This article originally appeared in the July/August, 2018 issue of PARCEL.
E-commerce is rapidly overtaking brick & mortar retail sales, with US online sales reaching $409 billion in 2017 and expected to hit $462 billion this year, as stated in a report by Statista. While sales are exponential in many e-commerce businesses, there are a number of issues that these companies still face, including:
- Last-mile delivery challenges to reduce costs and meet quicker delivery times
- Speeding throughput in the warehouse or distribution center
- Labor shortages
- Change of order type from shipping volume for distribution or storefront to keeping up with growing volume of orders of smaller items
- Improving efficiencies and productivity in the warehouse
- Managing the proliferation of SKUs
Fulfilling orders that originate directly from the online customer is a much different proposition than replenishing brick and mortar stores. Typically, merchandise is sent in bulk shipments to the stores to replenish inventory. On the other hand, online order sizes are very small, often a single unit. These orders are then shipped directly to the customer rather than in bulk to the store.
A Whole New Ballgame
Initially, warehouses were built to carry inventory for stores, which was shipped in volume on pallets to the stores. The warehouses were not located close to customers, were quite large, and built in the middle of nowhere where land was cheaper. These traditional warehouses had storage areas, packaging stations, order fulfillment stations, and loading/shipping docks where products were shipped out of the warehouse on pallets. These warehouses were not built with the speed required to meet the high-volume, rapid replenishment model.
With the growth of e-commerce orders, distribution centers (DCs) have had to change their operating procedures. With storefronts closing, DCs that service only brick and mortar locations must change their order fulfillment processes to keep up with the increase of picking greater volumes of individual items. In this scenario, all the resources of the supply chain are focused on transparently serving a single shopper who has placed a single order.
Large warehouses are being retrofitted to handle e-commerce orders along with store replenishment. If orders are going to be fulfilled from an existing distribution center, retailers need to make sure they have enough room in the DC to handle this increase of single orders. Individual orders typically use carton flow or shelving systems, which are designed to present the product to the order picker so the worker can select an individual piece without interference. After being picked, the product is placed into a tote or master carton and transported via conveyor or cart to the next stage of the order picking process.
A newly built e-commerce warehouse must carry a much larger volume of SKUs than the traditional warehouse, so there must be more storage space available, along with order picking solutions to speed picking operations. Both of these approaches – retrofit or building new – improve on the efficiency of the e-commerce side of the business. However, the DC is still not located close to end customers, creating a transportation challenge.
Amazon had struggled with this issue, especially with profitably fulfilling Amazon Prime customer orders with guaranteed fulfillment in one to two days. To address the challenge, Amazon and others have turned retail space into mini-warehouses where they can fulfill smaller orders. Because the stores are located closer to where consumers live, orders can be delivered more quickly. Consumers can either pick up their orders at the storefront or click and collect box, or have their order delivered to their home. This has proved successful with quick turnaround delivers.
Specialized storage mediums are being implemented in both small and large facilities to speed picking operations. These units store more products in a smaller space to maximize space utilization. They also present SKUs direct to the pick face so that order pickers can see them easily and pick them more quickly. If these units are located in the back room of a retail store, items can be taken off of store shelves and placed in a customer pick-up area where consumers can retrieve them.
Consumers get the most value from retailers when they can get what they want, when they want it, and where they want it. Relocating distribution and warehousing closer to the customer has helped with these strategies. This has also helped with the proliferation of SKUs as items are spread out across multiple locations closer to the end customer.
Amazon is testing different ways to fulfill orders more efficiently, more quickly, and for less cost. They are now buying smaller warehouse facilities near urban areas and testing different ways to use them. These facilities are closer to the customer, and some have automation and robotics, while some have storage units to handle a large number of SKUs. Amazon is also testing drones and autonomous cars to deliver goods.
New businesses are popping up where entrepreneurs are buying storage space, then renting it out as warehouse space. Many storage facilities are located closer to consumers, making it easier for e-tailers to get products in the hands of the consumer. Many of these storage units can be outfitted with storage shelves or carton flow units where orders can be stored and fulfilled quicker.
Whether renting, retrofitting, or building a new warehouse space, retailers need to optimize their space and improve picking processes to speed fulfillment for better customer satisfaction. When online orders are placed, it’s up to the retailer to deliver the goods to the right location at the right time the consumer prefers. But you must be profitable doing this, which means orders must be filled from a location closest to the customer destination, whether that’s a large warehouse, a smaller, regional warehouse, or strategically located retail store.
Brian Neuwirth is President, UNEX Manufacturing, LLC. Founded in 1964, UNEX is the trusted industry leader in order picking solutions that maximize space usage, increase pick rates, and improve ergonomics. For more information, visit www.unex.com.
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