Solve Your E-Commerce Distribution Puzzle

Before the Internet, before smartphones, before satellite/cable TV—in fact before TV at all—a common pastime for families was to gather around a table and build a jigsaw puzzle. With just the cover of the box to guide them, they would fit individual pieces together for hours or even days until the completed picture of a famous painting, historical scene or some other image presented itself.

In a way, that’s how some brick-and-mortar retailers are adding e-Commerce capabilities to their distribution systems. Their retail store distribution was already running smoothly and successfully, so they added new, separate pieces as needed to help them compete and continue to grow in the e-Commerce world. And now, as their sales channels gradually shift more and more toward on-line sales, the issue of how to manage this growth is continually being addressed.

While that jigsaw puzzle approach may make sense from the retailer’s point of view, it ignores a very significant fact: customers don’t see your brand as a jigsaw puzzle made up of pieces. They see it as a single, unbroken picture. In other words, to them the XYZ Company’s retail stores and the XYZ Company’s online store are just the XYZ Company. And failure to deliver in one channel represents a failure in all channels, pushing customers to seek out the competition for their next purchase and ultimately affecting the lifetime value of that customer.

What that means in practical terms is retailers need to carefully evaluate their supply chain strategy of having separate warehouses or distribution centers for physical stores and online stores. While they may recognize the importance of providing customers with consistent service and buying experiences, it has made inventory management increasingly challenging.

Servicing customers at the levels they expect necessitates the ability to view their inventory within the supply chain as a single inventory, not as portions dedicated to one segment of the business at the exclusion of all others. As retail store replenishment continues to shift toward less-than-case quantities requiring small-lot, high-frequency processing of inventory, it puts even more pressure on material handling systems designed for retail store shipment. In short, they need to be able to access and ship that inventory wherever it needs to go, in whatever quantity is required—whether that’s one pallet, one carton or one piece. This kind of supply chain optimization and flexibility is at the core of the solution.

Obstacles to overcome

Getting there isn’t a matter of flipping a switch or issuing an edict. One major obstacle to all-channel commerce, especially for larger retailers, is a supply chain where distribution centers are merely waystations for merchandise moving from a manufacturing facility or a distribution center to its ultimate destination at a retail store. They may have dozens of pallets of a particular item available for online customer orders, but that inventory is merely there temporarily until the pallets are broken down and shipped to the stores.

There may be no system in place, either in software or physically, to pick a single SKU out of a carton at a distribution center in Kansas City, Missouri and ship it to an e-Commerce customer in Kissimmee, Florida.

Another obstacle is timing expectations. In a traditional retail warehouse or distribution center, the norm for shipping orders is one to two weeks after the order is placed, because most retailers have sophisticated inventory forecasting systems (or at least really smart people) in place that can anticipate demand. In the e-Commerce world, the expectation is that orders are shipped the same day, or at most the next business day. No customer who has made an impulse purchase or acted as a result of a sale wants to wait one to two weeks to receive a product ordered online.

Finally, for most retailers running separate inventories for stores and online sales, there are no rules in place governing priorities of inventory. If a store is promised a carton of a product and an online customer orders two of those items, which gets priority? The retailer must have a clear vision of what it considers priorities and strong rules in place to ensure those priorities are followed.

While these are serious obstacles, they and others not listed here absolutely need to be addressed. Because if Marshall Field’s historic edict to “Give the lady what she wants” still applies, retailers need to be able to deliver what she wants when and where she wants it—no matter if she purchases online or from a retail store.

Peaceful co-existence

While we may never reach the point where all purchases are made online, the numbers are definitely trending in that direction. According to comScore’s e-Commerce Measurement, fourth quarter online sales in 2011 increased by 14 percent, nearly triple the five percent increase of store sales. If you exclude automobiles, gasoline and food and beverage, retail sales only grew three percent, according to the U.S. Department of Commerce.

Perhaps the ideal solution to support a single-inventory approach to e-Commerce is to build a new facility that can accommodate both pallet-size and individual orders. That is what footwear manufacturer Skechers did in its new 1.82 million square foot facility. Skechers’ state-of-the-art distribution center was built to accommodate the needs of both their retail stores and individual purchasers. The inventory is maintained in a central location and orders are fulfilled as they are received—whether the orders are for one pair of shoes or a full truckload.

However, that is not an option for many retailers, especially in the current economy. In order to repurpose the space, if you can’t build out, you can always build up. Warehouses and DCs with high ceilings offer an opportunity to add a mezzanine level that provides space to store product where none previously existed. By revising the supply chain structure to hold back a portion of inventory instead of merely passing it through, those products become available for use in e-Commerce.

But if building up won’t work, another option to free up space in a unique way is to leverage existing technology for retail operations. Evaluating enhanced label applicators and instituting in-line audit processes may reduce space needed for off-line manual operations. Using systems to capture cube and weight of inbound cartons could also yield a smaller footprint. While there are other solutions, using existing space should always be considered.

Adding light- or voice-based order picking systems helps processes designed for moving cartons or pallets to quickly and easily adapt to finding the individual items needed to fulfill an online order. Advances in robotics and goods-to-person systems are making it easier to pick small or individual orders more efficiently while still maintaining the capability to ship cases and pallets.

New Points of View

Before starting to add equipment, the inventory management system must be reinvented. Once that is done, retrofitting the facility to accommodate the different business models under a single roof is paramount.

Another approach to transitioning from e-Commerce being a separate operation is to view it as merely another store. With this strategy, rather than purchasing and maintaining its own inventory, the e-Commerce fulfillment center receives products from the DC just like a store. Utilizing this conceptual approach avoids duplication of inventory—for instance, the e-Commerce operation ordering products from the manufacturing center that are already available in abundance through the retail DC network—and also serves to consolidate other functional areas under a single banner.

By becoming part of the main supply chain system, the e-Commerce operation can also gain access to “store transfer” systems (where products are shipped from retail store to retail store to fulfill demand), and “order online/pick up in store” operations are simplified as well. It may not be as efficient an operation as a pure-play online retailer, but it will be far more efficient than maintaining two separate operations.

For those retailers just making the move into online retailing, it’s a lot like the old advice on how to eat an elephant. Don’t try to do it all at once. Instead do it a bite at a time. In this case, you may want to begin by only offering a small percentage of your most popular SKUs online. This limited inventory provides an opportunity to test your e-Commerce operation on a small scale and make tweaks (or major overhauls, if needed) to it before having to deal with the higher volumes of a full online store, where the risks of disappointing customers are much higher. As you master one product set you can add on more, each time making sure your consolidated retail/online operation is fully designed to scale appropriately.

Solving the Puzzle

No matter what your inventory challenges are, customers don’t care. They want what they want when and where they want it, and they’ll buy from the retailer who can deliver on those wants.

At a time when cost reduction is still the watchword for most retailers and the lifetime value of a customer is being evaluated more critically than ever, maintaining one operation for retail and a separate one for e-Commerce doesn’t always make sense. Various options are now available because of the significant improvements that have been made in materials handling systems technology and repurposed floor space.

By getting rid of the jigsaw puzzle approach and replacing it with a single, seamless operation, you may be better able to fulfill growing demand and improve profitability—not just today, but well into the future of retail.

Source: http://mhlnews.com/