  It also has the ability to receive rail cars.

Hy-Vee is using a different approach.  The company has been using fulfillment centers for online orders, but those centers will be closed. Online orders will be filled from their brick and mortar retail stores.  Hy-Vee cites customer desire for an assortment of products, for personalized shoppers, and for same-day pick up at the store as the reasons for the change.

Video Spotlight: The Evolution from Warehouses to e-Fulfillment Centers (Sept 28, 2018, Layton Construction)

This post is based on the Minneapolis-St. Paul Business Journal article, Automakers Are Racing to Make Ventilators. But It’s Not That Easy, by Mark Reilly, March 10, 2020; the Dallas Morning News article, Home Depot Launches A New Pro Customer Delivery System in Dallas, by Maria Halkias, January 28, 2020; and the YouTube video in the Spotlight. Image source: Metamorworks/Shutterstock.

Discussion Questions:

1. Why use a fulfillment center?

Guidance: The decision varies based on the situation and industry.  The advantage of fulfillment centers is that you combine the inventory into one location.  This makes it easier to manage inventory and reduces inventory costs.  Fulfillment centers can also be helpful when the item needs special delivery, such as lumber at Home Depot.  The use of technology to help fill orders is easier to implement in fulfillment centers.

2. Why use a retail store for fulfillment of online orders?

Guidance:  Fulfillment from a retail store offers several advantages.  It will probably reduce the distance that the final shipment needs to travel.  And, many customers want to pick-up the order at their local store.  Also, for lower volume items, the retail store is already stocking the item for store customers.  It may be more efficient to sell these low volume items from the store’s existing inventory.

3. What problems make filling online orders from brick and mortar stores difficult?

Guidance: One problem is that the brick and mortar store is setup for the customer to enter the store.  In many cases, the store layout encourages customers to travel throughout the store.  The hope is that the more merchandise they see, the more likely they are to buy it.  However, in the case of picking orders, efficiency is more important.  Also, pickers can get in the way of traditional customers.  Finally, one of the biggest issues is inventory accuracy.  In a fulfillment center, inventory is under tight control.  In a brick and mortar store, the customer might move the inventory within the store.  The item might be in the store, but it can’t be located.  Moreover, shoplifting can impact inventory accuracy.


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