With the recent massive growth in e-comm volumes, businesses are struggling to adapt to the short-term challenges and longer-term needs. How can businesses react to this change in demand pattern effectively without reducing margins or inhibiting their growth? Rapid action is essential.
Since early March, on-line orders in all sectors have increased dramatically due to the lockdown rules. This has created enormous challenges for all retailers with an online presence to satisfy the higher demand against a capacity-constrained infrastructure. An infrastructure that is further constrained by the social distancing and self-isolation rules actually required to combat the Coronavirus itself.
In the short term, the option may best be achieved by adapting existing operations, as the alternative of implementing new infrastructure can require capital investment, taking time to plan and implement successfully. In the case of particularly sophisticated solutions, this process can take up to 2 years to a successful conclusion.
This increased level of demand for online distribution is predicted to continue even after the lockdown rules are eased due to natural caution, the inconvenience of the queueing systems and changing habits and behaviours. In fact, as with much that has happened in response to the Corona Virus crisis, a trend that was already well underway has accelerated exponentially.
Businesses will need to quickly either put e-comm capability in place or scale up their existing provision to cope with this increased demand.
So, what can be done in the meantime?
How is e-comm different?
Firstly, it’s worth considering the differences between traditional retail, B to B distribution requirements and e-comm (B to C).
In e-comm operations the customer order profile is obviously very different with much smaller individual orders and far fewer order lines per executed order. The pick operation requires large numbers of individual orders with the picking of single items and hence far more labour intensive than Retail and B to B operations.
The impact on productivity of using conventional picking methods for e-comm operations is obvious. In addition, the space required is a magnitude higher than for Retail and B2B operations. In these circumstances, any increased productivity and space optimisation that can be delivered will be significant and valuable consequently making the difference between success and failure.
Beyond the challenges associated with the need to upscale the resources and infrastructure, the next game-changing difference is in the customer service-level expectations. The changes in customer service expectations are epic. Next day delivery for free is the norm. So, operations need to be streamlined between sales order intake, order fulfilment and delivery. There is very little opportunity for buffering or delaying activity to gain efficiency benefits. You have to react rapidly, and processes need to be integrated and work seamlessly. If service dips, then you run the risk of a storm of protest on social media which can instantly impact demand.
Fluctuation in demand is another area of difference whether caused by weather, promotional activity, competitor activity or other impacts. Hence, flexibility to amend operational capacity is a real benefit.
Finally, there is the issue of returns, which for fashion retailers especially can exceed 20%. Indeed, there is evidence that 40% of on-line buyers actually buy additional items with the intention of returning less desired items. Returns management requires additional space, is resource-intensive and at the end of the day a disruptive activity. Frequently returned items are current lines and the pressure to process the returns back into stock for resale is enormous. Processing delays exacerbated by the Corona crisis increases the operational pressure. The sales opportunity window is missed and obsolete stocks and write-offs increase.
Short-Medium Term Solution Options:
So, until you can either re-equip your existing facilities or (if you can’t) wait for a purpose-built facility what are the options open to you?
This very much depends on your starting point and what facilities you have now and the relative maturity of your processes and systems. However, general strategies for optimising layouts and creating more floor space by utilising mezzanines are frequently very beneficial in the short to medium term.
There are several ways of installing mezzanine structures. The most suitable one for any particular operation is very dependent on the interaction between the business process, the material flows, and the existing building infrastructure. Not all buildings can support all types of mezzanine.
Operating separate picking regimes for e-comm and other sales channels in the same facility can usually be practically implemented if the constraints of the building allow. Utilising the same replenishment stock for all sales channels will obviously optimise levels of inventory. However, a common inventory requires close attention to the prioritisation of order release against stockholding, in order to avoid conflicting demands and subsequent sub-optimal customer service. On the other hand, discrete dedicated Inventory per sales channel increases the inventory costs and creates the risk of increased stock write-downs. It’s a fine balance that can be helped by the deployment of some simple inventory “rationing” software. This monitors demand by sales channel and adjusts stocks accordingly. This type of application can become an option when businesses re-evaluate the I.T. systems requirements in the new emerging landscape.
Other short-term initiatives should include a more dynamic approach to reviewing pick face layouts, as the resultant regular optimisation will help to minimise unproductive walking distances.
Considerations such as bulk/batch picking combined with secondary sortation and/or order collation can be used to help with the integration of picking regimes, across multiple sales channels, wherever possible.
Finally, whatever the solution or steps that are taken to meet the pressing needs to build or improve short-term e-comm capacity, it is important that they do not constrain unduly any future capability or capacity development.
Once you get through the immediate challenges, the question we have all been pushing onto the back burner will re-emerge – “Where is all of the Labour coming from to meet the labour hungry nature of e-comm fulfilment?” The obvious answer is, “In the automation or effective mechanisation of as many appropriate processes as is possible”.
However, selecting the most appropriate technology that best fits the current business, does not prohibit flexibility in potential future solutions and is easily scalable, can be somewhat daunting. The choice from smart conveyor to automatic storage and retrieval systems, (ASRS) to automated order collation, to robotic materials handling and even collaborative robot picking and packing is a critical choice for all businesses. Choice of Technology is a decision for which there is an overwhelming need to get right!
With some of the latest MHE product developments, there is now the option for relative rapid implementation of mechanisation or partial automation within existing warehouses. MHE providers are increasingly able to offer pre-configured standard solutions. These have certain advantages as they can be potentially implemented in around 6 months and may not require extensive capital investment. Hence, this starts to bring these types of limited solutions into the medium term, rather than long term timescales of full automation projects. They can deliver at least a degree of the optimisation savings, as well as the resource flexibility and fast integrated processes needed in an e-comm future.
So, start looking now at how you can upscale your e-comm capacity effectively or introduce e-comm capability for the first time to your existing logistics operations.