Multitasking DCs deliver the goods for omnichannel retailers
Three-quarters of retailers fulfill orders from multiple channels at a single distribution center, according to an annual omnichannel fulfillment survey.
Once upon a time, the retail industry was a safe, predictable way to make a living. Businesses simply had to take delivery of inventory, stock the shelves, and greet eager customers at the door.
Sign on for a retail job in 2016, however, and you'd better buckle up for a wild ride. This industry is one of the fastest-changing sectors of the U.S. economy, with companies hustling to adapt to trends like drone delivery, virtual reality, and mobile commerce. One change looms over all the others, however: the rush to join the omnichannel revolution.
To get a better understanding of how companies are meeting the challenges of omnichannel commerce, Supply Chain Quarterly's sister publication, DC Velocity, and the research firm ARC Advisory Group teamed up to conduct a fourth annual survey on retail fulfillment practices. Respondents answered 37 questions on their approach to meeting current challenges in omnichannel commerce and their plans for the future.
The results showed that in spite of an array of new logistics strategies and processes, most retailers have simply bolted their new omnichannel operations onto existing infrastructure, fulfilling multiple order streams in the same distribution centers (DCs) where they handle traditional store fulfillment. The survey statistics that follow tell the story of why, how, and where businesses are performing omnichannel fulfillment.
Preserving market share
When it comes to why companies embark on the omnichannel journey, the answer seems to be all about preserving their slice of the market. Asked for the top three reasons they were participating in omnichannel commerce or intended to do so, respondents said they wanted to boost sales, increase market share, and improve customer loyalty. Those responses finished far above cost-focused alternatives such as increasing margins, improving ability to rebalance inventory, decreasing markdowns, or reducing capital expenditures associated with building a new e-fulfillment warehouse.
We asked respondents which omnichannel capabilities they currently support, and they ranked the five options as follows:
Order at store, fulfill from warehouse (67 percent)
Return to store, even when goods are ordered online (65 percent)
Inventory rebalancing, shipping excess inventory from one store to another (54 percent)
Order at store, fulfill from another store (42 percent)
Parcel return, even when goods were bought in a store (32 percent)
As for how respondents fulfill online orders, the answers were all over the map: 75 percent said orders were fulfilled through a traditional DC that also handles e-commerce, 44 percent said orders were filled from a store, 38 percent said items were shipped directly from a manufacturer or supplier, and 32 percent use an e-commerce (Web-only) DC. Respondents were allowed to select more than one response, and as the percentages indicate, a number of those companies are using multiple methods. (See Figure 1.)
With three-quarters of retailers fulfilling orders from multiple channels in a single facility, that approach is clearly a foundation of omnichannel practice. Seventy-seven percent of respondents to this year's survey said they handled e-commerce fulfillment and traditional fulfillment at the same facility, an increase from the 69 percent who answered the same way in last year's survey.
Retailers are taking orders from a diverse range of sources. In fact, when it comes to ringing up sales, it appears all doors are open: 86 percent said they took orders online (including mobile), 77 percent said from brick-and-mortar stores, and 42 percent said from call centers and catalogs. (Totals came to more than 100 percent because most businesses support multiple channels.)
Although many retailers are fulfilling orders from multiple channels in a single building, the survey also revealed that there is plenty of room for them to merge those operations more completely. When asked whether their e-fulfillment operations were segregated from traditional fulfillment, 59 percent of respondents said yes. Those that do so indicated that they use various methods to segregate inventory, including physical location within the building, managing inventory availability, and labor management.
TOOLS OF THE TRADE
Within the warehouse, retailers are using a range of sophisticated software tools to manage their operations. Respondents were asked what technologies they used to support their omnichannel initiatives; the top five answers were: warehouse management systems (WMS), demand management software, distributed order management (DOM) systems (which offer a common view of systemwide inventory), total-landed-cost analytics software, and inventory optimization software. (See Figure 2.)
Retailers are investing in those tools because they expect e-commerce revenues will continue to rise. As for where that fulfillment will take place, the situation appears to be in flux. Asked how they see e-commerce fulfillment locations changing over the next five years, 32 percent of respondents said they expected to see a rise in e-commerce orders fulfilled in traditional DCs, compared with 28 percent who expect to see more fulfillment taking place in stores and 19 percent who said Web-only DCs.
DELIVERING THE GOODS
How does all this merchandise reach consumers' doorsteps? The omnichannel approach offers a dazzling array of options, from delivery drones to the do-it-yourself alternative: pick up in store.
