For the past five years, the growth of online sales has significantly outpaced that of comparable-store sales for brick-and-mortar stores, a trend that is anticipated to continue. The difference is significant: According to the U.S. Census Bureau, in 2014, e-commerce grew at a rate of 14 percent versus only 2 percent for traditional retail outlets.1
This continuing growth is making it challenging for retailers to effectively manage their supply chains to profitably fulfill orders. Specifically, the increase in e-commerce transactions is forcing them to manage smaller, more frequent orders, thereby shifting the focus of retail distribution centers from pallet picking for store replenishment to single-item picking for orders shipped directly to a customer's home. This effect is compounded by the rising expectations of consumers who want their orders delivered quickly, which often requires retailers to do more work in less time. To help them meet these and other challenges associated with fulfilling e-commerce orders, retailers are adopting a variety of strategies and technologies.
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[Figure 1] Fulfillment methods used by leading retailersEnlarge this image
Store-based fulfillment
One way many retailers are beginning to address these challenges is by fulfilling a subset of orders through their stores. Deloitte recently surveyed over 60 leading retailers to determine which methods they are using to fill e-commerce orders. The results, outlined in the report Retail Omni-Channel Survey, 2015 and detailed in Figure 1, show that a significant number of retailers either already offer or plan to offer consumer-direct fulfillment methods through their stores, including "pickup in store" (94 percent), "ship to store for pickup" (91 percent), and "ship from store" (82 percent).
Retailers are realizing significant benefits from these store-based fulfillment techniques. For example, by leveraging inventory across the enterprise, they may be in a position to improve margins and revenue. This allows them, for instance, to fulfill online orders using inventory that would otherwise be marked down, and thus reduce the impact of an imperfect demand forecast. In the case of constrained inventory, sales associates in the store are able to "save the sale" by tapping into inventory in other stores and having product shipped directly to customers.
Another potential benefit of store-based fulfillment is the additional capacity that brick-and-mortar stores provide. Many retailers' distribution centers are operating at maximum capacity due to large volumes of e-commerce orders, especially during peak seasons. By leveraging their stores as storage and delivery locations, some retailers have been able to defer investing capital in building additional distribution centers.
Finally, because stores may be located closer to the customer than distribution centers, store fulfillment may allow faster order-to-delivery times. Deloitte's survey, for example, found that the average time to fulfill an e-commerce order from order placement to customer delivery through a store was three and a half days versus four days through a distribution center. Delivery speed is a critical factor in online purchasing decisions, and customers increasingly are willing to pay more for premium fulfillment services such as same-day delivery. The quicker delivery times that store-based fulfillment can offer enables retailers to compete based on time without having to pay for expedited shipping services.
Capacity growth and delivery alternatives
In many respects, the continued growth of e-commerce is likely to depend on goods consistently arriving on consumers' doorsteps on time and at the right price. That may partly explain why the two largest national parcel delivery companies still account for the majority of the volume of e-commerce deliveries: They have a reputation for reliability, and there is a concern among shippers that diversification of the carriers they use would negatively affect their negotiated volume discounts. In response, these two carriers are investing heavily in keeping up with demand. One of these companies alone spent over US $1 billion in 2014 to expand its ground capability, much of that intended to meet e-commerce demand.
At the same time, customers' expectations that shipping charges for e-commerce orders should be minimal to nonexistent have driven many top retailers to offer some variation on "free shipping." But increases in shipping costs due to growing parcel volumes coupled with the largest parcel carriers' new dimensional weight freight-pricing formulas are causing these companies to explore alternative delivery options. In particular, many retailers are looking at using regional players for certain deliveries rather than simply defaulting to the traditional big carriers. Package consolidators, which utilize their own network and then hand off packages to the U.S. Postal Service for last-mile deliveries, are also filling the gap. The national parcel carriers' reliability advantage is also shrinking as tracking software becomes more pervasive and packages are scanned more times as they go through the shipping process.
Finally, some retailers are beginning to shift from a common carrier model to a hybrid model that includes a private fleet component. In a highly publicized move, one large online retailer took the step of launching its own fleet in selected cities. If this model is seen as working effectively, many other e-commerce retailers may follow suit. This trend is supported by findings from Deloitte's Retail Omni-channel Survey, which show that 30 percent of retailers already employ some form of owned fleet, with an additional 12 percent planning to add this capability in the next two years.
