Over the past 15 years, retailers have grappled with the growing complexities of selling to consumers through both online channels and traditional bricks and mortar stores. But burgeoning online retail sales, combined with the heightened expectations of today’s millennial and digitally empowered consumers, means that the complexity and cost of multi-channel commerce is only set to grow – as retailers strive to differentiate or extend their omni-channel service offerings.
For multi-channel retailers forced to play catch-up with more nimble internet pure-players, market innovations and convenience-boosting services like click-and-collect are now the name of the game. In the battle for consumer hearts and minds, mastering e-tailing fulfilment increasingly depends on a hyper-efficient logistics execution strategy that can surmount the challenge of legacy channel structures.
“Simply channelling greater investment in facilities, equipment or people at the distribution centre isn’t necessarily the solution”
The race to deliver
Effective order management and fulfilment is a core element of supply chain success. In the fierce competition against online pure players, the ability to get orders to customers fast is a crucial differentiator. To achieve this, today’s online shopper can expect to be tempted by a choice of fulfilment options – click-and-collect, buy online, return or exchange anywhere, and collection from a local post office, newsagent or secure locker.
Fulfilment from a location in close geographic proximity to the customer can not only reduce shipping costs – it also gets product to ‘the last mile’ faster to support next-day delivery. But this demands a level of operational excellence only possible if retailers can overcome the internal technology challenges, organisational silos and poor execution that all too often thwart this aspiration.
A key challenge is that order cycle times are shortening as companies work harder to compete for online buyers with same-day and next-day delivery options, while internet shoppers are becoming accustomed to expect a two-hour and even one-hour delivery window as the norm in some sectors. And increasingly, they’ve grown to expect delivery to be free.
There has also been a fundamental change in order profiles compared to traditional retail storage warehouses; ecommerce orders typically comprise just one or two items. So competing in the online retail space means moving more individual product SKUs through the warehouse at greater speeds –picking at item rather than case or pallet level – while dealing with a growing variety of fulfilment models that may include drop shipments, fulfilment via 3PL partners and a central distribution centre. For multi-channel retailers, there is a particular knock-on effect for store replenishment order profiles with the shipment of multiple mixed cartons, several times a week to support click-and-collect customers.
But regardless of the fulfilment model involved, retailers still ultimately own the customer relationship. And those that fail to deliver against consumer fulfilment expectations can pay a heavy price.
Failing to fulfil damages brands
When things go wrong, brand reputations and margins are on the line. Last year, a number of UK retailers were caught out by the unexpectedly high demand generated by the Black Friday promotional weekend, which caused havoc with their inventory and fulfilment operations.
Faster fulfilment and smaller order sizes can certainly come at a cost. But the relentless growth of internet shopping – about 15-20% of all UK retail sales are now online – means that retailers must innovate to cope with demand and harness the opportunity. With Forrester’s European Online Retail Forecast 2013 to 2018 report predicting UK internet sales are set to hit £57.6bn in 2018, it’s no surprise there is growing recognition at board level that cost-effective, fast and efficient order fulfilment is both a commercial and reputational priority. Indeed, market share, increased customer satisfaction and brand loyalty depend upon it.
Total Logistics’ Six Pillars of Success
The cost of fulfilling eCommerce orders represents a significant percentage of sales, and many high-profile retailers are experiencing reduced margins on ecommerce sales. Faster fulfilment is becoming the price of doing online business, but spiralling order processing, inventory deployment and distribution costs now make getting to grips with the ecommerce fulfilment challenge a business priority.
“As manufacturers evaluate their business models for fulfilment and customer service management we will see a new era of innovation”
Direct-to-consumer fulfilment today involves handling mass volumes of individual items, supporting event-driven processing, multi-line item sortation, split-case picking, and demand fluctuations generated by promotions and seasonality. Factor in the relative and absolute cost-per-delivery against order value (plus the need to provide a joined-up customer experience) and the scale of the challenge comes sharply into focus.
Simply channelling greater investment in facilities, equipment or people at the distribution centre isn’t necessarily the solution. Coping with the cost and efficiency e-fulfilment challenges of today, and planning for tomorrow’s growing ecommerce demand, requires a holistic and integrated approach that takes account of the six pillars, making sustainable and effective eCommerce fulfilment performance possible.
The six pillar model is underpinned by extensive knowledge of logistics fulfilment solutions and practices across many organisations.
- Organisation
Having a fully-aligned and unified cross-functional ‘eCommerce’ organisational structure is crucial, complete with efficient and effective cross-functional communications. Successfully straddling traditional business boundaries is key to enabling efficient and effective fulfilment capabilities.
- Planning
A robust capacity planning process is critical, including a high level of understanding and ownership from all business stakeholders. Comprehensive planning competence is essential if businesses are to keep ahead of the growth curve.
- IT
Effective IT is essential to ensure efficiency in order fulfilment operations and administration processes, including functionally rich and user-friendly warehouse management (WMS) and management information systems (MIS). The WMS should deliver high quality input to the MIS and aid management decision making. Such systems ensure organisations avoid reliance on specific individuals, management by spreadsheet or ‘special knowledge.’
- Inventory
A clearly defined ecommerce strategy needs to be in place, as well as policies regarding stock, to ensure good systems visibility of stock and clear allocation priorities between channels to avoid conflicts of common stock pools. Rigorous SKU management processes, across all business owners, will enable high levels of stock integrity, with full data supplied before receipt into business of SKUs.
- Picking
Wider ecommerce businesses understand that the pick processes are the DNA of e-tailing performance. This is characterised in organisations where the operational impact of picking is generally acknowledged when making business decisions relating to promotions, new offers and web front end.
- Controls and tools
A high degree of operational control, built upon competency in the other pillars, facilitates a flexible, agile and optimised fulfilment operation. Well-developed KPIs will drive operational execution excellence, while automated MIS reporting tools provide performance reporting against KPIs without manual manipulation or interpretations.
Looking to the future
The eCommerce fulfilment landscape is evolving fast, and is likely to continue to do so. The growing recognition that ‘one size won’t fit all’ is generating an increasing fragmentation in service levels. More and more, we’ll see metropolitan locations service a growing diversification of advanced offerings including, for example, same day delivery. Elsewhere, etailers will look to enable more sustainable delivery services where next-day fulfilment may come optionally at a price.
As more players enter the fray, and manufacturers evaluate their b2b and b2c models, the complexities of managing consumer-side fulfilment and customer service management will see a new era of innovations – both in logistics solutions and in service offerings. The traditional long standing retail model of high street presence and out of town centres is no-longer valid in the internet age. Customers shop by multiple channels, barriers to entry have changed and speed of fulfilment can be critical. There is opportunity for brands and retails to carve out new positions of order in the Internet era.
Total Logistics is an independent management consultancy that specialises only in logistics and supply chain. With over 25 years’ experience helping clients across Europe on all aspects of retail and manufacturing solutions, we are uniquely placed to bring expertise and experience to our clients.
Martin Brickell, Director, is the ecommerce sector lead at Total Logistics and is always happy to discuss eCommerce / fulfilment solutions.
