FulÞllment Ð - Ecommerce & Omnichannel Consultants · on seamless, fast and affordable...

Fulfillment–

The explosive growth of digital commerce has put a premium on seamless, fast and affordable fulfillment options. Today’s omnichannel and global world brings additional layers of operational and logistical complexities that must be considered as part of overall fulfillment strategies.

Fulfillment | 115 © 2019

BURNING QUESTIONS

• Should I outsource fulfillment?

• Is it worth it to offer free shipping and free returns?

• What fulfillment opportunities do I have within my existing infrastructure which are not yet leveraged?

Fulfillment is an essential part of digital commerce. The process involves everything from receiving and storing merchandise, to adding value to the product (i.e. monograming, filling an order accurately, shipping in a timely manner, etc.).

Many retailers choose to outsource fulfillment because it takes up valuable time and resources while requiring a significant capital investment. Partnering with a fulfillment partner allows organizations to concentrate on products and marketing. Fierce competition has pushed fulfillment centers to a level of automation and precision that can (and should) work like clockwork. The right software can provide 24/7 access and real-time reporting. Inventory levels can be easily tracked, and needs forecasted including metrics to determine what is working and what is not.

TOOLS AND TRICKS OF THE TRADE

Warehouse Management

The Warehouse Management System (WMS) supports the day-to-day operations in a warehouse. WMS solutions enable centralized management of tasks, such as tracking inventory levels and stock locations.

OUR TAKE: Focus on what you do best

Many retailers initially outsource fulfillment due to the capital investment required, labor costs, physical facility,

lack of expertise, and the required focus on their core competency – the business itself.

DID YOU KNOW?

Nearly 70 percent of Target’s online

orders were fulfilled in stores during

the 2017 holiday season.71

FULFILLMENT TOOLS

1. Warehouse Management System (WMS)

2. Shipping

3. Logistics

4. Cross-border Shipping

5. Returns Management


OUR TAKE: Consider the cloud

As is the case with most digital commerce technologies, cloud-based warehouse management systems are

gaining in popularity, mainly due to lower capital investment, quicker implementation, subscription models, and

automatic upgrades.

Workflow planning is key when implementing a Warehouse Management System. Inbound workflows start with receiving the products at the warehouse and how they are “put away”. Outbound workflows start with the fulfillment of the product when it is “picked.” The WMS software should be able to be optimized to a customer’s current workflow process.

Shipping

Free shipping is for many shoppers a top consideration when placing orders, even if it results in slower delivery. To stay competitive, retailers must focus on making it easy, fast, and inexpensive (or free) for customers to receive their purchases. One study revealed that for 83 percent of US shoppers free shipping was the most important factor when ordering online, and over half indicated that they had not completed a purchase because of delivery costs.73

Retailers have taken note, and as a result, an increasing amount offer free shipping. To counter the costs of offering free shipping, some retailers introduce conditions, such as shipping thresholds (spend $XX for free shipping) or offer it as an incentive to shoppers in exchange for providing valuable information for future marketing purposes. It is important to remember that “Free” shipping is essentially a tightly managed shipping strategy, with strong shipper relationships, smart SLAs, and appropriate shopping incentives.

DID YOU KNOW?

59 percent of retailers in the FitForCommerce

Omnichannel Retail Index offer free shipping if shoppers

make a minimum purchase, and only 13 percent include

threshold messaging on product detail pages (e.g. “Spend

$12 more to get free shipping”).74

DID YOU KNOW?

61 percent of retailers use a warehouse

management system in their warehousing

and distribution environments.72


Instant Gratification

In addition to free shipping, shoppers increasingly expect one-day or even same-day delivery options.

Seventy-three percent of retailers in the FitForCommerce Omnichannel Retail Index offer Next Day Delivery options, signaling that it is no longer a competitive differentiator but rather a must-have. Same-Day Delivery is slowly gaining traction, led by Amazon, which significantly raised the bar by offering the service to Prime members. Same-day delivery has now become the differentiator that free shipping once was, however retailers must carefully evaluate if the demand justifies the required logistical and fulfillment investments.

With the increased demand for free shipping, free returns, and one-day delivery, retailers must carefully choose a shipper that can handle such demands while offering the most competitive pricing. To save costs and ensure quick delivery, it is also imperative to optimize distribution workflows to ensure that shipments originate from the distribution center closest to the customer.

OUR TAKE: Free shipping is a given

In today’s marketplace, it is simply too easy for your customers to find competitive products elsewhere. It’s

important to understand your competitive landscape and the impact of free shipping on the demographic you

serve. Don’t risk losing a sale because you haven’t joined the majority of retailers that offer free shipping.

