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Order Fulfillment within Retail Supply Chain

This post depicts such business ideas, and concepts, technologies, and tools used in Order Fulfillment by shippers and retailers, as follows: brick-and-mortar, eCommerce, e-tailing, Warehouse Management System, hybrid distribution center, ship-from-store, last-mile delivery. There are also some explanations of order fulfillment and omni-channel, and multi-channel retail, as well as crowdsourced shipping and delivery, in the blog's post.

 

eComerce and Retail Supply Chain apply Ship-from-Store and Last Miles

Order Fulfillment within Retail Supply Chain

What happened in retail?

 


"Brick-and-mortar retailers are particularly vulnerable to the new realities"


 

Traditional stores had large, expensive, and illiquid facilities as new competitive forces in the market had begun to take hold. Some stores have been possessing such facilities for a long time. They are still known and recognizable. However, brick-and-mortar retailers are particularly vulnerable to the new realities of the market [Dawes].

Brick-and-mortar is a traditional street-side business that deals with its customers face to face in an office or store that the business owns or rents. The local grocery store and the corner bank are examples of brick-and-mortar companies [Investopedia].

Now, stores face with downward price pressure, unavoidable fixed costs (e.g., labor, leases and fixtures), less customer traffic directly to a room shop and less frequent large-cart purchases, almost impossible competition on speed and convenience against the Internet, etc. [Dawes]. eCommerce customers don’t like having to wait, partly because the internet has conditioned them for instant gratification [Prickett]. 

eCommerce is the trading or facilitation of trading in products or services using computer networks, such as the Internet or online social networks [wikipedia.org].

As we can make sure, eCommerce is growing up and this tendency will continue (Table 1 [Akter]).

Table 1. Global and US Growth in eCommerce

Year

Growth in the number of e-commerce customers
worldwide (in millions)

Growth in e-commerce sales per customer
worldwide (in US$)

2011

792.6

1162

2012

903.6

1243

2013

1015.8

1318

2014

1124.3

1399

2015

1228.5

1459

2016

1321.4

1513

 

According to Dawes and Racciatti [Dawes], in 2015 alone, Internet sales went up 23 percent. Amazon is the leader in the e-tailing and it keeps increasing its market share and putting pressure on many market players. However, it is not easy to be like Amazon for other retailers. 

E-tailing (less frequently: etailing) is the selling of retail goods and services on the Internet. Short for "electronic retailing," and used in Internet discussions as early as 1995, the term seems an almost inevitable addition to e-mail, e-business, and e-commerce. E-tailing is synonymous with business-to-consumer (B2C) transaction. However, electronic retailing can include business-to-business (B2B) sales through subscriptions to website content, or through advertising [TechtargetInvestopedia]

In 2001, Hau L. Lee and Seungjin Whang noted that order fulfillment can be the most expensive and critical operation for companies engaged in e-commerce. The ability to fulfill orders at reasonable cost and to deliver on time could determine an e-tailer’s success [Lee].

Order Fulfillment is the sequence of steps involved in processing an order (receiving, processing and delivering orders) to the satisfaction of the end customer and making the necessary changes in the inventory records. It may also include processing of returns and re-adjustment of the records. Also called order processing [Businessdictionary].

Take $10 Off Your First Order w/code: SAVE10 - 468 x 60

 

What is being done?

It is worth noting that, firstly, online order fulfillment was moved from store replenishment into completely separate facilities with the applying of warehouse management system (WMS), which were fit only for pallet and carton picking, not for units [Dawes]. 

WMS is a software application that supports the day-to-day operations in a warehouse. WMS programs enable centralized management of tasks such as tracking inventory levels and stock locations [TechTarget]. Also, read more about WMS at [Inventoryops].

Next technology hybrid distribution centers (DCs) didn't cope the complexity inherent to managing channels both for online and offline order fulfillment from the same facilities. That is why, centers later were dedicated and optimized to specific purpose. The improving of DCs, and systems, devoted to warehouse management, and distributed order management has been making omni-channel retail more efficient.

Omni-channel retail is a cross-channel approach to sales that seeks to provide the customer with a seamless shopping experience whether the customer is shopping online from a desktop or mobile device, by telephone or in a bricks-and-mortar store. It is a cross-channel business model that brings all the key parameters - online and offline channels (physical locations, FAQ webpages, social media, live web chats, mobile applications and telephone communication), data and technology, customer behaviour and experience - onto one platform. It enable free communication between channels, allowing each channel, for instance, to view the inventory levels of another. A customer of an omni-channel retail has constant opportunity to buy what he/she needs from anywhere because of  and similarly, order can be shipped to him/her from anywhere. [HappiestmindsTechTarget, Visual-2000Wikipedia.org]

Multi-channel retail unlike omni-channel manages each channel with disparate systems. As a result, channels in a multi-channel business cannot communicate with each other [Visual-2000]. 

