eCommerce shipment, which refers to shipment of products sold and bought electronically, is built not on price, but inventory availability and a promise of on-time delivery. An eCommerce order is direct from consumer to business, typically small in line count, but still with a short delivery expectation. Therefore, inventory availability and delivery promise prevail over the price of the product. This phenomenon is witnessed on a consumer level daily, if not hourly, and businesses have the same expectations.
Four Challenges of the eCommerce Industry’s Rapid Growth
Thanks to Amazon, this industry is huge and going nowhere but up; it’s a half trillion-dollar business and growing 15 to 20 percent annually. The fact that one-third of consumer goods and a quarter of all wholesale orders were considered eCommerce last year further solidifies the exponential growth of this industry. A growth which brings four new challenges:
- Traditional retailers and wholesalers have been blind sided and can’t ignore that customers are demanding smaller, more frequent orders be delivered quicker and with perfect accuracy. To adapt, Distribution Centers (DCs) need to evolve from pallet-in and pallet/case-out to “piece pick & pack and ship,” meaning pulling products from your inventory, packaging them and shipping them to your customers. Many lack the material handling technologies and/or the supporting warehousing systems (WMS/WCS) to adapt to these new customer demands and order profiles, however.
- Increasing labor to offset the demand is a temporary solution at best, which is becoming a problem in itself. Population decrease, and the retail seasonal peak have created an enormous labor shortage for warehouse operations. It’s a serious problem and currently a very competitive market to secure temporary labor during holiday fulfillment periods.
- Besides outdated material handling solutions and labor, another challenge is the ability to hit delivery expectations. Today’s buyers are impatient and demand satisfaction now. If a consumer tries to order the latest $300 brand X vacuum cleaner, they can buy it from numerous online retailers, with each one offering the same discounted price of $299. Let’s look at the four options: (1) Amazon promises next day delivery, (2) an omni-channel enabled retailer (which means they can fill orders from their DCs or their stores) offers two-day delivery, (3) a specialty online retailer (with a single warehouse) offers three to four-day delivery, and (4) BrandX.com, who uses a Third-Party Logistics (3PL) company, offers standard delivery (undefined time). Who do you think gets the order?
- Profit: What is the true cost to fill eCommerce demand?
- Stocking Locations – Being able to deliver nationally in one to two days requires multiple stocking locations, raising inventory investments, and operating duplication, but can lower transportation costs, especially the last mile.
- Packaging – Parcel dimensional weight pricing changes penalize companies that do not have control of their product dims and package their shipments inefficiently. We estimate that more than half of the eCommerce orders shipped through parcel methods are packaged incorrectly.
- Fulfillment Efficiency – Fulfillment costs are rising at an unsustainable rate for most organizations. Labor and transportation shortages are the primary causes. Organizations must have an efficient process, from when an order is received all the way through when it ships out. Incorporation of labor saving technologies, such as Goods-to-Man, Pick/Put-to-Light, Voice, Vision, Print & Apply, and Robotics, are musts to compete long-term and have the capacity to handle peak surges.
- Fulfillment Quality – Distribution systems (WMS/WCS/LMS/TMS) and scan/light/voice/vision based supporting technology can drastically improve not only efficiencies, but quality. Any less than 100% accuracy is unacceptable to eCommerce consumers and results in hidden costs (credits, returns, or lost customers).
- Returns – 25-30% of eCommerce retail purchases get returned. While the cause for many returns is buyer related and has nothing to do with the fulfillment process, any return represents undesired headaches and costs. Eliminating returns that were picked incorrectly, damaged en route due to improper packaging, or delivered too late are three factors that need to be addressed immediately and not be an after thought.
Keep Your Processes Current
Distribution models and inventory deployment must change rapidly, and management needs to react quickly to these changes in demand. Stocking locations should be rationalized on a periodic basis. Old warehouses need to be re-engineered. Industry 4.0 is here, meaning new systems and technologies need to be embraced for eCommerce Fulfillment Centers to be sustainable. Immediate gratification is what the customer wants, and businesses need to stay competitive by updating their processes to meet the growing customer demand of on-time and quick delivery.
If you know it’s time for a distribution center update or need some guidance on how to improve your processes, contact Sikich’s Partner-in-Charge of Supply Chain Services, Gregg Hague at email@example.com.