Archives for May 2016

E-Commerce Fulfillment Scenarios Driving Today’s Businesses, Part 1 of 2

By Ian Hobkirk | 05/13/2016 | 6:04 AM

E-commerce is a term that conjures up a disparate set of images, depending on the reader. For example:

  • The average consumer may have a pleasant image of hassle-free shopping with merchandise delivered directly to their door.
  • The day-trader may remember with chagrin the “dot-com bust” of the early 2000’s, fueled in part by too many companies rushing to sell their products directly to the consumer without first mastering the logistics implications.
  • The corporate executive may view e-commerce as a profitable new sales channel.
  • The chief supply chain officer may view it as a dreaded trend that complicates an operational ecosystem that has taken years to create.

Regardless of individual perspective, e-commerce has indisputably become a permanent fixture within the consumer goods supply chain. Unlike some distribution trends, which have risen and fallen on the whims of retail compliance mandates, e-commerce represents the expressed will of millions of individual consumers who have voted with their pocketbooks for their channel of choice.

E-commerce sales are expected to grow to more than $400 billion in the next several years, with Forrester Research estimating $414.0 billion in sales in 2018 and eMarketer estimating $491.5 billion in 2018. (Source: Internet Retailer)  Companies operating in the consumer goods supply chain are feeling the impact of this consumer shift differently, depending on their positions within the supply chain (i.e., manufacturer or retailer) and which channels they were already serving.

I have identified six basic scenarios that companies are likely to find themselves in with respect to their e-commerce fulfillment adoption strategy. In this two-part blog post, we’ll explore these scenarios and tell how a company’s e-commerce strategy will vary based upon which scenario they find themselves in.


Scenario #1: Manufacturers Filling E-Commerce Orders Directly to their Consumer Clients

Manufacturers filling their own consumer orders often have the greatest level of control over the levels of e-commerce in their supply chain, as they can gradually choose which products to offer directly to the consumer, and how aggressively to promote them. As the initial shift to e-commerce began, some manufacturers resisted selling products directly to the consumer—both to avoid competing with their existing wholesale or retail channels, or to avoid the headaches of managing e-commerce logistics. We’ve had a number of conversations with manufacturers recently that would suggest that some of those companies are revisiting this strategy and gradually introducing e-commerce on their corporate websites. For these companies, e-commerce represents a new way of picking and shipping orders—often very different from the full case or full pallet orders they are used to handling.

Many of these manufacturers initially address e-commerce by setting up small sub-sections of an existing distribution center to manage these orders. Since these companies control their e-commerce destinies, the distribution center rarely is overwhelmed with orders, but the handling of these orders is usually done rather inefficiently since economies of scale do not exist. Service levels may be good, but average labor content per order is high. This approach may suffice when order volumes are low, but if increasing e-commerce sales is a key company growth strategy, the operations team will be served well by having a plan in place for how to scale e-commerce fulfillment to efficiently handle higher volumes of e-commerce orders.


Scenario #2: Manufacturers Filling E-Commerce Orders on Behalf of Retailers

While some companies have been able to plan their gradual transitions to e-commerce, other manufacturers are dealing with retail clients that want them to fill e-commerce orders directly to the consumer, and on the retailer’s behalf. For these companies, in addition to the normal challenges of e-commerce, retail compliance mandates must now be met.

These manufacturers may have little or no e-commerce business of their own, but in order to retain or expand their business with retail customers, they are pressured to begin fulfilling direct-to-consumer orders for these retail clients. In contrast with other initiatives, e-commerce retail mandates tend to be “softer” mandates, motivated by the carrot, not the stick – for now. Manufacturers may not be required to handle this business, but they have a potentially large opportunity to fill these orders if they are able to take it on.

Retail-compliant e-commerce orders are more challenging to fill for a number of reasons. To begin with, the retailer controls the sale and promotion of the products. The manufacturer may find itself unexpectedly inundated with e-commerce orders due to promotional activity by the retailer. The manufacturer must have systems in place that will allow it to scale rapidly to handle these surges. Additionally, these e-commerce orders usually must be labeled and packed in a certain way with the retailer’s branded materials. Failing to pack orders in the correct manner, or failing to meet consumer service-level requirements, can result in expensive penalties.

Companies in this situation must make a deliberate decision to either be “in” or “out” of the e-commerce business, and then backup that decision with a rapidly scalable strategy in the distribution center.  “Dabbling” in e-commerce is not an option in this case. Processes and technology must work nearly perfectly right from the start.


