Faculty voice:

Simone Peinkofer: New retail reality transforming the supply chain

Jan. 8, 2020 - The following is repurposed content from a Broad News interview between Chelsea Stein, communications coordinator at the Broad College of Business, and Simone Peinkofer, an assistant professor of supply chain management in the Broad College of Business. Peinkofer joined the Broad College of Business in 2016.

Peinkofer’s work includes drop-shipping: how some manufacturers are delivering goods directly to customers upon a retailer’s request and how that’s changing the retail supply chain. Her paper “Assessing the Impact of Drop-Shipping Fulfillment Operations on the Upstream Supply Chain,” published earlier this year in the “International Journal of Production Research,” examined what’s known as the supply chain triad phenomenon.

For the full article, see here.

The new retail reality has led retailers to develop new fulfillment service operations, such as ‘buy online, pickup in store’ or ‘buy online, return in store,’ requiring the integration of physical and electronic retail channels. It’s also known as omni-channel retailing.

A supply chain triad consists of supplier–buyer–customer and in retailing can be manufacturer–retailer–end customer.

But with drop-shipping, the manufacturer oversees fulfilling end customers’ orders. While the end customer might purchase a fridge, for example, from Home Depot, the manufacturer — rather than Home Depot — is responsible for fulfilling and delivering the product to the end customer’s home.

End customers don’t necessarily know that the product is shipped by the manufacturer instead of the retailer. Thus, drop-shipping changes the traditional relationships in a retail supply chain triad which leads to new challenges for the manufacturer.

Dynamics of drop-shipping

Establishing drop-shipping operations takes a lot of coordination between the retailer and the manufacturer. As more retailers are opting to set up drop-shipping operations, manufacturers need to develop the necessary capabilities to fulfill individual-sized orders—a drastic change from freight-sized orders which they are accustomed to.

Manufacturers need to provide the necessary fulfillment quality and consistency end customers would expect from the retailer. For example, end customers might want a personal gift message to be attached to their orders. These services require additional time and resources for the fulfillment process that manufacturers are not used to.

Complicating things further, retailers often decide to do drop-shipping without consulting the manufacturer’s capabilities, giving manufacturers almost no time to get ready for these challenges.

Not every product is suitable for drop-shipping. Heavy and bulky items are especially popular because retailers don’t want to carry the cost of them in their inventory, plus heavy and bulky items take up a lot of space in the distribution center. Additionally, bulky items might take special handling and equipment to unload, store and load and retailers might not want to deal with these complexities.

Using insights to save the sale

Despite the fact that omni-channel fulfillment is becoming increasingly popular, a majority of retailers still struggle with the management of such service operations.

This research explores how customers respond to two out-of-stock recovery strategies, delivery speed and delivery location convenience, in situations when a retailer is able to provide an unavailable product through a different channel.

In a similar vein, a second research project takes a broader view on when “save the sale” strategies are most effective, depending on whether the out-of-stock occurs in store or online and whether the product is price promoted vs. regularly priced. This work highlights the importance of inventory visibility and provides managers with an understanding of when and how they can leverage their retail network to retain customers. Having inventory visibility is probably one of the most important aspects if a retailer wishes to offer “save the sale” strategies.

I engage with industry professionals and closely follow retail industry news to learn about current challenges and issues, which helps me come up with relevant research questions. I work with companies directly to ensure my research is grounded in the industry and interesting to managers. For each research project, I come up with implications that “translate” the academic nature of the research into something tangible for managers.

I also share knowledge by talking to industry professionals. In September, I got invited by Supply Chain Brain, a leading industry publication, to speak on my “save the sale” work, for example.

Considering that customers are an essential part of the retail supply chain, my research also directly impacts me as a customer, shopping at retail stores or online and experiencing firsthand some of the issues I am studying. I love the creative process and natural curiosity that is necessary for my job.