The survey asked how retailers handled "last mile" deliveries and found that in practice, most have stuck with tried-and-true methods. The most common answer was courier delivery service at 43 percent, followed by a third-party logistics (3PL) partner at 23 percent, and arranging for items to be drop-shipped by partners at 20 percent. (See Figure 3.)
Some retailers are also experimenting with more creative alternatives, including deliveries made by store staff at 5 percent, drones at 2 percent, and crowdsourced delivery services at 1 percent. And the future may hold even greater change. When asked which delivery methods they do not currently use but plan to use in the future, respondents' top three replies were crowdsourced delivery service with 8 percent, drop-shipped by partners also with 8 percent, and 3PL delivery partner at 7 percent.
Despite the rapid rise of omnichannel commerce, e-commerce revenue has a long way to go before it passes sales from physical stores. When asked what percentage of their direct retail revenue currently came from each channel, respondents said 67 percent came from brick-and-mortar locations, 24 percent from online sites (including mobile), and 9 percent from call center and catalog sales.
Overall, the survey indicated that omnichannel fulfillment remains in a state of flux. As retailers scramble to adjust to a shifting marketplace, they continue to experiment with a wide variety of fulfillment practices and technologies.
About the study
This year's omnichannel study was conducted by ARC Advisory Group in conjunction with Supply Chain Quarterly's sister publication, DC Velocity. ARC analyst Chris Cunnane oversaw the research and compiled the results. The 2016 study builds on research done last year in this area.
The study explored the details of distribution center operations to support omnichannel initiatives as well as how companies are handling the last-mile dilemma. The findings reported here are based on 109 responses. Respondents included logistics professionals from a variety of industries, who submitted answers between May and August of 2016.
As for the demographic breakdown, the majority of respondents (63 percent) sold goods through a combination of direct and indirect sales channels. Another 27 percent sold merchandise through direct retail only, and the remaining 10 percent through indirect sales channels only.
A report containing a more detailed examination of the omnichannel survey results is available from ARC for a fee.
Perfect Planner, a cloud-based platform designed to streamline the material planning and replenishment process, and Flying Ship, an unmanned ground-effect maritime cargo craft, took home the second annual “3 V’s of Supply Chain Innovation Awards” tonight at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tennessee.
This awards contest is hosted by Supply Chain Xchange and 3 V’s framework creator and supply chain visionary Art Mesher. It serves to recognize those companies that have created technology or automation solutions that exemplify Mesher’s 3 V’s framework of “embracing variability, harnessing visibility, and competing with velocity.”
Business Innovation Award
Art Mesher, creator of the 3 V's Framework (left) and Rick Blasgen (right), former CSCMP President and CEO, present Tom Biel (center), CEO of Perfect Planner, with the 3 V's Business Innovation Award.
Susan Lacefield
Perfect Planner won the 3 V’s Business Innovation Award for its software solution that uses artificial intelligence to automatically generates daily "to-do lists" for material planners/buyers. All the “to-do’s” are ranked in order of criticality. The solution also uses advanced analytics to understand and address inventory shortages and surpluses.
The two other finalists for the Business Innovation Award were AutoScheduler AI, a predictive warehouse optimization platform, and Davinci Micro Fulfillment, which provides a micro fulfillment service out of a network for small distribution centers across the United States.
Best Overall Startup Award
Flying Ship was awarded the Best Overall Startup Award. The company has designed an unmanned flying ground-effect maritime vessel. Although the Flying Ship looks like a small aircraft or large drone, it is classified as a maritime vessel because it does not leave the air cushion over the waves, similar to a hovercraft.
According to Flying Ship CEO Bill Peterson, the craft is 75% less expensive than a traditional aircraft and “faster than anything on water.” The prototype has a wingspan of 6.5 feet and can be scaled up to deliver 10,000 pounds of freight to “anywhere with a coastline” using autonomous systems.
The other startup finalist included Arkestro, a predictive procurement orchestration solution, and Provision AI, an optimized replenishment and transportation scheduling solution.
On Monday morning at CSCMP’s 2024 EDGE Conference, Darcy MacClaren, chief revenue office, digital supply chain, at technology company SAP, lead a lively discussion with a panel of women supply chain leaders on how to recruit, retain, and empower future supply chain leaders.
Panelists included Cindy Cochovity, executive vice president of strategic development at software company FreightPath; Heather Dohrn, chief commercial officer at trucking company Dohrn Transfer Company; Jennifer Kobus, senior vice president of supply chain planning and operations at retailer Ulta Beauty; Ammie McAsey, senior vice president of customer distribution experience at pharmaceutical company McKesson; and Michelle Williams, a supply chain teacher at Clyde C. Miller Career Academy, a high school in St. Louis, Missouri.
