Download White Paper: Ecommerce and Omnichannel Supply Chain Management

What retailers, distributors and manufacturers must know

So You are, or Want to Begin Selling Online

The purpose of this white paper is to give you a complete picture of ecommerce and omnichannel supply chain design. It will help you with the decisions you need to make when considering how to participate in the ecommerce economy. Some key decisions are highlighted in italics.

First, What is Omnichannel?

If you are getting into ecommerce, you need to know about omnichannel as it is the current and future wave of how retailers, distributors and manufacturers will sell online.

Omnichannel is the logistics system that leverages all assets to fulfill in-person and online (ecommerce) orders. Omnichannel companies use stores, warehouse locations, and the inventory in both, to improve customer service by delivering quickly, while maximizing profit. The key omnichannel decision is “how you will fulfill online orders to take advantage of all assets in a network.”

Optimizing Tradeoffs of Omnichannel Ecommerce Fulfillment

Tell a businessperson that they will need to deal with a tradeoff, and they will typically see it as a negative. However, tradeoffs represent an optimization opportunity. The tradeoffs you need to be aware of in omnichannel fulfillment is speed of delivery (and subsequent market share) versus inventory + facility cost.

More Fulfillment Locations = Faster Delivery and Higher Market Share

Speed in online order fulfillment is the critical design criteria for omnichannel companies. The percentage of customers who want same-day or next day delivery without paying a premium is growing. In our research we have found that speed directly translates into market share. Figure 1 shows ecommerce market share based on speed of delivery for a sporting goods omnichannel retailer [1].

Figure 1: Market Share versus Delivery Days at Different Market Share Sensitivities [1]

More Fulfillment Locations = Higher Costs

Being closer to customers and delivering online orders faster means shipping from more locations, including stores, branches and warehouses. However, the more locations you use, the more complexity you add to your business processes. The simplest, and most labor-efficient option to fulfill an order is to use warehouses. However, they may be far away from customers. Stores are close to customers but they are not set up for efficient picking, often have inventory inaccuracies and do not have space for packing/shipping online orders.

Your job is to balance speed and market share versus costs to maximize your ecommerce profit.

Making these Decisions with Growing Online Demand

Online demand is experiencing a steady increase of its share of total retail and wholesale sales. Because it is still in a growth phase, retailers, distributors and manufacturers need to make decisions about omnichannel logistics without knowing when online demand growth will slow. Will online demand grow to 100% of sales and stores become obsolete? In 2020 online sales soared due to the COVID-19 pandemic. However, will it plateau as people visit stores again, or grow… and how fast? Companies must model different scenarios and make the best possible decision given this uncertainty.

Choosing an Omnichannel Network Design: SFW, SFS, SFWSB, SFW+S

There are four omnichannel fulfillment designs.

  • Ship-from-warehouse (SFW) uses warehouses that both replenish stores and fulfills online demand. SFW is the simplest omnichannel fulfillment design because centralization creates economies of scale.
  • Ship-from-store (SFS) uses brick-and-mortar stores to fulfill online demand. The advantage of using stores is greater inventory utilization and proximity to customers.
  • Ship-from-warehouse-with-store-backhaul (SFWSB) looks at the inventory across stores and warehouses that are in the same market as one inventory. If an item for an online order is in the store, that item is backhauled to the warehouse where all online orders are fulfilled. SFWSB’s advantage is combining the simplicity of SFW with greater inventory availability.
  • SFW+S allocates the online order to the location that is closest to the customer and has the inventory needed on-hand. SFW+S requires a robust order allocation system and rules of how much to use stores versus warehouses, the importance of distance and inventory minimums.

A graphic of each channel design is shown below.

You need to choose one of these designs for your online order fulfillment.

Figure 2: Different Omnichannel Designs[2]

Other Trends You Need to Know about in Ecommerce Fulfillment

Buy-Online-Pickup-In-Store (BOPS): A Customer Inventory Reservation System

In the last few years Wal-Mart and others have implemented BOPS. This saves people the work of shopping and saves the retailer the expense of shipping the order. However, the real benefit of this system to consumers seems to be as an inventory reservation system. People use it to reserve an item in a store to ensure it is on-hand, so they don’t have the hassle of an item being stocked-out when they go to the store.

