How Retailers Can Drive the Most Value From Their Transportation Networks

Consumers have grown to expect a consistent and seamless shopping experience, regardless of whether they are connecting with a retailer via store, website, catalog, mobile phone or social media.

The fast and free home delivery services offered by Amazon and other online retailers have become integral components of the online shopping experience, and have redefined how retailers approach e-commerce.

As the marketplace becomes more competitive, the need for retailers to support multiple fulfillment options and different speed-to-consumer options is adding a new layer of complexity to the traditional logistics infrastructure.

Fulfilling online purchases by parcel freight is putting pressure on margins as consumers’ reliance on e-commerce grows. Additionally, as online retailing becomes more of a commodity, retailers will be under greater pressure to offer free shipping — especially during holidays — to incent consumers to shop with them.

Many retailers are realizing that their transportation and fulfillment processes are simply not agile enough to profitably serve the demands of today’s all-channel consumer. As companies look for ways to reduce costs, retain service levels and create agility, transportation can no longer be viewed as an ancillary function. Clearly, meeting the needs of the all-channel consumer is not an easy task, and will require retailers to master the art of all-channel execution.

Adopting a Holistic Approach
As transportation plays an increasingly important function in delivering value to the all-channel consumer, organizations need to adopt a holistic view of the entire network. E-commerce and stores can no longer be serviced by different fulfillment channels; instead, retailers need to look at the network in its entirety to identify multiple, cost effective ways to fulfill a customer order. That may mean, for instance, looking for opportunities to fulfill an online purchase via store pick-up instead of home delivery. In that case, the package could be added to a truck that’s scheduled to deliver inventory to the store on a weekly basis — a more cost-effective fulfillment option than incurring a parcel freight charge.

Yet, in order to look at the network holistically, retailers need to be able to evaluate multiple modes simultaneously when building their transportation plans. Because of the rate complexity, parcel can be especially challenging, and retailers need the ability to model it concurrently with other modes such as third-party truckload carriers and private fleets.

By breaking down silos across intercontinental and local transportation patterns, retailers can drive the most value out of their available assets, evaluate the optimal balance between customer service levels and costs, and ensure that they have all of the necessary information to determine the most profitable way to fulfill an order.

The Value of Incremental Planning
It is often said that the only thing that is constant is change. The ability to plan incrementally, and react as store and online orders change, is critical to profitably meeting the needs of the all-channel consumer. By leveraging continual optimization capabilities, retailers can aggregate demand and identify economies of scale.

For example, say you have numerous orders that you need to fulfill to a specific city or region. If you have the ability to aggregate your freight, you may decide to deploy a zone-skipping strategy. Instead of shipping these orders direct to consumer, the aggregated orders can be put on a truck to a local depot, and then delivered via parcel to the consumers. Even though you have expanded the delivery to two transportation legs, you were able to lower the distribution costs by aggregating the orders onto one truck.

Another key facet of incremental planning is the ability to re-plan and re-route as store and online orders get cancelled or added. Yet, in order to maximize the value from this dynamic planning process, it’s important for retailers to view the entire network — all the way downstream to the warehouse operations. For instance, without visibility into the warehouse, adding a stop to a truck may seem to be a cost-effective solution to an influx in inventory to be delivered. However, if that truck is already staged and loaded at the dock, then adding a stop to the truck is no longer an option. It’s essential for retailers to understand where inventory sits from an order-state perspective to ensure that their incremental plans can be implemented.

By employing dynamic planning capabilities, retailers can continually optimize their transportation plans at multiple points throughout the day and potentially modify fulfillment strategies to meet the changing needs of the all-channel consumer. Improved supply chain flexibility enables retailers to make more sophisticated changes on the fly such as re-planning remaining delivery legs while goods are still in transit. Retailers can also mix modes in creative ways such as leveraging local freight for in-bound pickups in order to drive bottom-line benefits for the company.

Retailers can also gain additional value from incremental transportation planning by applying it further upstream in the supply chain to processes that were traditionally thought of as fixed or static. For instance, if international shipping is part of the sourcing process, the ability to re-route a container at a port from one distribution center to another will provide retailers with even greater flexibility to rebalance inventory when demand changes.

Mastering All-Channel Execution
The complexities of global logistics, the volume of data involved and the frequency of change make it difficult to gain sufficient agility and maximize potential value using spreadsheets and manual processes. The good news is that retailers can gain substantial advantages by replacing less efficient, multi-site transportation functions with sophisticated technology that enable them to manage their vast supply and distribution networks in a more agile and cost-effective manner.

Retailers that can go beyond the traditional transportation planning activities to incorporate value-added services such as network modeling, centralized procurement and a wide range of analytics will be well positioned to meet the needs of the all-channel consumer. Not only does this help retailers to better utilize all of their transportation assets, but it also enables them to be more agile in responding to order changes, disruptions or the inevitable hiccups in execution.

The ability to incrementally plan and re-plan as exceptions occur is the key to mastering all-channel execution, and enables retailers to identify what mix of risk, cost and service for each shipment will drive the greatest value across the organization.

Related: 93% of Retailers are Transforming Their Supply Chain to Enable Real-Time Retailing