Omnichannel Supply Chain Method Reinvents Retail Distribution Centers

Rong Li, associate professor of supply chain management at Syracuse University’s Martin J. Whitman School of Management, has published research on reinventing retail supply chain and the Ship-from-Store-to-Store (SFSTS) practice

This practice has emerged as retailers have become equipped to deliver products and services among different channels. Consumers now order products online, in-store, by phone and more, so retailers have discovered new ways to keep up with the demand dynamics.

The SFSTS method allows stores to be used directly as distribution centers (DC). By sharing inventory between stores, retailers can pool their inventory together virtually and make the order-fulfillment process faster for consumers. Product demand (in-person and online) can be extremely different across each store, so this method can help concentrate supply and better allocate it across stores based on demand. 

At a high level, companies must be responsible for tracking the real-time inventories of their stores by utilizing new technologies. Individual stores can receive inventories from other stores, as opposed to receiving inventories only from central locations like warehouses. Some large retail companies such as Best Buy have reorganized their supply chains to use this method to use different stores as shipment points for online and in-person orders.

Li’s research aims to explore the most efficient inventory replenishment policy for companies that implement the SFSTS method into their supply chain. With very little literature on the subject, this paper is the first of its kind to solve the optimal multi-period inventory replenishment policy. Li’s research focuses on how retailers should replenish inventory in regional DC’s and many neighboring stores that face uncertain demand.

With this method, the DC procure-up-to level for inventory is no longer constant because individual stores will serve as centers as well. Therefore, it depends on each store’s inventory as to what the DC would restock. Rather than depending solely on when the DC procures inventory, individual stores ship between each other when their inventories are imbalanced. The retailer must constantly track individual stores on their on-hand inventory to accurately balance each store’s supply.

For retailers with more nearby stores, additional profit will be earned, but it is much more difficult to implement the method because any store may be sharing with many other stores.

In this omnichannel era, retailers must build updated information systems to report this replenishment policy to prepare for the complex operation and uncertain demands of consumers both in-person and online. Customers demand faster shipping and faster service especially because demand has shifted significantly online. So, retailers must optimize their supply chains to keep up. 

Cost implications for this practice will vary depending on the retailer. The shipping cost between stores will increase, yet the total costs may decrease with a decrease in the retailer’s spending on emergency production. Without the extra cost of backorders and rush shipping, retailers can save with the SFSTS by utilizing neighboring stores for inventory.

Li’s biggest takeaway from the research conducted was that there is much more research done to fully understand this practice and its effect on the supply chain of retailers. She will use this research as a foundation for more to come on subjects such as optimal real-time decision on how to fill each online order, from a DC or a nearby store.

Learn more about research being completed by the faculty at Whitman.

Karley Warden