If you’re a distributor, this has a name, “will-call.” If you are a retailer you need to think about the tradeoffs of giving this convenience to your customers versus the increasing costs and complexities of your own people picking items off shelves as customers are in the store doing the same thing.

Dark Stores

An interesting strategy, as less people shop in brick-and-mortar stores, is for companies to convert their retail (light) stores to mini-warehouses that can fulfill online orders or serve as BOPS locations. Dark stores allow retailers, or pure ecommerce companies, keep an assortment of high-velocity items very close to customers for same-day delivery. The light stores are converted into dense storage and picking layouts, so they are more efficient and have lower operating costs due to their less desirable locations. As with much of ecommerce, Amazon started this strategy by purchasing closed K- Marts and converted them to dark stores.

I think soon, grocery retailers and many other companies selling a wide merchandise assortment are going to set up dark stores or convert light to dark stores. This is a tough decision that requires detailed cost versus benefit modeling.

Next Day, then Same Day, now Next Hour Shipping

A supply chain researcher once said that “the internet killed distance then mobile brought it back.” Back when ecommerce first arose, no one cared where the warehouse was located. However, when people started shopping on their phones, suddenly there was a need for immediate satisfaction. Ecommerce supply chain strategies are now focused on fulfilling orders with same day or even same hour delivery. Amazon teased us with the potential for drone deliveries from their warehouses. This seems to have been premature but the need to provide immediate delivery is a problem all companies need to solve.

Ultra-fast delivery could be the great advantage of having stores or branches. They are already close to customers and form an inventory and delivery network.

Again, this is a tough decision that requires detailed cost versus benefit modeling. What will you gain in market share? Or will you just make existing sales cost more for you to fulfill because existing customers switch to same day when they don’t need this service?

Order Allocation/Assignment (distributed order management)

Another problem that needs to be solved when implementing omnichannel supply chain is what site to use to fulfill an individual order. A simple algorithm is to use the closest location to the customer. Because it is simple, it is also fast and can be done almost immediately after receiving the order. However, it has been shown to be ineffective because of inventory considerations. Would you ship from a site that is closer if you were taking the last item out of the store or ship from a site is farther way that has more inventory? What about the probability of multiple items on a single order and the potential for costly split shipments (shipping one order from multiple locations) – would this affect your order allocation decision? Instead, a model that considers all of these issues, and is fast, is needed to optimize both customer experience and cost.

You need to consider distributed order management software to automate this complex decision.

Omnichannel Warehouse Operations

In the “good old days” warehouses were designed for specific functions. They either processed pallets or packages. However, for a retailer to have two warehouses that are designed for each specific function causes extra inventory and doubles facility costs. Instead, companies are designing omnichannel warehouses that blend full pallet, mixed pallet and package operations in one facility. This requires innovative layouts, sophisticated processes and use of different types of equipment including forktrucks, reach-trucks, stock-pickers, vertical lift modules and other robotics.

There is a cost to having many different types of warehouse operations in one facility. But it is the way most omnichannel companies are headed because it is lower total cost than building dedicated facilities.

Omnichannel for Manufacturers and Distributors

An important new topic is omnichannel for manufacturers and industrial distributors. Instead of having to put a store on Amazon, or using Amazon for fulfillment, manufacturers and their industrial distributors are teaming up to create a network of warehouses and branches that can fulfill online orders quickly and efficiently. I don’t think either a manufacturer or distributor can “go it alone” in the battle against Amazon. Manufacturers control the product and brand, and have a global view of demand. Distributors, with their warehouses and (possibly more importantly) branches can provide same-day delivery in focused geographies.

Manufacturers need to set up agreements on profit-sharing in a different way than traditional wholesaling so they get broad geographic coverage of their products, at a deeper level than wholesalers (distributors) may be willing to carry. Distributors need to shift from a model where they only deliver large items and have customers pick up smaller items from their branch to an efficient pick/pack/ship operation at all facilities.

Significant and difficult changes will be required for manufacturers and distributors to embrace omnichannel. However, the alternative is for Amazon to own the customer supply chain.


[1] Millstein, M.A. and Campbell, J.F. 2018. “Total Hockey optimizes omnichannel facility locations.” Interfaces 48(4):1-17.

