The encyclopedia · Strategy & Leadership · Strategic decision · 2016–2018
Total Hockey's model rejected the East Coast warehouse management wanted
A profit-maximizing location model across 359 US metro areas showed Total Hockey's planned East Coast warehouse was a mistake.
Total Hockey
the move
Total Hockey, a US sporting-goods retailer with about 30% of its revenue from e-commerce, served stores and online orders from a single St. Louis warehouse. Management believed faster delivery required a new omnichannel warehouse on the East Coast.
University of Missouri-St. Louis researchers built a profit-maximizing facility-location model covering 359 US metro areas. It incorporated management's own estimates of the sales lift from one- or two-day delivery, sales lost to competitors, and cannibalization of Total Hockey stores.
The results contradicted management's expectation and pointed to a significant redesign of the distribution system, changing the case for the East Coast warehouse and how service levels should be balanced against inventory and shipping costs.
why it works
- A single metric like delivery speed hides the profit impact of inventory pooling and cannibalization.
- Modeling all 359 metro areas exposed where fast service actually pays and where it does not.
- Competition and own-store cannibalization change the answer, and gut feel rarely includes them.
- Nonlinear inventory costs made small warehouses look attractive only when the model priced them correctly.
what transfers
In omnichannel, test capacity intuition with a model before spending on a building.
what came after
Total Hockey used the study's results to evaluate alternative warehouse configurations and service levels rather than committing to the planned East Coast site. The analysis also generated managerial insights for omnichannel distribution that the researchers published for other retailers facing the same choice.
references
- Total Hockey Optimizes Omnichannel Facility Locations
- Total Hockey Optimizes Omnichannel Facility Locations
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