Everyone in the business of retail knew that e-commerce growth would continue in 2020, and that they would have to adopt their systems and equipment to support new requirements for order fulfillment. But many didn’t anticipate the pandemic accelerating those plans, and driving innovation two years ahead of schedule. While many companies have embarked on upgrading their fulfillment engines to handle peak seasons, it’s been exciting to watch normalized demand leveling out, in what has traditionally been a steep ramp-up for the year-end holidays.
Retail growth in general surpassed all expectations in 2020, with the pandemic choosing winners and losers. Consumers funneled disposable income into groceries, home furnishings and electronics as they adapted to working remotely. Much of that growth manifested itself through e-commerce, which meant that if you weren’t Apple, Walmart, Target or Amazon, you relied on brute-force order fulfillment. It
The dramatic shift to e-commerce put pressure on operations that were already facing a declining labor pool, and systems and equipment that favored store replenishment and large deliveries. This rapid change in order profile requires a new look at network infrastructure, inventory deployment and systems and equipment, to improve efficiency and mitigate risk associated with fluctuations in labor availability.
Network strategy: Having a low-cost distribution network is no longer sufficient. Supply chains are now a means for increasing top-line revenue and market share. To accomplish this objective, retailers must remove all the waste from the system that the consumer isn’t willing to pay for. Consumers have shown that they will pay for speed, so anything that adds time to the entire shopping experience should be removed from the network. Getting products closer to the customer via third-party logistics providers, pop-up or micro-fulfillment centers, and retail backrooms can all improve speed.
Inventory deployment: Having the right products closest to the customer is the goal, but it doesn’t require immediate perfection. Companies can start by stocking a subset of items that complete orders, or by deploying popular or targeted items to forward locations. This doesn’t mean they have to have split shipments, or always guarantee same- or next-day delivery. Consumers are conscientious about the environment and costs, so giving them the choice to consolidate shipments into a single delivery is often a satisfactory outcome for all.
Systems and equipment: In striving to reduce waste in the supply chain, systems and equipment are where companies have the most work ahead of them. When the pandemic pushed consumers out of stores and into buy online, pickup in store (BOPIS) and curbside pickup, retailers experienced nightmares in order accuracy, fulfillment time, congestion and more. They have now learned that having clerks pick individual items from store shelves is the most expensive way of fulfilling online orders, and that batch picking and using robots to fill orders from the backroom is a better choice for retailers and consumers alike. Additionally, distributed order management, artificial intelligence, machine learning and other intelligent order-fulfillment systems can all utilize consumer behavior data to improve fulfillment speed and meet customer expectations.
While the pandemic has been a devastating blow to many companies, some have worked through it and prospered in ways that were not anticipated. As consumers have been forced to shop in new ways, they will not return to pre-pandemic levels of in-store shopping. In response, retailers must continue to optimize networks, inventory deployment and equipment to meet the challenges associated with e-commerce order fulfillment.
Karl Hatt is Vice President of Tompkins International.
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