Roundtable panelists. Top Row L-R: Craig Crawford, Peter Stock, Nicolas Dorget. Bottom: Arnold Cunje, Brian Crawford, Steven Bryce.
July 23, 2014
MM&D’s E-Commerce roundtable examines how back-end operations in the DC support and enable e-commerce sales
In May, MM&D convened its first e-commerce roundtable. This gathering of six supply chain professionals, moderated by MM&D’s editor and publisher, Emily Atkins, looked at the points of pain for DC managers tasked with ecommerce fulfillment operations.
The words chaos, spikes and SKU proliferation were front and centre in the pre-event questionnaire the participants completed. It was immediately apparent that e-commerce fulfillment is a rapidly moving, complex, multi-faceted environment. Complexity enters when DC managers are expected to fulfill orders for individual customers alongside those for retail or other channels. The new normal is omni-channel commerce—retailers are giving customers choice about how they purchase and receive their goods, and it trickles down to the DC, creating a challenge and sometimes chaos when different order types all have to be fulfilled in the same facility.
According to Highjump’s Craig Crawford: “The way we talk about e-commerce, it’s all about the shiny things in the front. It’s always the front-end piece that people are concerned about. How does my website look? How user-friendly is it? How much interaction? Can I get all of my products looking the way they should? And then they say, ‘Oh my God, I forgot we’ve got the execution part behind the wall that we haven’t even thought about.’”
Brian Martin, of Kuehne & Nagel calls it a “customer-centric” model. “The customer can buy goods in the channel that is acceptable to them and at the timing that is acceptable to them. So now let’s translate that to the warehousing operation. It’s up to the 3PL community or the traditional brick and mortar vertical integrated companies to react to that with multi-channel DC operations. And I think this is where it’s really causing the stresses.”
From a practical point of view, inside the DC, what does this mean?
For Knapp’s Peter Stock the problem distills down to this: “You don’t know how to design your warehouse because they have no influence on any order structures or what’s coming in at what time.”
“Basically, within a warehouse you’re trying to fulfill the normal retail operations of stores. But then you end up with spikes because you have an e-comm side and the order profiles are totally different. The average pick for e-comm is one-point-something, not even two [items]. Now we have to look at technology—what is the kind of technology we could be able to use in order to assist and help those retailers get these products and do not disrupt their mainstream operations?” said Intelligrated’s Arnold Cunje.
According to Cunje, picking can be done jointly, but then the e-commerce orders need to be diverted to a different outbound area where they are packaged for distribution via parcel delivery service or to a store for customer pickup.
Stock agreed: “The goal always should be that there should be no difference if a picker picks for an e-commerce order or if he picks for retail store deliveries.”
Even more complexity is added, however, when different elements of an e-commerce order have to be integrated. As Stock pointed out, the individual white shirt has to be married up with the shoes, which may come from a different area or different DC, or maybe they’re not in stock.
“And that’s where the challenge is in e-commerce… because then you have to make decisions: shipping immediately or waiting for consolidation. You have to do these cost evaluations and programs. And that’s where—from the automation and process side in the DC—the biggest challenges come from,” Stock added.
“But then there’s the other challenge, because as you change and you blend e-comm into your facility, there’s a packaging issue and how you’d handle those packages,” said Cunje.
“In a traditional warehouse or distribution centre we put everything in a case or a tote and convey them. But when you’re e-commerce, when you are ready to ship, you’re shipping in an envelope, in a bag. You’re looking at the lowest cost to get it out to the consumer. The other thing that you have to be careful with is the type of packaging. Soft goods are treated differently from hard goods. So there’s a combination of different issues that we try to solve with technology.”
One point our panelists agreed on is that the nature of Canada’s vast geography, and population centres concentrated in four major areas makes distribution operations more challenging. There’s nothing new about that issue—as Martin said: “No matter what we do in Canada, as warehouse providers or transportation providers, there’s still five days overland between Toronto and Vancouver Island. There’s still four days to get to Newfoundland.”
How it impacts e-commerce is in what the customer expects to pay for shipping. How can you think that if you’re in Barrie (Ontario) or Yellowknife, you should pay the same as someone in a condo in Toronto, Bryce asked. “I’ve lived in a couple of the big retailers and the price is the same in St. John’s as it is in Woodbridge. But the cost of getting that product out to St. John’s, depending on the value of the item and how much handling there is, is massively different. I don’t know how Canada is going to make e-commerce work unless they put some sort of graduated pricing and there’s some sort of delivery charge. I don’t know who can afford it.”