Example [SupplyChain247]:

  • In 2012 Macy's began integration of online and store channels towards omni-channel system. The primary question was from where to pull the inventory to fulfill orders fast and even on the same day.

Nevertheless, many retailers found that they are weak competitiveness versus emergent e-tailers in terms of speed, convenience and cost leadership.

 


"Retailers build a loyal customer through the new usage of their assets and distribution models and the access to merchandise when, how, and where shoppers want it"


 

To compete in today’s complex, multichannel retail environment, retailers must build a loyal customer base as the key factor for business success. There are the main steps they are taking [DawesFortnaPrickett]:

  • re-evaluating the usage of their assets and distribution models in the pursuit of efficient omni-channel fulfillment;
  • understanding what shoppers need and want; 
  • providing access to merchandise when, how, and where shoppers want it.

To execute on that goal, many companies are integrating a ship-from-store model as part of the fulfillment supply chain [Fortna].

Ship-from-Store is about connecting demand with inventory in the most flexible and cost-effective way. It is a fulfillment process, by which retailers use stock from their store estate to fulfill orders. It makes it easy for manufacturers and multichannel retailers to ship orders from any authorized retail location where inventory lies. As a truly omni-channel process, the orders might have come from any channel, for example the website. Fulfilling orders in this way makes the store into a virtual distribution hub. [Retail-Assist; Fortna].

Examples [Fortna]:

  • "Apparel retailer, Ann Taylor, has made over 300 of their stores into distribution nodes. Their customers can order products no matter where they are – in their distribution center or in any of their retail stores. As a result, they’ve increased sales and gross margins by not having to mark down slow-selling items in one store that might sell at full price in another. Online sales at American Apparel have increased by 30% since they started using their stores as “backup fulfillment centers”. Retailers are also offloading volume from the DC to stores during peak times, and mitigating risk in the event that a DC is taken offline by a natural disaster. Ship-from-store can also yield shorter delivery times since local stores are often closer to customers than regional Dcs."
  • "Retailers like Best Buy are now offering hot-selling consumer electronics items via kiosks in places like airports and hotels."
  • "Red Box has achieved fast-growing success by renting movies and video games through retail vending machines."

 


Retailers must guarantee that merchandise will be delivered to customer at the right time or in the shortest time


 

Retailers are also investigating how they can guarantee that merchandise will be delivered to customer at the right time or in the shortest time, as soon as possible. A part of issues about delivery time they have been discussing is classified as the problem of "last-mile" delivery. Last mile delivery (logistics) refers to the final step of the delivery process from a distribution (fulfillment, transportation) center or facility to the end user.

The last mile is a metaphor used to describe the movement of goods from a fulfillment center to their final destination. In other words, the last mile is the last leg of your product’s trip before it arrives on your customer’s doorstep [Prickett].
It is a term used in supply chain management and transportation planning to describe the movement of people and goods from a transportation hub to a final destination in the home [Wikipedia.org].

Last mile can can range from a few blocks to 50 or 100 miles. Usually, it involves the use of parcel or small package carriers to deliver products to consumers. According to McKinsey and Company, parcel shipment are valued at more than $83 billion [Cerasis].

Examples:

  • "Amazon hasn’t yet entirely solved the last mile. It is grappling with the question of whether to outsource all of its delivery or to do at least some of it in house, in order to control “the moment that matters”. So, while it still relies heavily on USPS, UPS and Fedex, Amazon is testing its own shipping network" [Prickett].

  • "Today, last-mile delivery players include established delivery companies (ex., UPS, FedEx, DHL, and the U.S. Postal Service), merchants (Amazon, Postmates), and new technology firms (Google, Uber, Instacart, and TaskRabbit)." [Lee, at al].

Some of companies (ex., DHL and Wal-Mart), use crowdsourcing for deliveries.

Crowdsourced shipping – travelers or in-store customers bring items/packages to people (online buyers) along their route. Customers who accept to deliver packages would receive a discount on their purchases. It also called Social delivery.

