E-Commerce and the Race for Fulfillment Perfection

Thank you for your order. Your items will be shipped in seven to 14 days.

“Doesn’t that seem archaic?” asks Lance Anderson, director of North American sales for Beumer Corp.

Consumer expectations are decidedly more stringent than they were even two years ago.

The impacts of demands like next-day shipping, perfect accuracy and integrated mobile shopping experiences are transforming practices in manufacturing, warehousing and distribution, and brick-and-mortar stores for businesses of all sizes.

Retailers, and the suppliers of materials handling equipment who serve them, are working to quickly deploy solutions that turn the e-commerce problem into an opportunity.

“Establishing e-commerce or multi-channel capabilities is pretty much do or die,” says Anderson. “It’s that important. Those businesses who get it are pulling ahead pretty fast, and those who don’t, well, I don’t know how long they’ll be around.”

From the highly automated likes of Amazon to inexperienced operations just now dabbling with batch carts and put walls, there are retailers at various stages of e-commerce evolution. Because traditional processes often break down in the face of multi-channel pressures, both beginners and sophisticated e-tailers are facing challenges that impact each of the functional areas of the supply chain. While automation and software are useful tools for meeting these challenges, labor management is critical. To keep up, too many operations have resorted to throwing bodies at the problem.

“Over last two years or so, the scale of e-commerce volume has ramped up considerably, and now a lot of companies have reached the breaking point,” says Roy van Putten, manager of sales engineering for Vanderlande. “From a supply chain perspective, the e-commerce revolution is just beginning.”

Multiple channels, single inventory
On the surface, the most apparent obstacle to e-commerce success is mechanical. What is the best way to pick and pack eaches when the facility is accustomed to handling cartons and pallets? But the real underlying issue is managing the flow of orders. The creation of a shared inventory for orders across all channels is one of the central objectives for e-commerce success, and one that is heavily dependent on a strong software infrastructure.

But unified inventory goes far beyond simply eliminating the “warehouse in a warehouse,” the practice of handling orders bound for stores and those headed directly to consumers as parallel processes with distinct inventories. The concept of distributed order management (DOM) turns the linear supply chain into a supply matrix that includes production, warehousing, distribution, store shelf as potential supply points for order fulfillment. With visibility into all available inventory, DOM could see manufacturers or retail stores ship direct-to-consumer orders. With DOM, a DC will only receive orders that software has optimized for the speed and cost of fulfillment in that facility as compared to others in the network.

Retailer meets multi-channel challenge with new automated facility

Boots UK, a member of Alliance Boots, is the UK’s leading health and beauty retailer offering a variety of services and products. The company recently made a significant investment to purchase and refurbish a new automated service center. By deploying a new, custom fulfillment solution targeted at the demands of e-commerce customers, the company is now efficiently handling multi-channel retail distribution.

All customer orders are filled in the facility, whether they are bound for a store, next-day direct-to-customer, or in-store pickup. The business is characterized by a large inventory with small orders made up of a mix of items and a very high seasonal peak. The company wanted a solution that improved customer service, enabled future business growth and reduced fulfillment operating costs.

The new automated solution (Knapp) includes a new warehouse management system, warehouse control software, manual packing area for value-added services, dispatch ramps for efficient sortation and delivery and a shuttle system. The shuttle is a half-automated storage and picking system with goods-to-person technology for containers of slow and medium-moving products up to 15 kg. A second shuttle handles containers up to 25 kg.

Fast-moving products are picked in the flow rack area, guided by pick-to-light. Faster moving lines are located in flow rack channels or pallet locations in the flow rack picking area. Cartons are automatically routed to the appropriate picking area based on the customer order profile where the items are picked directly into the cartons. Well more than half of customer orders do not require manual packing and are automatically finished.

The facility is designed to support business growth—including seasonal peaks—until 2017. It has minimized manual handling, reduced costs for packaging such as cardboard and void fill, increased picking accuracy and added order traceability. In total, the new automated service increases time efficiency by 65%.

