BRICKS and CLICKS’ – The Challenges that Retailers Face in Logistics and Supply Chains

May 1, 2017 Mr. Tony Evans

‘Bricks and clicks’ is a business model by which a company integrates both offline (bricks) and online (clicks) presences, sometimes with the third extra flips – physical catalogs. Additionally, many will also offer telephone ordering as well, or at least provide telephone sales support. The bricks and clicks model has typically been used by traditional retailers who have extensive logistics and supply chains, but are well known and often respected for their traditional physical presence.

The logistics processes

For a customer who takes a shopping decision, buying online is very much different than buying in a traditional store.  E-commerce gives a comfort to search through hundreds of web pages for product information and compare prices, whereas shopping in traditional stores allows customers to examine various products before purchase and, if necessary, to obtain a salespersons advice. Whichever way the product goes through before it finally gets to the customers is not that much unlike each other. First of all the product offered by various channels is usually the same. It means that purchasing and vendor management functions can be combined for all channels and therefore gives a leverage effect in buying and advantageous price negotiations. Both bricks and clicks operations present demand driven supply chain strategy where customers’ needs are in the heart of logistics operations.  Information flow and product flow directions are the same for all channels, product flows downstream from suppliers through retailers supply chain to the final consumer, and information flows upstream from customers to supplier.  The complete retail market no matter of distribution channel faces increases customer expectations towards product quality and availability.  All channels are affected by shrinking transit times and downward pressure on price which implies the necessity to improve efficiencies of logistics processes through all channels.

Differences in logistics process

Although there are many differences in the logistics processes even the products offered by different channels are the same and operations might be supported by one network, though specific adjustments might be necessary depending upon order size, customer service level and delivery option. The main differences are:

Order size – bricks and mortar stores orders are counted in cases, picking is run per shipment and picked goods are ready for dispatch without additional handling.  In contrast, clicks orders are rather small including just a few items per line.  Items are picked in batches and sorted per order before dispatch. Depending upon the product specification, some shipments might require special packaging and separate handling such as fragile goods.  Huge amount of small orders requires efficient picking and packing system.

Warehousing operations – the picking system suitable for bricks is not efficient for click.  A common characteristic for both channels is that labour is the highest cost of a warehousing operation.  Therefore companies need to decide whether to keep the stock for all channels in one RDC or separate them to avoid confusions and inefficiencies.

Technology – modern retail companies are investing in new technologies to optimize logistics operations and gain competitive advantage.  For e-commerce operations a sophisticated WMS integrated with ERP and Transport Management System is essential.  Based on real time information about the inventory level and estimated delivery time, customers are making purchase decisions.

Order fulfillment – traditional store shopping gives customers the opportunity to verify if the product is exactly same as expected including quality of every single item before putting into a shopping basket.  In click operations any error in order fulfillment results in returns and problems in customer retention.  Potential errors are related to wrong item picked and packed, quality issue or late delivery.

Transport planning– as described above, E-commerce orders are relatively small size.  One truck is delivering parcels in a wide area to numerous customers. Such fragmentation forces efficient dispatch planning and delivery scheduling.

Network design – the location of regional distribution center for traditional stores is chosen as a center of gravity for the region and easy access for heavy vehicles.  Such RDC’s are usually located out of urban areas.  For click operations far distance from the city centers might be a significant disadvantage.  In order to secure timely next-day or even same-day fulfillment, it seems to be more reasonable to locate pick centers close to urban areas.

How retailers overcome them when delivering goods to customer homes

Retailers who would like to add a new channel to their current offer might encounter various challenges related to warehouse operations, transportation, product availability and timely accurate information.  If the retailer sells products through various channels under the same brand, customers expect to experience the same service level no matter which channel they use.  In this context retailers need to align their strategies and choose the right balance between co-operation and separation of the channels.

New channel set up

 Introduction of a new channel may be too expensive for a pure-play company. Lack of expertise and access to new information technology is a barrier for traditional click and mortar store to start-up e-commerce operations.  It is the challenge then to define best strategy for new channel introduction without interruption to service level experienced in existing channels. Gulati, R and Garino, J. (2000) suggest that each retailer should ‘find a right mix of the freedom, flexibility and creativity that come with separation and the operating, marketing, and information economies that come with integration’[i].

If the retailer is already running catalogue operations it might be a base for on-line channel run in-house. Opening an in-house division would be suitable for a retailer who already has a sophisticated real-time information system. In both cases retailer needs to train or recruit experienced managers who would cope with new channel integration.

Another option which is suitable for retailers without experience, infrastructure and technology, is the acquisition or merger with a retailer operating on competitive channel.  Some companies may prefer partnership over the ownership.  Collaboration gives more flexibility, allows to keep own brand name and the same time partners benefits from access to wider group of customers. Both forms bring benefits to customers as they can use various channel to purchase desired product from well know retailer. 

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[i] Gulati, R and Garino, J. 2000 , ‘Get the right mix of Bricks and Clicks’, Harvard business Review.

 

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