Touching on more than just the challenges they faced in supply chain as women, the panelists spoke about creating “destination" companies—places where top talent can work, grow, and thrive. According to MacClaren, younger workers “want more than just competitive compensation—they want to feel appreciated, involved, and inspired. They seek a workplace with a strong, inclusive culture that aligns with their values, offers meaningful work, and provides an opportunity for growth and development.”
The panel covered an array of topics including how to inspire the next generation of talent, strategies for engaging and coaching young professionals, how to attract diversity, and how to address change management. In addition, they shared personal experiences that helped them achieve their leadership roles and ended with some key takeaways for the audience members.
Here’s a snapshot of action items from the discussion:
1. Ensure a diverse slate of candidates for open positions.
2. Leverage internal and external networks to find diverse candidates.
3. Nurture and mentor new hires to help them thrive.
4. Remain authentic, vulnerable, and transparent as a leader.
5. Advocate for yourself and your career progression, not just for your team.
6. Seek out mentors and advocates, especially other women in leadership positions.
7. Open doors and bring others in, regardless of your own position.
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Supply Chain Xchange Executive Editor Susan Lacefield moderates a panel discussion with Supply Chain Xchange's Outstanding Women in Supply Chain Award Winners (from left to right) Annette Danek-Akey, Sherry Harriman, Leslie O'Regan, and Ammie McAsey.
Supply Chain Xchange recognized four women who have made significant contributions to the supply chain management profession today with its second annual Outstanding Women in Supply Chain Award. The award winners include Annette Danek-Akey, Chief Supply Chain Officer at Barnes & Noble; Sherry Harriman, Senior Vice President of Logistics and Supply Chain for Academy Sports + Outdoors; Leslie O’Regan, Director of Product Management for DC Systems & 3PLs at American Eagle Outfitters; and Ammie McAsey, Senior Vice President of Customer Distribution Experience for McKesson’s U.S. Pharmaceutical division.
Throughout their careers, these four supply chain executive have demonstrated strategic thinking, innovative problem solving, and effective leadership as well as a commitment to giving back to the profession.
The awards were presented at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tenn. In addition to the awards presentation, the leaders discussed their leadership philosophies and career path during a panel discussion at the EDGE conference.
The surge of “nearshoring” supply chains from China to Mexico offers obvious benefits in cost, geography, and shipping time, as long as U.S. companies are realistic about smoothing out the challenges of the burgeoning trend, according to a panel today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Those challenges span a list including: developing infrastructure, weak security, manual processes, and shifting regulations, speakers said in a session titled “Nearshoring: Transforming Surface Transportation in the U.S.”
For example, a recent Mexican government rail expansion added lines to tourist destinations in Cancun instead of freight capacity in the Southwest, said panelist Edward Habe, Vice President of Mexico Sales, for Averitt. Truckload cargo inspections may rely on a single person looking at paper filings on the border, instead of a 24/7 online system, said Bob McCloskey, Director for Logistics and Distribution at Clarios, LLC. And business partners inside Mexico often have undisclosed tier-two, tier-three, and tier-four relationships that are difficult to track from the U.S., said Beth Kussatz, Manager of Northern American Network Design & Implementation, Deere & Co.
Still, dedicated companies can work with Mexican authorities, regulators, and providers to overcome those bottlenecks with clever solutions, the panelists agreed. “Don’t be afraid,” Habe said. “It just makes sense in today’s world, the local regionalization of manufacturing. It’s in our interest that this works.”
A quick reaction in the first 24 hours is critical for keeping your business running after a cyberattack, according to Estes Express Lines, the less than truckload (LTL) carrier whose computer systems were struck by hackers in October, 2023.
Immediately after discovering the breach, the company cut off their internet, called in a third-party information technology (IT) support team, and then used their only remaining tools—employees’ personal email and phone contacts—to start reaching out to their shipper clients. The message on Day One: even though the company was reduced to running the business with paper and pencil instead of computers, they were still picking up loads on time with trucks.
“Customers never want to hear bad news, but they really don’t want to hear bad news from someone other than you,” the company’s president and COO, Webb Estes, said in a session today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
After five or six painful days, Estes transitioned from paper back to computers. But they continued sending clients daily video updates from their president, and putting their chief information officer on conference calls to answer specific questions.
Although lawyers had advised them not to be so open, the strategy worked. It took 19 days to get all computer systems running again, but at the end of the first month they had returned to 85% of their original client list, and now have 99% back, Estes said in the session called “Hackers are Always Probing: Cybersecurity Recovery and Prevention Lessons Learned.”