November 8, 2016
special report | Omnichannel Distribution

Study: Multitasking DCs deliver the goods for omnichannel retailers

Study: Multitasking DCs deliver the goods for omnichannel retailers

Three-quarters of retailers fulfill orders from multiple channels at a single DC, according to our fourth annual omnichannel fulfillment survey.

By Ben Ames

Once upon a time, the retail industry was a safe, predictable way to make a living. Businesses simply had to take delivery of inventory, stock the shelves, and greet eager customers at the door.

Sign on for a retail job in 2016, however, and you'd better buckle up for a wild ride. This industry is one of the fastest-changing sectors of the U.S. economy, with companies hustling to adapt to trends like drone delivery, virtual reality, and mobile commerce. One change looms over all the others, however: the rush to join the omnichannel revolution.

To get a better understanding of how companies are meeting the challenges of omnichannel commerce, DC Velocity and ARC Advisory Group, a Dedham, Mass., management consulting firm, teamed up to conduct our fourth annual survey on retail fulfillment practices. Respondents answered 37 questions on their approach to meeting current challenges in omnichannel commerce and their plans for the future.

The results showed that in spite of an array of new logistics strategies and processes, most retailers have simply bolted their new omnichannel operations onto existing infrastructure, fulfilling multiple order streams in the same DCs where they handle traditional store fulfillment. The survey statistics that follow tell the story of why, how, and where businesses are performing omnichannel fulfillment.

Exhibit 1: How do you fulfill e-commerce orders?

When it comes to why companies embark on the omnichannel journey, the answer seems to be all about preserving their slice of the market. Asked for the top three reasons they were participating in omnichannel commerce or intended to do so, respondents said they wanted to boost sales, increase market share, and improve customer loyalty. Those responses finished far above cost-focused alternatives such as increasing margins, improving ability to rebalance inventory, decreasing markdowns, or reducing capital expenditures associated with building a new e-fulfillment warehouse.

We asked respondents which omnichannel capabilities they currently support, and they ranked the five options as follows:

  • Order at store, fulfill from warehouse (67 percent)
  • Return to store, even when goods are ordered online (65 percent)
  • Inventory rebalancing, shipping excess inventory from one store to another (54 percent)
  • Order at store, fulfill from another store (42 percent)
  • Parcel return, even when goods were bought in a store (32 percent)

As for how respondents fulfill online orders, the answers were all over the map: 75 percent said orders were fulfilled through a traditional DC that also handles e-commerce, 44 percent said orders were filled from a store, 38 percent said items were shipped directly from a manufacturer or supplier, and 32 percent use a Web-only DC. It should be noted that respondents were allowed to select more than one response, and as the percentages indicate, a number of those companies are using multiple methods. (See Exhibit 1.)

Exhibit 2: Do you handle e-commerce fulfillment and traditional fulfillment at the same facility?

With three-quarters of retailers fulfilling orders from multiple channels in a single facility, that approach is clearly a foundation of omnichannel practice. And as our survey made clear, they're not backing off from that practice. Seventy-seven percent of respondents to this year's survey said they handled e-commerce fulfillment and traditional fulfillment at the same facility, an increase from the 69 percent who answered the same way in last year's survey. (See Exhibit 2.)

Retailers are taking orders from a diverse range of sources. In fact, when it comes to ringing up sales, it appears all doors are open: 86 percent said they took orders online (including mobile), 77 percent said brick and mortar, and 42 percent said call center and catalog. (Totals came to more than 100 percent because most businesses support multiple channels.)

Although many retailers are fulfilling orders from multiple channels in a single building, our survey also revealed that there is plenty of room for them to merge those operations more completely. When we asked whether respondents' e-fulfillment operations were segregated from traditional fulfillment, 59 percent of respondents said yes. That indicates that retailers run their e-commerce and traditional fulfillment streams in a single building, but use separate operations, employees, and inventory.


Within the warehouse, retailers are using a range of sophisticated software tools to manage their operations. When we asked respondents what technologies they used to support their omnichannel initiatives, the top seven answers were: warehouse management systems (WMS), demand management software, distributed order management (DOM) systems, total-landed-cost analytics software, inventory optimization software, transportation management systems (TMS), and labor/work force management systems (LMS). (See Exhibit 3.)

Exhibit 3: What technologies do you use to support omnichannel initiatives? .

Retailers are investing in those tools because they expect e-commerce revenues will continue to rise, no matter where the fulfillment happens. As for where that fulfillment will happen, the situation appears to be in flux. Asked how they see e-commerce fulfillment locations changing over the next five years, 32 percent of respondents said they expected to see a rise in e-commerce orders fulfilled in traditional DCs, compared with 28 percent who expect to see more fulfillment taking place in stores and 19 percent who said Web-only DCs.


So that's how the orders are sorted and picked, but how does the actual merchandise reach consumers' doorsteps? The omnichannel approach offers practitioners a dazzling array of options, from the latest high-tech drones to the do-it-yourself alternative: pick up in store.

Exhibit 4: How do you handle last-mile deliveries?

We asked how retailers handled "last mile" deliveries and found that in practice, most retailers stuck with tried-and-true methods. The most common answer was courier delivery service (FedEx, UPS, etc.) at 43 percent, followed by a third-party logistics (3PL) partner at 23 percent, and arranging for items to be drop-shipped by partners at 20 percent. (See Exhibit 4.)

Some retailers are also experimenting with more creative alternatives, including deliveries made by store staff (via car, bicycle, foot, etc.) at 5 percent, drones at 2 percent, and crowdsourced delivery services (Deliv, Instacart, etc.) at 1 percent. And the future may hold even greater change. When we asked which delivery methods our respondents do not currently use but plan to use, the top three replies were crowdsourced delivery service with 8 percent, drop-shipped by partners also with 8 percent, and 3PL delivery partner at 7 percent.

Exhibit 5: What percentage of your direct retail revenue currenly comes from each channel?

Despite the rapid rise of omnichannel commerce, our survey revealed that e-commerce revenue has a long way to go before it passes sales from physical stores. When asked what percentage of their direct retail revenue currently came from each channel, respondents said 67 percent came from brick-and-mortar locations, 24 percent from online sites (including mobile), and 9 percent from call center and catalog sales. (See Exhibit 5.)

Overall, the survey indicated that omnichannel fulfillment remains in a state of flux. As retailers scramble to adjust to a shifting marketplace, they are experimenting with a wide variety of fulfillment practices and technologies. Stay tuned as DC Velocity continues to track the evolution of omnichannel fulfillment practices and shares the hard-won lessons of industry leaders.

Read the other part of our special report on omnichannel distribution, "Three ways to make omnichannel affordable."

About the Author

Ben Ames
Senior Editor
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.

More articles by Ben Ames

Resources Mentioned In This Article

Strategy Videos

Join the Discussion

After you comment, click Post. If you're not already logged in, you will be asked to log in or register.

Subscribe to DC Velocity

Feedback: What did you think of this article? We'd like to hear from you. DC VELOCITY is committed to accuracy and clarity in the delivery of important and useful logistics and supply chain news and information. If you find anything in DC VELOCITY you feel is inaccurate or warrants further explanation, please ?Subject=Feedback - : Study: Multitasking DCs deliver the goods for omnichannel retailers">contact Chief Editor David Maloney. All comments are eligible for publication in the letters section of DC VELOCITY magazine. Please include you name and the name of the company or organization your work for.