[2] Millstein, M.A., Bilir, C., Campbell, J.F. 2022. “The effect of optimizing warehouse locations on omnichannel designs.” European Journal of Operational Research, 301:576-590.


Mitch Millstein
Supply Velocity, Inc.
(314) 406-4962
August 2022

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“We used Supply Velocity on our Warehouse optimization project. One of the key characteristics of Supply Velocity is that they listened to our requirements and provided a clear path for our Warehouse processes using lean tools and our future sales growth as objectives.”
Haris Tokalic, President, Grand Rock, Inc.
“C&R was struggling with labor productivity. The construction crews were often missing materials that they needed to do their work. This caused significant idle time. Supply Velocity, Inc. and C&R used value stream mapping and visual management tools to make dramatic improvements in operations. Most importantly, two years later C&R is sustaining and improving on the implementation. C&R’s return on investment was 11:1. C&R had a record year last year in both sales and profits and would not have been able to pull it off without the changes Supply Velocity, Inc. helped us make.”
Tom Kuthe, V.P. Construction Operations, C&R Mechanical

“Supply Velocity gave us the tools to analyze our business and processes based on the facts and numbers versus our perceptions. Our common quote was “Let the numbers lead us”. The key for our organization was how quickly we moved from classroom to actual project initiation. We were able to jump in, start using the tools and see a difference right away.

The get-into-action approach was good for our culture.”

Ned Lane, President, CeeKay Supply
“In the spring of 2003, the St. Louis Area Chapter of the American Red Cross engaged Supply Velocity, Inc. to perform a study and make recommendations to streamline office processes, maximize cash flow in purchasing and warehousing and restructure and enhance our maintenance department. Supply Velocity, Inc.’s process was methodical, flexible, staff-oriented, inclusive and, above all, trackable.

In the last six months, our Chapter has realized expense savings of over $380,000 annually, and significant improvement in intra-company service levels has been attained. Supply Velocity, Inc. will return to the Chapter periodically throughout the next 18 months to audit our newly implemented processes. We have been pleased with our results and Supply Velocity, Inc.’s professionalism.”

Joe White, CEO, American Red Cross – Saint Louis Chapter
“For several years we have worked with Supply Velocity to support us with their expertise on Lean Operations and Supply Chain Management. Supply Velocity has helped us implement Lean, improve our inventory systems, and educate our people. They are professionals who are always available to help us as needed.”
Lorenza Pasetti, CEO, Volpi Foods
“Many thanks to all three Supply Velocity presenters. I think you guys took a very difficult time for learning and capitalized on everyone’s time and training needs. I truly hope this helps your business as this was a considerable undertaking on the part of Supply Velocity. Outstanding!!”
Mark Holdinghausen, VP of Operations, DEMA Engineering

“Your process encourages this group to work together, better communicate and have fun doing it.”

George Edinger, President, C&R Mechanical
“We are using Supply Velocity’s Lean Six Sigma methods to analyze a variety of processes including rationalizing SKUs (stock-keeping-units). By using math to evaluate SKUs we took some of the emotion out of our decisions. We expect significant increases in sales and productivity from reducing poor performing SKUs.”
Mark Kelso, Director of Process Improvement, Save-A-Lot
“Our experience with Supply Velocity was one of the best values we have ever had from a consulting project. Cyril Narishkin brought a structured lean methodology, invaluable experience and engaging facilitation skills to help us streamline a very complex and disjointed sales order process. Just as importantly, our team now has the knowledge and process competencies to address other business improvement opportunities going forward.”
Mike Howard, CEO, Aspeq
“In thirty years of hiring consultants, Supply Velocity, Inc. was the first to tell me what they were going to do, set a price they stuck to and substantially exceed my expectations. I have recommended them to friends and acquaintances. They were true partners in assisting with the turnaround of an acquisition we had been struggling with for two years.

Their math-based technology, solid down-to-earth facilitation skills, and positive, patient and enthusiastic attitude combined to make our implementation of Lean a very rewarding experience.

We increased our production by 50% in the first month of implementation and continue to see improvements. Improvements have not only been realized in productivity, but also in quality and morale. We have increased profitability by $2M on flat sales of $10M.