Crowdsourced delivery a web or mobile-based courier service which leverages large groups of geographically dispersed individuals to match demand with supply digitally [Fbicgroup].

Example [Retail-innovation]:

  • DHL Freight’s network of service points in Stockholm (Sweden) and the service app MyWays let consumers specify a time and place for delivery, as well as the fee offered for delivery. When a consumer has bought something online he can specify the delivery options and once this is registered in the system, the package will be available to other Stockholm residents. These people can pick up the package from a DHL service point and deliver the goods at the specified time and place. In return they get the fee the original consumer negotiated with DHL. With the app, DHL is targeting people who regularly drive past a DHL service point and who don’t mind making a retour for some extra income. “This is what makes the platform so unique”, says Peter Hesslin, CEO at DHL Freight Sweden. “As soon as the package arrives at one of DHL’s collection locations, the recipient and the deliverer confirm the fee and delivery details, all within the mobile app.”

   

 

Ship-from-Store

The ship-from-store model consists of three distinct components (with its own benefits, challenges and ROI), which together help create an inventory strategy, aimed at deficit-free sales to instore and online shoppers [Fortna]:

  1. Complete Inventory Visibility. Ship-from-store will only work if inventory is available. All fulfillment channels must have access to the order information and pull the appropriate inventory. And retailers have difficulty to choose items that should be assigned to ship-from-store as well as to accurately determine the inventory level and safety stock level. Inventory Visibility gives retailers the flexibility to fill orders wherever that product lies, including items that are lingering on the sales floor. They can prevent the merchandise from being marked down at the end of the season. Customers have the ability to buy any item that lies anywhere in the company’s network of stores and fulfillment centers.

  2. Order-from-Store capabilities. Retailers do not lost sales when inventory is out of stock in a store location. If "out of stock" happens in one store, a sales clerk uses an in-store kiosk or mobile device to place an order for that customer before he/she leaves the store and goes to a competitor. 
  3. Stores as a Distribution Node. This is the setting up distribution operations in the backroom of retail stores in order to fulfill e-Commerce orders. It allows to capture more of the demand in the market, improve delivery times for internet orders and minimize or avoid markdowns as much as possible. This strategy promises higher margins and increased sales by better leveraging store inventory. Also, Big Box retailers can take advantage of available backroom space and store personnel to absorb additional volume during peaks in the DC. And growing retailers hitting capacity limits in their DCs benefit from using stores as distribution nodes where the DC is constrained. 

Big-Box Store is a large retail store whose physical layout resembles a large square or box when seen from above. Big-box stores often can offer lower prices because they buy products in high volume. Also called supercenter, superstore, megacenter [Businessdictionary].

 

Last-mile delivery

New technologies may help eCommerce retailers overcome the last mile problem, involving the next [Prickett]:

  • automation and autonomous land, air and sea vehicles
  • better interfaces (mobile apps, voice recognition, IoT devices)
  • better data for understanding and predicting customer needs
  • internal efficiency improvements to the layout of warehouse facilities
  • changes to the proximity of fulfilment centers for major metropolitan areas.

There are also a number of startups focusing on the last-mile due to the requirement to meet customer expectations and forecasts, which state the growth of product deliveries. These innovations and startups include [Lee, at al]:

  • advanced algorithms and analytics
  • delivery drones and delivery robots
  • driverless vehicles

Business model for last-mile delivery [Lee, at al]:

  1. Seller collects orders, and then insources or (and) outsources delivery
  2. Intermediary collects and delivers orders
  3. Buyer orders online and arranges pickup from store or other location

The first two business models indicates that merchandise can be delivered by seller's employees, or crowds, or automated vehicles. The third one replaces employees with buyer.

 


"the recipient and the deliverer confirm the fee and delivery details, all within the mobile app"


 

Crowdsourced delivery would bring such gains, as [Rouges]:

  • for customers:
    • speed
    • personalization
    • access to new products
    • price
  • for retailers:
    • lower delivery costs
    • more chance for same-day deliver
    • less stock
  • ​for society
    • ​minimize the environmental footprint and the traffic jam in cities
    • "already-on-the-road" commuters or travelers
    • create flexible job

 

Useful links:

Logistics and Supply Chain Fundamentals

Operations and Supply Chain Management

Transportation Planning and Management in Consumer Goods SC

Learn Data Science, Digital Marketing, Business Foundations & More. Start Learning.

The Ultimate Guide to Last Mile & White Glove Logistics (2017). Cerasis, 48 p. 

 

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