DID YOU KNOW?

82 percent of US households have an Amazon Prime

membership.75

DID YOU KNOW?

• 24 percent of shoppers cancelled an order because

of slow delivery estimates

• 54 percent abandoned online shopping baskets

because of delivery costs76


Anytime, Anywhere Fulfillment

As an increasing number of shoppers demand more convenient and faster shopping and delivery options, it is imperative for retailers to adopt new omnichannel fulfillment methods including Buy-Online/Pick-Up-In-Store, (BOPIS), ship-from-store, and buy online/return-in-store, to name a few. An increasing number of retailers, including Ann Taylor, Macy’s, Ace Hardware, Nordstrom, Home Depot and Walgreen’s offer buy online/pickup in-store options.

The upside to turning physical stores into distribution and delivery hubs is the ability to lower in-stock inventory, decrease shipping costs, and offer customers faster shipping as well as the option to pick up their orders for free.

SEEN IN THE FIELD

Reviewing order cancellation rates and related

metrics can reveal opportunities for fulfillment

improvements. During a recent review of a major

retailer’s call center data on fulfillment issues, the

company uncovered that over 50 percent of the calls

were related to order status, order cancellations,

shipping and delivery issues. A deeper dive into the

data, revealed opportunities to improve fulfillment

by increasing communication and more accurately

predicting shipping and delivery dates/times. In

addition, better management of the pick/pack/

ship process revealed opportunities to improve

co-packing to stores, allowing the individual store to

take advantage of bulk shipping rates.

Do you really wish tocancel your order?

YES NO

OUR TAKE: Consider using multiple carriers and algorithms to identify lowest cost shipping

Many retailers only ship via one carrier, as it is easiest to manage. Since each carrier calculates costs differently,

using multiple carriers and selecting the carrier and method to use for each order can help save shipping costs

and reduce transit times for customers. Having multiple shippers may help you offer shipping upgrades with little

additional cost. Leveraging availability and location of inventory can also minimize expenses and maximize return

by minimizing the cost of the last mile.


Before embracing this strategy, retailers should carefully weigh the pros and cons. For instance, in a warehouse or distribution center, retailers can reduce labor costs by automating tasks such as order picking. Automation is harder to do in a store location, and although shipping costs may decrease, labor costs will most likely rise. In addition, most retail stores were not built with order fulfillment in mind and may therefore not have the infrastructure in place to support ship-from-store practices.

Achieving this goal requires solid planning and mapping stores to the online warehouse, which is only possible when leveraging fully integrated systems that offer cross-channel capabilities. Order Management technology can help companies make intelligent fulfillment decisions and orchestrate orders across channels to better serve customers, optimize the use of inventory, and reduce fulfillment costs for higher profits.

BENEFITS OF DISTRIBUTING FROM STORES:

• Free customer pickup

• Increase traffic to stores

• Faster product delivery

• Lower shipping costs

• Decrease in-stock inventory

Logistics

Breakthroughs in logistics and shipping technology have allowed for expedited delivery, higher efficiency, greater accuracy, and lower costs. Retailers and brands have made significant strides in reducing the transit time to deliver orders to customers. Delivery companies, such as DHL, UPS and FedEx, have expanded their fleets and added processing centers to meet the demand for ecommerce orders and reduced transit times. Amazon has even added a fleet of planes and delivery vehicles to supplement any voids left by UPS, FedEx, and the USPS and are working on new innovative ways to get products to customers faster, at lower costs.

SEEN IN THE FIELD

Target’s online sales jumped 42 percent in the first quarter of 2019. The company credits much of this

growth to its same-day services, such as drive up, buy online/pick up in-store and delivery via Shipt

(acquired by Target in 2017). The retailer offers in-store pickup in every one of its 1,851 locations and

drive-up at more than 1,250 of its stores. These digital-based same-day services were responsible for 25

percent of its overall sales growth in the first quarter.77


Shipping applications integrated into ecommerce and OMS solutions ensure shipping rates are optimized for package dimensions, location, and delivery commitments. Regional carriers, such as OnTrac, LaserShip and Pitt Ohio, have become important in digital commerce delivery by providing 7-day-a-week delivery to residential locations.