Based on Supply Velocity, Inc.’s integrity and our results, I will continue to refer them to others and utilize them in the future as we expand our company through acquisitions.”

Bill Gilbert, President, Fusion Coatings
“Mitch Millstein and his team helped guide our shop fabrication division in the re-layout of our custom pipe and steel fabrication facility when we moved into a new building. It is not only the results but how he helped. We were involved in every step. I personally did time studies and was able to see the non-value added steps required to manufacture in our old layout. When we created our new layout, everyone was involved, from the executive team to our direct labor force. With Mitch’s help we increased our throughput by a 3x multiple, while providing more competitive prices to our clients as a result of the efficiency improvements.

This has enabled us to not only make more money but also to expand our commercial reach and serve more, and larger customers. I would recommend Supply Velocity to any company that wants to make improvement in supply chain and operations.”

Geoff Gross, President, Gross Mechanical
“The role of the Erie Insurance Marketing Department has been evolving over the past several years – from a support role to a more critical role of driving growth in our organization. Because of our increased workload and desire to prioritize the most critical projects, we hired Supply Velocity to teach us the skills of Lean Six Sigma.

Participants included the Promotions, Market Research and Agency Licensing sections of the Marketing Department.

We learned valuable tools to help us to prioritize based on the voice of the customer.

I firmly believe these skills made a difference in how we work every day. We are moving new projects forward, eliminating or changing ineffective processes, and we are a much stronger department. We continue to use the tools to help us with our highly-complex and time-consuming projects. Supply Velocity helped us to accomplish our goals.”

Karen Rugare, Director of Marketing, Erie Insurance
“We are pleased that Essex selected Supply Velocity, Inc. as our Lean Implementation Partner. At one facility, we have saved over $350,000 in work-in-process inventory, reduced throughput time from 2 weeks to minutes and increased inventory turns 3 to 8 times per year. All these results are in just 6 months. Our return of investment is very high.”
Terry Etter, Vice President of Operations , Essex Medical Systems
“Supply Velocity has provided the technical expertise and political capital to move our project forward. They have just the right amount of push and the right amount of support. Supply Velocity has helped us make real changes to improve efficiencies in logistics without jeopardizing our performance. We’re happy and our customers are happy.”
David Walters, President, Hy-C
“Supply Velocity is driving instrumental change in our inventory management processes. This is critical for us to be competitive in a supply chain environment with numerous disruptions. They are making change happen, which can be challenging in a 182 year old organization.”
Jim Carroll, Executive Vice President Operations, Schaeffer Manufacturing
“Myerson engaged Supply Velocity, specifically Ray Davis to visit our plant in Trinidad to conduct a two day assessment of our production procedures and provide us feedback on areas for improvement and where applicable, areas for future analysis.

Put simply, we got everything we paid for and in addition to more in depth analysis, we got specific tasks that were immediately actionable. Our local management team found Ray to be engaging, highly credible and insightful based on his wide experience. In other words the cultural differences and lack of specific industry knowledge weren’t impediments to things we could implement immediately and on our own. In a nutshell it was money well spent and will pay itself back many times over.”

Lee Hartwell CPA, Plant Manager, Myerson Tooth
“We used Supply Velocity to rethink our sales process. By analyzing the entire process we found wasted time in our Sales, Admin and Operations departments. Streamlining this process created extra time for each Sales Rep, allowing them to spend more time with Customers and increase the value we add. Gross profit margins are up 40%!

We are now using Supply Velocity to help us rethink our entire Strategic Plan.”

Jeff Reitz, Vice President, Central States Bus
“Closure Medical recently completed a major reorganization in order to enhance our ability to rapidly create innovative medical devices. We hired Supply Velocity to help us map out the process and service flows of the new organization that would maximize our product development process (PDP). In four weeks, Supply Velocity helped us envision a new PDP structure, develop measures and accountability for each step, and gain consensus within the organization. Supply Velocity’s focus on speed and accountability helped us complete a critical project in a timely fashion.”
Gabe Szabo, Vice President, Product Development, Closure Medical – A Division of Johnson & Johnson
“Isolating a problem, finding short, and long term solutions with measurable results is what was promised and results is what was delivered by Supply Velocity. Upon launch of the Lean Six Sigma Selling System, we knew more about our customers, our products, and were able to create a solid plan to increase sales of our most profitable products. Within months of implementation, our booked sales jumped 60% and our most valued customers were getting direct, active, and calculable attention.”
Mark A. Presker, General Manager, Architectural Millwork of St. Louis

