By Bill Leber, Swisslog
E-commerce is fundamentally changing the nature of the retail supply chain. As online shopping continues to compete with and, in many instances, overtake brick-and-mortar retail, traditional retailers are looking for more and more ways to expand their multichannel operations.
According to Datamonitor’s Global Online Retail 2011, the global online retail sector had total revenues of $434.6 billion (USD) in 2010, representing a compound annual growth rate (CAGR) of 16.3% for 2006 to 2010. 2010 alone had a growth rate of 17.8%.
In addition, tablet and smartphone shopping is fueling a large share of growth in the retail economy. More than 50% of retailers support physical storefronts as well as e-commerce websites, mobile shopping and social capabilities. “Click today and get tomorrow” is here to stay, and centralized fulfillment no longer works as an efficient source of support.
Due to this increase in online and mobile sales, many brick-and-mortar retailers are outgrowing their traditional supply chain infrastructure. In addition to scheduled weekly store deliveries of pallets and cases, retailers must now factor in split-case picking, item-level touches and multi-line item sortation to fulfill fluctuating volumes of online orders that frequently require delivery to consumers within 24 to 48 hours.
With U.S. e-commerce sales surpassing the $200 billion mark and projections of continued double-digit growth, it is increasingly important that multichannel retailers develop and adopt a process to integrate these channels and manage fulfillment effectively and efficiently.
Many retailers, in the rush to integrate online sales, are busy on the front end optimizing their websites and stores. In trying to create a seamless experience for the shopper, retailers are missing the telltale signs that their fulfillment system is buckling, which will hamper everything from customer service, to profitability and basic operations. The good news is there are a number of factors that, taken individually, can illuminate whether or not the fulfillment center is making the grade.
What follows is a breakdown of these telltale signs:
Difficulty adapting to changes
In the order fulfillment industry, change is common. Whether it involves a manufacturer, packager or supplier, companies must be equipped to adapt to new or modified processes on a regular basis. A rocky transition can lead to shipment problems and delays, as well as issues further down the road.
In the past, retailers supported brick-and-mortar stores with a single-channel supply chain to replenish goods from a central pool of inventory. A fulfillment center could allow hours or even a day before acting on incoming orders. This allowed for efficient organization of processing through ‘batching’ in a logical sequence.
The new buzz word for DCs is ‘event-driven processing.’ This is where each event, or individual incoming order, immediately triggers a sequence of events that will begin the fulfillment process, ensuring same-day shipment, and, in turn, faster delivery.
Replenishment errors or concerns
Since many retailers offer comparable products at similar prices, access to products and fast delivery has emerged as a major shopping decision driver. Even slim errors in replenishment oversight can lead to big problems for e-commerce retailers. Currently, the majority of all e-commerce orders are manually picked. If an individual worker finds the wrong product in an assigned location, their entire process is brought to a halt. They must resolve what has gone wrong (wrong location, wrong item, etc.) before proceeding to complete their assigned picking path.
Delayed shipments and missing shipment times
A successful e-commerce multichannel fulfillment strategy must accommodate demand fluctuations. In addition to scheduled pallet and in-store case deliveries, multichannel retailers must factor the fickle demands of e-commerce shoppers into their fulfillment processes. Typically, this includes split-case picking, item-level touches and multi-line item sortation. Without processes in place to accommodate for demand fluctuations, retailers will experience difficulties delivering on larger or fluctuating orders. This can compound the problem and lead to difficulty delivering on seasonal promotions or shipping offers, potentially ruining customer relations before they’re even begun.
Inventory tracking and management challenges
In larger warehouse facilities, with traditional operations in place, order pickers may walk more than 15 miles over the course of a shift. Even in smaller distribution centers, where pick-to-belt systems are installed, operators can walk up to five miles each day on hard surfaces. These requirements can be physically taxing and lead to higher rates of error and injury as well as unhappy employees.
Difficulty filling multi-product orders and managing returns
A system is only as strong as its weakest link. Even with software that picks at high levels of accuracy and equipment that moves an order at rapid speeds, employees improperly trained or lacking important tools can disrupt the throughput of an order fulfillment system.
Return rates, especially for goods where sizing is a critical factor, can run up to 30 percent. Managing these returns as a simple ‘add-on’ to the receiving or replenishment process can lead to tremendous bottlenecks. Since it is often difficult or impossible to group returns of like-SKUs together, employees are manually ‘piece receiving’ items one at a time.
Interestingly, a telltale sign that fulfillment strategy may need rethinking is exposed in customer service department statistics. If your customer service department is reporting record numbers of dissatisfied customers and a high volume of back orders, it may be time to rethink your fulfillment strategy.
Automation for next-generation fulfillment
Successful distribution center order fulfillment is a critical factor to ensuring a competitive advantage in today’s retail economy. Distribution centers must be able to guarantee delivery within ever-shortening lead times and with high expectations for accuracy and speed. As a result, operations leaders are turning more and more to automated solutions to confirm smooth, integrated and well-oiled processes. Solutions that automate both the replenishment and returns process allow e-commerce retailers to optimize their picking process and ensure customer satisfaction in a cost-affordable and efficient manner.
Bill Leber serves as director of business development for North America at Swisslog, a global provider of integrated logistics solutions for warehouses, distribution centers and hospitals. Its comprehensive services portfolio ranges from building complex warehouses and distribution centers to implementing Swisslog's own software and technology to intra-company logistics solutions for hospitals. Prior to joining Swisslog, Bill worked 26 years for Ciba Specialty Chemicals in a variety of roles.