Dorget suggested that if you have good enough metrics, as a retailer you can adjust pricing on the fly to take account of where the customer is and adjust for the additional shipping costs. “So if you understood that 60 percent of your sales were north of Toronto and you only charge five bucks for shipping, but you know that segment is okay with paying for shipping, you could go with charging seven or eight dollars and still get the sale.”
The DC model
According to Martin, the e-commerce market in Canada is less than 10 percent of retail sales. And yet it’s a major undertaking to convert a regular retail DC into one that can handle e-commerce orders efficiently.
“In today’s warehouse environment, there’s still not adequate consolidation and volume for e-commerce sales to really run pure-play e-commerce fulfillment centres. So 3PLs and vertically integrated companies are faced with multi-channel fulfillment within the same box,” he said
The typical scenario goes like this: You have a DC that’s been operating for 15 to 20 years, doing traditional retail fulfillment with case or pallet picking, reach forklifts with nine-and-a-half foot aisles, 30-foot clear, and within a five-year period approximately 10 percent of that warehouse space has to be converted into single each picks on single shelf, with a pack station, with a checker (because the order quality has to be perfect for B2C).
“This is where the chaos is,” Martin said. “This is a major shift in engineering at the warehouse level and a major shift in warehouse management systems to enable each picking versus case fulfillment or pallet fulfillment, and retraining staff that understands the B2C fulfillment and the quality has to be perfect.”
But converting that old DC is not the only option.
According to Nicolas Dorget of UPS, “The reality is that there’s not more dollars being spent, they’re spending the same amount, just taking away from their traditional channels and siphoning it elsewhere.”
He said some retailers are looking at their inventory more broadly, and have opted to pick e-commerce orders from the retail store. Because clerks are not busy with in-person customers all the time, they can use their spare time to pick orders from the floor.
Retailers are thus “able to source from their retail network and footprint around the country to minimize their shipping costs, optimize transit times. Rather than limiting yourself to who comes into your store, use everybody who’s not in your store and wants to buy something and process that as a sale and give the credit to the store. So I think that’s where finance turns what would appear to be a disadvantage—bricks and mortar—into an advantage. And for those that are able to do that—with technology, with integration—they will win,” Dorget said.
Room for improvement
It would appear that in solving the e-commerce dilemma there are no hard and fast rules. Just as customer demand is fluid and impossible to predict, supply chain managers responsible for multi-channel fulfillment have to stay nimble.
But the panelists identified a couple areas where there is definitely room for improvement. First is on the management side.
“One of the bigger challenges, is normally the executive; presidential people in the retailers are all merchants and store operations people. There are very few senior logistics guys who ever make it up to the top. The one example that’s actually different is Walmart. To some extent, that may be why, Walmart has a whole bunch of stuff integrated and is in a much better situation,” said Steven Bryce of Reimer Associates.
“There continues to be a gap in what I would classify as middleware or middle people between the innovative side of retail and the back office fulfillment. And that translation of scope, forecasting, new product introduction, new channel introduction, that is very weak in the Canadian market today,” Martin added.
A second major area is having an accurate idea of what your supply chain actually looks like.
“Most companies don’t understand their supply chains. If you ask any corporation, ‘Show me your supply chain map and how does it overlay to your customer experience map,’ they act like you’re speaking a foreign language,” Dorget said.
“You have to understand the intricacies of your supply chain. Is there a better way to do it? You’ve got to re-evaluate that. Not every three years and not every five years; it’s every six months, every quarter if you need to, depending on the market that you’re in. And you have to understand the market that you’re in,” he added
Made to measure
The panel was asked what needs to be measured in order to succeed at omni-channel fulfillment.
For Arnold Cunje, “it’s what we call the Distributed Order Management Type System, where you look at the inventory pool, you look at intelligent order routing and service level commitment that they want to offer and, ultimately, the best source of fulfillment. If they can encompass those four things then you can satisfy your customer. If you can’t, you wouldn’t retain their business.”
Peter Stock suggested growth rate is key. “Growth rate is the final question, always.”
Craig Crawford emphasized good planning can help a company avoid a big mistake. “E-commerce isn’t for all retailers. There are retailers where maybe it just doesn’t work if they look at the overall picture,” he said.
“And that’s where planning comes in. Maybe the goods that aren’t selling don’t warrant shipping and selling and buying online, maybe it is a bricks and mortar play. So these companies have got to adapt, but they have to do it practically. They have to go through that consulting stage and planning stage to figure out: ‘Can we plan it on the front end? And can we execute it properly on the backend and make it profitable?’”
“The devil is in the details,” Steven Bryce said.
“You have to understand the data, the flow, what products are coming. And that will allow you to build a case for why you need whatever it is you need—more software, different labour, different structure, limits on what you can do, how quickly. ‘Cause the data is where the devil is, for sure.”