“I am thrilled to provide this testimonial for Supply Velocity and their outstanding work in implementing Lean Warehouses and processes at Crescent Parts & Equipment through the COVID pandemic. With their data-first focus and Mitch’s exceptional coaching and experience, they transformed our business into a more supply chain-oriented organization, enabling us to grow while prioritizing employee safety and creating a better work environment. Supply Velocity’s expertise in Lean methodologies and their comprehensive evaluation of our customers have been instrumental in optimizing our operations and increasing customer satisfaction. We highly recommend Supply Velocity to any company seeking to implement Lean processes and enhance their supply chain efficiency.”

Josh Cole, Director of Supply Chain, Crescent Parts & Equipment
“Anheuser-Busch Precision Printing had been implementing Lean Operations on our own for the past two years. We needed to move faster and partnered with Supply Velocity, Inc. Through Supply Velocity, Inc.’s mathematical workflow balancing and visual management tools, dramatic improvements were achieved. The entire converting operation was rearranged based on Lean principles. The result is a 20.6% productivity improvement, enabling us to operate with 23 fewer people in production.”
Rich Lavosky, General Manager, Anheuser-Busch Precision Printing

“In a time of volatile supply chain disruption, Supply Velocity is helping us develop Demand and Supply Planning processes to proactively tackle these new challenges. They are genuine partners, working with our team, facilitating and teaching.”

Jane Thrasher, Vice President of Supply Chain, Horizon Hobby

“Supply Velocity created visibility within our Assurance Services Group… visibility of performance, Client-service, employee satisfaction and processing time. Using the Supply Velocity System, Audit Report Cycle time is down over 50%. We are using his strategies to create greater Client loyalty.”

Fred Kostecki, Partner-In-Charge, Assurance Services, Rubin Brown
“In 2015 we began working with Dr. Mitch Millstein to optimize our inventory locations supporting e-commerce and in-store inventory needs. From this work we developed a new omni-channel warehousing and inventory plan that entirely redefined our approach to warehousing, inventory management, store distribution and fulfillment. As a result of the analyses by Dr. Millstein we have begun the move to an improved omni-channel design by reassigning MSAs to new warehouses, greater leveraging of in-store inventories to satisfy e-commerce demands, and exploring acquisitions of new warehousing space in strategic locations. We have already seen an improvement of $300,000 from both more efficient shipping strategies due to better inventory management.”
Rob Bowers, Vice President of Strategy, Total Hockey
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Rachel Andreasson, Executive Vice President – Marketing, Wallis Companies
“We engaged with Supply Velocity to help us embed process improvement at all levels of the business. Our team learned from Mitch to let the data drive decisions, to use Lean tools to help us see our processes critically and objectively, and to create a control plan to manage all of the tasks that were the outcome of the data study.

The project turned out to be very significant to the company and most importantly, our customers. We reduced our customer wait times by 40%, and cut in half the labor cost to fulfill customer orders.

Some results are not able to be measured. However, as a result of this project, we have started to build a Lean mindset and culture, which is part of our strategic mission to save our customers money. Supply Velocity has been a valued partner in this mission.”

Dionne Dumitru, COO, Weekends Only
“Supply Velocity has helped Clean succeed in a number of ways. First, they provided the education that kicked off our Lean Process Improvement journey. They also facilitated a number of large supply chain and process improvement projects including: 1) building quality into our direct-labor productivity incentive program, 2) designing the layout of our garment warehouse, and 3) streamlining our route service process.

We have integrated the methods that Supply Velocity taught us into our management and strategic planning. In the process our quality measurement has improved 22% from 2013 to 2015, we have reduced required annual labor by 2200 hours from the garment facility layout project and we’ve seen 50% decrease in error rate. Obviously the numbers speak for themselves, but just as important, Supply Velocity has been fun to work and have become true partners. They have “taught us how to fish” so our internal teams are able to implement change on their own, with the skills we learned from Supply Velocity. This relationship has been invaluable.”

Jeff Lazaroff, Senior Vice President, Clean Uniform