Executive Briefings

E-Commerce Causes Major Distribution Challenges for Retailers and Wholesalers

Analyst Insight: The rapid growth of internet retailing is creating serious challenges for supporting retail and wholesale distribution operations. The good news is that growth rates for e-commerce are significantly exceeding expectations for most companies. The bad news is that there are some very stressed distribution operations behind the scenes that are having difficulty keeping up with sales. - Marc Wulfraat, president, MWPVL International Inc.

The complexities of fulfilling internet orders are now better understood as a result of record shipping volumes in 2011 - in some cases exceeding 100,000 units shipped per day. Key differences exist between providing distribution support services for a high-volume retail web storefront versus a traditional retail store network.

For starters, web commerce peak shipping days are sharper, more intense and more concentrated than traditional store order fulfillment.  Peaks run between November 1 and December 20 based on the buildup for Black Friday, Cyber Monday and Christmas.  These massive surges place tremendous stress on the underlying throughput capacity and staffing requirements for supporting distribution operations.

Another challenge is that many retailers sell products on their web store fronts which are not stocked in their distribution center(s).  They rely on a network of wholesale distributors to fulfill consumer orders with transparency for these non-stock items.  This involves a fairly complex set of wholesale distribution support requirements, including: inventory reserved for retailer web storefronts, compliance issues, retailer-specific pricing/taxes, paperwork, and rapid order-delivery cycle times, which are expected by the consumer.

Distribution center operations are also vastly different for internet order fulfillment as compared to retail store order fulfillment.  Most often, the shipping unit of measure ordered by the consumer is different from the unit of measure ordered by the store.   Unlike retail store orders, consumer orders tend to be small in terms of order lines and units.  The design of the picking and packing operation is critical to the success of the e-commerce fulfillment center.  Intelligent order-wave planning, intelligent batch and/or cluster picking, and slotting optimization are vital strategies needed to minimize the travel time required to pick internet orders.  If volumes are high enough, a mechanized pick-to-belt system may be required to efficiently manage split case picking operations.

A final challenge: many retailers have outsourced their e-commerce fulfillment operations to third-party logistics services companies because the supporting distribution requirements are so different from what they are used to.  This strategy has not been entirely successful for a number of reasons.

The 3PL may operate a multi-tenant distribution center where the needs of all clients in the building are more paramount than the needs of any one individual tenant.  In addition, the IT system support capabilities may be lacking in areas that negatively impact productivity levels and throughput capabilities of the retailer's distribution operation.  Lastly, the 3PL may also have difficulty handling peak shipment volumes and the result may be a surge in expedited shipping costs to get the order to the consumer on time.

Suffice it to say that, increasingly, retailers are now looking at ways to bring web order fulfillment operations in-house for self-distribution as a means of gaining more control over the operation and to increase margin on these orders.

                                    The Outlook

Supporting distribution requirements for internet order fulfillment are vastly different than providing support for retail stores.  Getting it right may require different IT systems, strategies and infrastructure to handle the surges in volume and anticipated growth for the internet retail channel.


Keywords: Retail; Transportation & Distribution, Global Fulfillment and Distribution, Logistics, Web Commerce, Intelligent Order-wave Planning, Intelligent Batch, Cluster Picking, Slotting Optimization

The complexities of fulfilling internet orders are now better understood as a result of record shipping volumes in 2011 - in some cases exceeding 100,000 units shipped per day. Key differences exist between providing distribution support services for a high-volume retail web storefront versus a traditional retail store network.

For starters, web commerce peak shipping days are sharper, more intense and more concentrated than traditional store order fulfillment.  Peaks run between November 1 and December 20 based on the buildup for Black Friday, Cyber Monday and Christmas.  These massive surges place tremendous stress on the underlying throughput capacity and staffing requirements for supporting distribution operations.

Another challenge is that many retailers sell products on their web store fronts which are not stocked in their distribution center(s).  They rely on a network of wholesale distributors to fulfill consumer orders with transparency for these non-stock items.  This involves a fairly complex set of wholesale distribution support requirements, including: inventory reserved for retailer web storefronts, compliance issues, retailer-specific pricing/taxes, paperwork, and rapid order-delivery cycle times, which are expected by the consumer.

Distribution center operations are also vastly different for internet order fulfillment as compared to retail store order fulfillment.  Most often, the shipping unit of measure ordered by the consumer is different from the unit of measure ordered by the store.   Unlike retail store orders, consumer orders tend to be small in terms of order lines and units.  The design of the picking and packing operation is critical to the success of the e-commerce fulfillment center.  Intelligent order-wave planning, intelligent batch and/or cluster picking, and slotting optimization are vital strategies needed to minimize the travel time required to pick internet orders.  If volumes are high enough, a mechanized pick-to-belt system may be required to efficiently manage split case picking operations.

A final challenge: many retailers have outsourced their e-commerce fulfillment operations to third-party logistics services companies because the supporting distribution requirements are so different from what they are used to.  This strategy has not been entirely successful for a number of reasons.

The 3PL may operate a multi-tenant distribution center where the needs of all clients in the building are more paramount than the needs of any one individual tenant.  In addition, the IT system support capabilities may be lacking in areas that negatively impact productivity levels and throughput capabilities of the retailer's distribution operation.  Lastly, the 3PL may also have difficulty handling peak shipment volumes and the result may be a surge in expedited shipping costs to get the order to the consumer on time.

Suffice it to say that, increasingly, retailers are now looking at ways to bring web order fulfillment operations in-house for self-distribution as a means of gaining more control over the operation and to increase margin on these orders.

                                    The Outlook

Supporting distribution requirements for internet order fulfillment are vastly different than providing support for retail stores.  Getting it right may require different IT systems, strategies and infrastructure to handle the surges in volume and anticipated growth for the internet retail channel.


Keywords: Retail; Transportation & Distribution, Global Fulfillment and Distribution, Logistics, Web Commerce, Intelligent Order-wave Planning, Intelligent Batch, Cluster Picking, Slotting Optimization