Scenario #3: Pure E-Commerce Retailers

These companies have had a direct-to-consumer channel from birth. This channel may have initially been driven by mail-order catalog sales, and then evolved into web sales over time. However, the basic act of filling an order in the distribution center remained the same throughout the transition. For these retailers, e-commerce is not a new challenge, but rather an integral part of their business model.

These companies likely already have a basic platform of automation in the distribution center, with the ability to efficiently piece-pick orders and pack them in large volumes. Smaller companies have often already invested in a basic Warehouse Management Software (WMS) system to allow the rapid picking of small orders, but frequently the efficiencies do not carry over into the packing and shipping areas.  These companies may need to focus on implementing process changes and automation in the packing area to reduce labor costs here and improve throughput.


We’ll explore three more e-commerce fulfillment scenarios in Part II of this blog post. Can't wait? Read the whitepaper today, "E-Commerce in the Distribution Center: Making a Graceful Transition."

Is There a Compelling Case for Voice Technology Outside of Picking?

By Ian Hobkirk | 05/13/2016 | 6:03 AM

IStock_000057423398_MediumI spent the first week of April at the Modex Conference in Atlanta, where I talked to a number of companies across a variety of industries about their new distribution center initiatives. Voice technology continues to top their lists, but the common question that came up over and over again was, “How should we leverage voice in other areas of the distribution center outside of picking?”


It is true that it is possible to use voice technology to execute a number of processes in the distribution center (DC) beyond simply picking orders—receiving, put-away, and shipping are some examples. The voice technology providers have been touting these additional functionalities for many years. I actually wrote a paper in 2007 that discussed how voice was beginning to be deployed for these other functions in the DC. (Read the Blog: "Voice-Directed Warehousing a Changing Role for a More Mature Technology")  However, over the last 10 years I’ve had a chance to observe and talk to many different voice users, and have found that in practice, voice works much better for picking than for any other function.  The reason for this is that voice works best for processes – like picking – which are largely “system-directed.”


With a typical picking process, the WMS or voice software has already determined the workflow in advance. The system provides clear and specific instructions to workers:  “Go here, pick this, put it there; now go here, pick this, put it there.” The voice user simply has to confirm that he has followed the instructions properly, which can be done by reading relatively short check digits into the voice system (usually two characters). This doesn’t take very long; it takes just as long to read two digits as it usually does to scan a barcode.


Now, contrast this “system directed” picking process with a process like receiving which is much more “operator directed.” With receiving, the workflow is not neatly prepared in advance—a truck shows up, and while the system may know the expected contents of the truck, the system does not know the sequence in which the contents will be received. The operator grabs a carton of product at random, and must “tell” the system what product he has in front of him, perhaps capture some other details about the item, and then the system will post it to inventory.


With barcode scanning, this process can be relatively fast and simple:  Scan a carton, enter a quantity, move onto the next one. However, with a voice system, the operator—instead of scanning a barcode— must read a complex set of information into the voice system to identify the carton he is receiving. This is far more time consuming than reading a couple of quick check digits and it involves reading a lengthy SKU number perhaps, or worst case, trying to read a product description. With a traditional mobile device with a screen, it can be helpful to have the system display a list of the expected items on the order and have the operator select the one he is receiving. With a voice system, this is not easily done.


Similar limitations often exist with put-away and shipping. Any time the operator has to select an item and tell the system which item he is handling, that lengthy piece of information must be read into the software. This not only takes time, but it’s also prone to error. In these scenarios, my experience has been that barcode scanning is faster and more effective.


To sum it up, voice works best for functions like picking (and perhaps bin replenishment) where the system can precisely plan the workflow in advance and the operator is simply confirming that he has followed instructions properly. And while it is certainly possible to use voice in areas other than picking, the body of my experience suggests that the business case is just less compelling than it is for picking.


The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Ian Hobkirk

Ian Hobkirk

Ian Hobkirk is the founder and Managing Director of Commonwealth Supply Chain Advisors. Over his 20-year career, he has helped hundreds of companies reduce their distribution labor costs, improve space utilization, and meet their customer service objectives. He has formed supply chain consulting organizations for two different systems integration firms, and managed the supply chain execution practice at The AberdeenGroup, a leading technology analyst firm.


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