“This project has been a significant step change in our multi-channel business,” says Chris Holyland, head of e-commerce for Boots. “It will provide a platform for future growth and will enable us to further improve our service to customers.”

According to Anderson, a single inventory is a defining characteristic of a multi-channel or omni-channel supply chain. “You’d be surprised how many businesses have to keep two inventories because their software doesn’t recognize the distinctions,” he says. “Software might purchase and store one red shirt only for the retail chain and one red shirt only for e-commerce. They could be right next to each other on the shelf but they might as well be two different products.”

Any new software will also need to be flexible enough to process orders as they arrive in real-time as well as order volumes that might be coming years from now. In the old days, warehouse management systems (WMS) and other software projects were completed with a “set it and forget it” mentality, says Chuck Fuerst, director of product strategy for HighJump Software.

Eventually a large, disruptive and costly update would be in order, but everyone was happy with that. Fuerst now sees a trend toward the gradual adding of layers and capabilities. “After you design your system for what you need to do today and sort through your homegrown workarounds, updating each in turn, you should be enjoying some increased efficiency,” he says. “Now what? Do you need to add labor-planning modules? Reverse logistics?”

If a company must invest in something that could very likely need to change in six months, Fuerst advises customer to ask a simple question of software suppliers: If I need to make some sort of change, what would that look like?

Since they’ve come, we will build it
For all its benefits, new software is a big expense and a potentially disruptive change. But there are plenty of small steps that can help e-commerce beginners keep up. In fact, Chris Arnold, vice president of operations and solutions development at Intelligrated, favors an incremental approach over a radical one.

“You don’t have to change everything,” Arnold says, “but don’t be afraid of change. Operations folks should be aware of any fear of trying something new, because their competition is trying it.” As many DCs rapidly transition into fulfillment operations, Arnold suggests using voice, pick-to-cart or put-wall solutions to add basic fulfillment capabilities. “Then you can look at things like postponement,” he says. “If an order comes at 7 a.m. and you can turn it around within an hour, then it might sit on truck until 7 p.m. Why not release that order at the best time of day?”

The problems start with receiving, where it’s no longer simply a matter of unloading pallets and ferrying them to storage locations. Van Putten says he is seeing more sorters in these areas. “We have customers with value-added services, inspections, labeling and kitting happening right at receiving before items go into storage.”

As the volume of smaller and more frequent e-commerce orders grows, picking processes will start to break down early, says Jeff Ross, vice president of consulting for FORTE Industries. “A shift from discrete order picking to batch picking will serve these order profiles with less labor, but then the pressure moves to the pack area,” he says. “To offset that early, you might segment single-line orders away from the rest of orders, picking and packing them differently.”

Van Putten offers the example of a customer who already had a sorter after the packing operation that sorted for outbound trucks. The customer added spurs to direct e-commerce orders to dedicated stations for simple packing, gift wrapping or international orders.

Automated storage and retrieval systems (AS/RS) are increasingly used to perform the sorting and buffering functions essential to e-commerce fulfillment. Rather than building a massive sorter for peak volume in a smaller, localized facility, Alex Stevens, business development manager for OPEX, says using the vertical cube in a smaller footprint doesn’t leave dead space throughout the rest of the year. Unlike a conveyor buffer with one batch per lane, an AS/RS can handle larger batches with access to individual items.

The ability to handle larger batches is critical during seasonal peaks, which might create anywhere from a five-fold increase in order volume to a 20-fold surge. Whatever the needed capacity at the top of that curve, few customers will spend $30 million on an automated system designed only for those two or three months of the year.

That said, there are ways to justify automation expenses for the rest of the year. Stevens says increased utilization of vertical space is a must for many customers who work to position DCs closer to customers. “The cost of rent goes up exponentially if you’re not in a cornfield in Ohio,” he says. “Modular automation systems let you drop in a system to address certain SKUs or processes while continuing to use existing processes elsewhere in the facility.”