Technology implications
In order to effectively capitalize on these trends, retailers are investing in new capabilities, many of them based on technologies that are designed to improve how supply chain data are collected, analyzed, and shared within and beyond the enterprise. Here are four that are emerging as "building blocks" that enable effective management of e-commerce logistics and distribution:
Item-level radio frequency identification (RFID). It is inherently more difficult to manage inventory accuracy at stores than at distribution centers. Still, when retailers accept an online order, they need to be confident that the merchandise will be available in the designated store for pickup or to ship from the store to the customer. This is important because retailers want to avoid the expense associated with having to send split shipments, which result when, due to inventory inaccuracies, an item that is supposed to comprise part of a multi-item order cannot be located at the intended shipping or pickup location. To help solve this problem and better track inventory within the store, many retailers are starting to implement item-level RFID, especially for categories like shoes where inventory is commonly split between the front of the store and the backroom.
Collaborative inventory planning. Fulfilling orders from stores adds complexity to retailers' historical challenge of having the right product in the right store at the right time. Direct-to-store and especially direct-to-customer drop-ship deliveries, which enable retailers to offer a broader range of merchandise, have become increasingly beneficial. To help manage these activities, many retailers have started jointly planning inventory deployments with key vendors. They are able to do this by using collaborative inventory planning platforms that give all parties real-time or near real-time access to planning information, such as current inventory levels, expected demand, and expected shipments.
Distributed order management. To leverage inventory and capacity, retailers need a system that has visibility to inventory across the enterprise as well as to orders from multiple selling channels. Distributed order management (DOM) solutions can provide intelligent sourcing engines to determine the best fulfillment location for an order based on a broad set of parameters, including inventory availability, capacity, and potential margin. As the number of fulfillment points grows, configurable business rules are required to prioritize inventory and determine how those orders should be fulfilled while taking into account customer promise date, order type, and margin targets.
Transportation management system (TMS) integration. With shipping costs often accounting for one of the top three expenses for most e-commerce retailers, the ability to leverage shipping decisions across the organization, including from stores, will likely have a direct impact on the bottom line. To be most effective, transportation management systems must be integrated with order management capabilities to ensure that both inventory and transportation costs are considered together when making fulfillment decisions. Additionally, these systems should potentially enhance the ability to provide proof of delivery and better tracking information corresponding with the product shipped from the store.
Adapt now to store-based fulfillment
From a supply chain perspective, one of the most important trends in e-commerce today is the shift toward store-based fulfillment. While this shift often provides many advantages for retailers that sell online, including lower inventory requirements, lower costs, and better customer service, store-based fulfillment is complex to execute. For many retailers it is resulting in a significant business transformation—affecting everything from how they physically ship products to the technology required to manage order fulfillment processes.
These changes are drastic and take time to fully implement. Retailers that adapt to this trend now will likely be in a better position to profitably serve their online and in-store customers while remaining relevant in a fast-changing, competitive retail environment.
Artificial intelligence (AI) tools can help users build “smart and responsive supply chains” by increasing workforce productivity, expanding visibility, accelerating processes, and prioritizing the next best action to drive results, according to business software vendor Oracle.
To help reach that goal, the Texas company last week released software upgrades including user experience (UX) enhancements to its Oracle Fusion Cloud Supply Chain & Manufacturing (SCM) suite.
“Organizations are under pressure to create efficient and resilient supply chains that can quickly adapt to economic conditions, control costs, and protect margins,” Chris Leone, executive vice president, Applications Development, Oracle, said in a release. “The latest enhancements to Oracle Cloud SCM help customers create a smarter, more responsive supply chain by enabling them to optimize planning and execution and improve the speed and accuracy of processes.”
According to Oracle, specific upgrades feature changes to its:
Production Supervisor Workbench, which helps organizations improve manufacturing performance by providing real-time insight into work orders and generative AI-powered shift reporting.
Maintenance Supervisor Workbench, which helps organizations increase productivity and reduce asset downtime by resolving maintenance issues faster.
Order Management Enhancements, which help organizations increase operational performance by enabling users to quickly create and find orders, take actions, and engage customers.
Product Lifecycle Management (PLM) Enhancements, which help organizations accelerate product development and go-to-market by enabling users to quickly find items and configure critical objects and navigation paths to meet business-critical priorities.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
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Supply chain managers at consumer goods manufacturing companies are tasked with meeting mandates from large retailers to implement item-level RFID.
Supply chain managers at consumer goods manufacturing companies are tasked with meeting mandates from large retailers to implement item-level RFID. Initially these requirements applied primarily to apparel manufacturers and brands. Now, realizing the fruits of this first RFID wave, retailers are turning to suppliers to tag more merchandise.
This is one more priority for supply chain leaders, who suddenly have RFID added to their to-do list. How to integrate tagging into automated production lines? How to ensure each tag functions properly after goods are packed, shipped, and shelved? Where to position the RFID tag on the product? All are important questions to be answered in order to implement item-level RFID. The clock is ticking on retail mandates.
