Distribution Systems in Omni-Channel Retailing

Discussion

In this section, we discuss our empirical findings in the context of the literature. We contribute through this study to three main issues. We identified and systematized the forward and backward concepts used in OC retailing. We determined the areas of application and development required for achieving excellence in OC fulfillment and logistics, and finally we showed the need for developing sector- and context-specific OC distribution systems.

Systematization of concepts for OC distribution based on empirical data

The retail distribution system was traditionally built as cost-efficient approach for delivering goods to stores. However, the advent of OC retailing has made the supply chain a consumer-facing frontend. The fast growth of pure online retailers has forced bricks-and-mortar retailers to quickly build up e-commerce capabilities. However, in this race, retailers frequently have failed to fully consider integration with traditional store fulfillment. This has resulted in inefficient supply chains and a lack of transparency across channels. What is more, the vast majority of retailers believe they require a comprehensive transformation, rather than an incremental change.

To support retailers in these changes in logistics structures, we systematized forward distribution according to source location (supplier DCs, retailer DCs, stores) and destination locations (home, stores), and we elaborated options for store delivery, home delivery, and store pickup in OC distribution. Return processes were investigated in a similar manner by distinguishing between source (stores, home) and destination locations (stores, DCs, RCs).

The empirically developed typologies and comprehensive systematization constitute an addition to the literature. By analyzing market data and information from 43 interviews, we have been able to develop a structured overview of concepts existing in practice. Related framework papers are based on literature reviews and not primary market data, and they focus mainly on the aspects of e-channel fulfillment, rather than comprehensive OC requirements. Swaminathan and Tayur and Agatz et al. discuss issues and general models from an e-fulfillment perspective. Both derive their findings primarily from the literature. Similarly, Fernie et al. describe the developments in e-tail logistics based on single case studies, mainly in the context of grocery retailing. Although OC retailing has some features that are related to e-commerce, it is not clear how e-commerce lessons are valid for OC concepts.

We further contribute to the literature by providing our specific findings for non-food distribution, since previous literature focused on non-food warehouse management for OC retailing and on grocery-specific distribution issues with online retailing.

Qualitative analyses of distribution design concepts

The broad empirical analysis supports the identification of contextual and industry-specific factors affecting design choices, and challenges in implementing the different distribution concepts. Our empirical findings show that most retailers still rely on distribution concepts via a central DC as a standard solution for achieving scale and pooling effects. For this reason, deliveries are rarely made from stores or suppliers. EY show that only 40% of retailers think that their current execution of goods distribution is effective. Every third retailer states that, "having a responsive, combined omni and traditional supply chain infrastructure is a key success factor". The integration of the channels from a customer point of view, and the implied insight into inventory, is a starting point, but not enough. Successful OC retailers need to be able to fulfill demand from any channel and from any inventory location. In the context of multi-channel network design, Alptekinoğlu and Tang and Liu et al. conclude that expanding bricks-and-mortar DCs for online distribution and fulfilling online orders from physical stores pools inventory risks. Our research contributes to further development in this direction by identifying which areas of OC distribution are necessary to achieving excellence in fulfillment and logistics. These key success factors from a retailer's point of view are enhanced delivery modes together with shorter lead times and flexible inventory allocation.

The literature mainly develops frameworks for physical distribution quality in e-fulfillment. The critical elements for online purchases are availability, delivery time, condition on arrival, return options and convenience, and the perceived service quality of the logistics service providers. But specific elements for OC distribution are discussed only marginally, if at all. Store integration, however, is important within OC distribution, because an OC retailer's greatest opportunity is to tie demand capture from all channels into in-store fulfillment.

A further stream of literature discusses the performance effects of adding an online channel to existing bricks-and-mortar channels. For example, Neslin et al., Wolk and Skiera and Banerjee show that a retailer's financial and strategic performance depends on an optimized channel mix, channel design and level of channel independence, as well as optimal resource allocation across channels. They identify the positive effects of well-aligned channels. However, the analysis of the concrete design of the distribution concepts remains on an aggregate level.

The typologies developed in this paper serve as a framework for investigating the criteria for OC distribution concepts. Our qualitative analysis will help retailers to define their mix of OC distribution types. We contribute to the literature by identifying the advantages, challenges, and contextual factors for each of these distribution types. The expert interviews showed that integrating distribution concepts for distance and bricks-and-mortar channels can result in the benefit of cross-channel synergies, from both an operational and a service perspective. However, the objective was not to show one correct solution for designing a successful distribution strategy, because there is no single best practice valid for every market situation. Rather, the aim was to provide a framework of concepts that can be applied to build context-specific distribution models. Thus, this paper discussed the advantages and challenges of each concept, combining forward/backward sources and destinations.

Most of the literature does not consider product characteristics for distribution across multiple channels. However, customers have higher expectations on fulfillment for specialty goods than for convenience goods. Their satisfaction levels arising from delivery speed vary accordingly. Therefore, industry-specific order fulfillment strategies based on product characteristics should be implemented. We not only discussed these concepts in general for non-food retailing, but also identified industry and product specifics for OC distribution.

Moreover, we also extended the discussion of distribution quality for return concepts. We find that return processes and processing locations are highly dependent on structural conditions. However, the only thing that matters is the quality of any reworking and the speed of reintegration. Offering customers return options with quick reimbursement on all channels improves customer service and is the target scenario for OC retailers.