Steve Hoffman, supply chain specialist for Dematic, described one customer who transitioned away from discrete RF scan-based store replenishment of split cases into totes. They now use voice to batch pick, followed by a light-directed put. “They took 20% of full-time labor hours out of the equation, but that was not the biggest savings,” Hoffman says. “If Monday was a 7,000-line day with 30 people on staff, they can do 10,000 lines the next day with the same people.”

Dynamic automation, dynamic labor
Whether or not seasonal peaks are a concern, both manual systems and automated ones will benefit from a disciplined labor management system (LMS). As opposed to relying heavily on part-time or seasonal staff, businesses are strongly encouraged to leverage automation and software to secure reliable workers, retain that talent and grow their skills.

“Large scale LMS projects were always kind of intimidating,” says HighJump’s Fuerst. “It seemed like the payoff might be there, but time and resources were required to pull it off. We’re now seeing interest in something smaller, like an ‘LMS lite,’ just to manage the workforce a little better.”

Research highlights fickleness of e-commerce consumer
Survey of 600 consumers suggests three in 10 will abandon a retailer after one inaccuracy.

Inaccuracy in e-commerce is costly, and while the cost of returning, restocking or refunding an item might be quantifiable, it’s often less clear what damage has been done to the customer’s perception of the company.

According to a recent Voxware survey of 600 consumers, 62% are much less or less likely to shop with a retailer online or by phone for future purchases if an item is not delivered within two days of the date promised. As companies strive to improve service levels, the survey suggests they should be careful about the promises they make to consumers.

Some additional survey highlights:

29% of respondents will abandon shopping with a retailer altogether if they receive an incorrect delivery just once.
68% of respondents noted that their expectations for correct and on-time delivery of items that they purchase online or by phone are higher during the holiday shopping season.
30% of respondents intend to have more or significantly more holiday purchases delivered directly to them this holiday season.
38% of respondents said they expect holiday gifts purchased online or by phone to be delivered within three to four days.

Respondents were asked how quickly they expect a retailer to deliver an item they purchase online or by phone assuming the retailer is using standard shipping:

5% said 1-2 days,
43% said 3-4 days,
40% said 5-6 days, and
2% said 7 or more days.

When asked what percentage of the holiday gifts they purchased last holiday season were delivered directly to them versus bought in store, they answered:

29% said less than 20%,
2% said 21-40%,
19% said 41-60%,
12% said 61-80%, and
19% said 81-100%.

Josef Mentzer, CEO of Knapp Logistics Automation, says LMS software can be paired nicely with automation software to ensure effective workload management. “It will look at the order pool, inventory and the labor force at staffed workstations and balance the workload through the system,” he says. “It won’t release an order unless we can handle it immediately.”

Voice systems can be an effective way of relaying information and directives to individual workers. “Peak or no, a divide and conquer strategy must be designed so that nobody ever waits for work,” says Hoffman. “Voice can help keep pickers picking and sorters sorting. They should never wonder what they’re supposed to do next.”

Continuous improvement
Distribution operations will need to think about their changing role in the supply chain. “The DC now has the responsibility to predict the velocity of a SKU, whereas that used to come from the storefront,” Mentzer says. “That retailer cushion between the consumer and the distributor is going away. That consumer is your customer now, not the retailer’s.”

The importance of accuracy significantly raises the stakes for these facilities, which can more easily justify capital expenditures instead of paying four times the cost of an item to handle its return and likely lose a customer. “You would think that cost would be the main driver for capital expenditures, but it isn’t,” says Mentzer. “It’s not an issue of problems with processing inside the four walls, it’s about the customer experience.”

There are still a lot of companies who are just now wading into e-commerce unsure what to expect, says Ross. But, he says, the volume of e-commerce business is almost always greater than they had forecast.

Regardless of the performance of individual channels, if a business is growing it will need to make some investment in its ability to store and manage SKUs. “You don’t want to make those investments while doing things the same inefficient way,” says Ross. “The incremental cost between that and making a real improvement in underlying capabilities is not very big.”

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