Different products, new RFID considerations
Hangtags, the primary form of apparel product identification, present a relatively easy way to attach an RFID tag. Pressure-sensitive labels likewise can carry an RFID inlay. The inlay, consisting of a microchip and antenna, holds the product’s unique identifying information. This tiny device is activated when the RFID reader passes by it. For nonapparel products, in many cases, there is no way to attach a hangtag. Therefore, a pressure-sensitive RFID label often must be put directly on the product. If the product is packaged in a box, the RFID carrier can be attached to or placed inside the box. Either way involves the use of just the right solutions, including the adhesive, shape, dimension, and placement. Moreover, there must be an efficient way to attach the labels to products. This requires process engineering and sometimes capital investment to integrate RFID labeling into highly automated manufacturing lines.
Metals, liquids, and low-surface-energy (LSE) materials pose hurdles for RFID item tagging. Tag and label inlays cannot be read properly through metals and liquids, and the pressure-sensitive labels do not always stick well to product surfaces containing silicone, vinyl, polyethylene, and polystyrene. Very small items are also difficult to tag. Metal paint cans, caulk or paste tubes, lipsticks, and reusable water bottles are just a few products that present RFID tagging challenges.
In other cases, it is not so much the product itself that hinders readability but rather the shipping method. For example, it is relatively straightforward to apply an RFID tag or label to a bag of fertilizer. But the fertilizer bags might be stacked 60 deep on a pallet. The pressure is too much. It damages the inlay, killing the tag’s readability. So, RFID tags, which were perfectly fine coming off the production line, are now dead from the stacking pressure.
Solutions and testing
RFID tagging and labeling programs take time to get right. While some manufacturers can set up a successful process in a few weeks or months, for others it can take six months, nine months, a year or longer. Variables influencing implementation time include capital equipment investments, the product types (for example, are the materials, shapes, or surfaces potentially problematic?), label supplier capacity and capabilities, and third-party testing rounds.
The good news is that best practices are being refined every day to incorporate RFID on difficult-to-tag products. A case in point is finding answers to RFID-inlay readability issues on metal or liquid products. There are ways to attach an RFID label to the product’s lid or cap.
The University of Auburn RFID Lab is the de facto U.S. authority on all things retail RFID. Through its ARC program, the lab works with end users to make sure RFID tags meet or exceed their required performance and quality levels. Walmart, for example, requires its suppliers to source from Auburn RFID Lab’s ARC program-approved inlay companies. “ARC is a test system and database that stores comprehensive performance data of in-development and market available RFID tags,” according to the lab’s website. “ARC has been working with end users to translate RFID use cases into specific levels of performance in the ARC test environment.”
High-quality RFID tags and labels are at the heart of it all. The following are some considerations to keep in mind when choosing an RFID tag and label provider:
What are their quality control and testing capabilities? Can they confirm that every tag is readable? Do they have software to verify that UPC and RFID information match up? Do they possess familiarity with Auburn’s RFID Lab approval process?
What is their capacity? How many thousands or millions of inlays do they create per day? Are there minimum order quantities?
What are their order management and shipping processes like? What is their delivery speed? How easy are they to order from? Where are their print facilities located?
Do they offer customization? Do they possess specialized equipment? Can they die cut irregular shapes, including very small dimensions? Do they possess adhesive expertise and application equipment? Do they have solutions for metal, liquid, and other difficult-to-tag items? Are they able to configure label rolls to work on automatic label dispensers?
It takes trial and error to implement RFID item tagging for nonapparel products. Effective, compliant programs do not manifest overnight. Collaboration with experienced label providers and the Auburn RFID Lab will help manufacturers overcome even the most complex RFID tagging challenges. There will be a roadmap to success, and the results in the form of better inventory visibility, swifter sell-through, and stronger sales will be well worth it.
Economic activity in the logistics industry expanded in August, though growth slowed slightly from July, according to the most recent Logistics Manager’s Index report (LMI), released this week.
The August LMI registered 56.4, down from July’s reading of 56.6 but consistent with readings over the past four months. The August reading represents nine straight months of growth across the logistics industry.
The LMI is a monthly gauge of economic activity across warehousing, transportation, and logistics markets. An LMI above 50 indicates expansion, and a reading below 50 indicates contraction.
Inventory levels saw a marked change in August, increasing more than six points compared to July and breaking a three-month streak of contraction. The LMI researchers said this suggests that after running inventories down, companies are now building them back up in anticipation of fourth-quarter demand. It also represents a return to more typical growth patterns following the accelerated demand for logistics services during the Covid-19 pandemic and the lows of the recent freight recession.
“This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID,” the researchers wrote in the monthly LMI report, published Tuesday, adding that the buildup is somewhat tempered by increases in warehousing capacity and transportation capacity.
The LMI report is based on a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).