Professor Misty Blessley, at Temple U., shares her insights with readers monthly.
Last year, Walgreens introduced an innovative strategy to transform its stores into dual-purpose retail outlets and hubs for home deliveries. This shift was driven by a change in consumer behavior towards ordering non-pharmaceutical products for delivery and Walgreens’ belief that store fulfillment is more efficient than managing separate distribution networks for e-commerce and in-store sales. Walgreens’ store employees now pick and pack items for same-day delivery via services like DoorDash and Uber Eats.
But recently, Home Depot announced plans to decrease store fulfillment. Why does store fulfillment work for Walgreens customers but not for Home Depots? As the largest home improvement retailer in the U.S., Home Depot sells tools, construction products, appliances, and more to both professionals and amateur do-it-yourselfers. Like Walgreens, it aims to serve its customers as efficiently as possible.
For its lucrative professional customers, the company discovered that distribution center fulfillment is more efficient. This is because it better accommodates orders for various product categories and eliminates the additional step of moving product from the distribution center to the store before reaching the customer.
There are several operational advantages to Home Depot delivering more professional customer orders directly from its distribution centers. These benefits include freeing up store space and labor, reducing store congestion, and increasing in- store product availability for pro customers when needed. It also recognizes the need for different types of distribution centers. For example, flatbed distribution centers are ideal for efficiently handling lumber and other building materials, while direct fulfillment centers are better suited for products like flooring, windows, and doors.
Best Buy, the consumer electronics retailer, is pursuing the same strategy as Home Depot. It is leaning more on its distribution centers to fulfill orders, allowing employees to focus more on in-store sales and order pickups.
By updating its value chain as needed, a firm can enhance efficiency while better serving its customers. (Refer to page 40 in Chapter 2 of your Heizer/Render/Munson text).
Classroom discussion questions:
1. Value chain analysis identifies activities that represent a firm’s strengths or opportunities for competitive advantage. In what ways does Home Depot’s decision to segment its customer base for distribution purposes provide an opportunity for competitive advantage?
2. Peruse the product offerings of the firms mentioned in the article. How do storage, picking, packing and delivery needs differ across the product offerings?