The Fourth Channel: Automatic Home Replenishment and its Implications for Supply Chain Cost and Customer Convenience

Abstract

Consumers are shopping online for groceries in increasing numbers, a trend that was only magnified by the COVID-19 pandemic. At the same time, grocery retailers are experimenting with a variety of delivery models including where orders are fulfilled, the size and location of distribution centers, and whether the customer picks up her products or chooses delivery to her front door. Some retailers and manufacturers are further experimenting with the ordering process – supplementing online orders with subscription services and auto replenishment. Indeed, the Internet of Things (IoT) has connected consumers and their homes to retailers in a new reality where the shopping experience is being transformed. Here is a window of opportunity to create value and establish consumer loyalty, but the supply chain costs can be significant. Retailers should carefully analyze the details of the supply chain and last-mile delivery costs, as well as customer convenience factors. They may also want to consider an auto-replenishment concept called Market Basket Auto-Replenishment that could achieve many of the benefits customers are looking for without creating unsustainable costs to the supply chain.

Keywords: Automatic Home Replenishment, Ecommerce, Retail Operations, Supply Chain Management

JEL Classification: L81, D10, D20, D30