FedEx and UPS have made acquisitions of truck brokerage firms and logistics companies that will provide them with a way to streamline their fleets, reduce lost capital of trucks that are not at capacity, and take advantage of loading/offloading opportunities. As a result, the logistics industry will see substantial gains in ground transportation that will lead to faster overall delivery at higher levels of efficiency and lower costs. In addition to consolidation in the shipping and trucking industries, upstart services such as Lyft and Uber provide delivery flexibility. In some cases U-Haul vans and trucks not booked for traditional purposes are used to deliver products the last mile.

The subscription model continues to gain traction among shoppers, which is good news for retailers. Since logistics rely on predictability and timing, the subscription model leads to the decrease in supply chain friction. By having insight into how many orders need to be stored and shipped months in advance, shipping and warehouse companies are able to plan and prepare more efficiently.

Global Fulfillment

Ecommerce has opened the doors to the global market. The complexity and high costs of selling globally relate to fulfillment. Several of the major shipping and logistics providers have made acquisitions the past couple of years to bolster their capabilities for shipping small packages across borders, from the US to other parts of the world.

OUR TAKE: Don’t overlook order sourcing

A flexible order sourcing strategy can reduce logistics and distribution costs. Order sourcing is often set

up to be fulfilled by the closest geographic location. However, other factors, such as lead time, subsequent

orders, manufacturing costs, backlogs, availability, and reliability of transportation, can influence the best

source for an order.

EFFORT

RISK

Cross-bordershipping

Partiallylocalized

Fully localized

THE EXPANSION ROADMAP


There are different distribution approaches for expanding globally. They range from low risk/low reward to high risk/ high reward and include cross-border shipping, partially localized with third-party global logistics, and fully-localized operations and distribution. The most popular global strategy leverages a cross-border partner that aggregates packages in the US and sends them in bulk to various locations throughout the world.

Returns Management

While more and more online retailers offer free returns, the process can be cumbersome for consumers and expensive for retailers.

Most products that are purchased online, and need to be returned, end up being returned to retail stores if the retailer has a physical location that is convenient to the customer. Retailers tend to prefer this return method. In fact, 92 percent of retailers in the FitForCommerce Omnichannel Retail Index offer in-store returns.79 It allows them to put the returned item directly back on the shelf, and while the customer is in the store, try to sell them something else.

To better service customers, organizations should strive to make it as easy for customers to ship unwanted purchases back to the retailer. Even though offering free returns can cut into profits, retailers weigh the cost of making returns as painless as possible for the customer against potential lost sales due to customers feeling uneasy about buying online.

OUR TAKE: Crawl, walk, run

Develop a phased approach when expanding to overseas markets to assess demand, determine the best

market entry approach, and minimize risk.

DID YOU KNOW?

74 percent of retailers indexed in the FitForCommerce Omnichannel Retail Index offer international shipping.78

OUR TAKE: Outsource thoughtfully, keep your IT infrastructure strong

Invest wisely after thoroughly vetting international providers. As organizations bring on 3rd-party logistics

providers (3PLs), it often seems convenient to adopt the 3PL’s software and processes. Adapting to local

needs while retaining a highly integrated infrastructure is necessary for success.


Some organizations outsource returns processing to companies that specialize in taking back merchandise, and FedEx and UPS have both invested in return management. While not all retailers offer free returns due to costs, there are several new companies that aim to make returns easier, and at low cost to the retailer. Some offer physical return stations in high-traffic areas, such as malls, while other companies manage the entire process. Depending on an item’s condition, it might go back to the retailer to be sold again, returned to the vendor for a credit, sold to a liquidator or on a secondary market like eBay, recycled, or donated.81

SEEN IN THE FIELD

Nike Inc.’s new Nike Fit app feature aims to help shoppers find shoes that fit and, in doing so, reduce the

number of returns it has to process. Using the feature within the Nike app, a shopper can scan her foot using

her smartphone camera. Nike Fit scans and collects 13 data points that map the consumer’s foot and find the

right size, taking shoe style and fit into consideration.

DID YOU KNOW?

70 percent of online shoppers make an extra purchase

when returning an item to a brick-and-mortar store. Only

about 45 percent made an additional purchase when

processing a return online and shipping it themselves.80

OUR TAKE: Free returns are the new free shipping

Free return shipping has, basically, become the new competitive advantage that free shipping once was.

Carefully weigh the benefits and costs associated with a ‘free returns’ policy – free returns may eat into your

profits. But, can you afford losing the sale? Do the math.


REASONS THAT CONSUMERS RETURN PRODUCTS:

OUR TAKE: Returned products are a hassle for you and for your customer

Take steps to prevent returns – by improving services, photography and images, managing the quality of the

fulfillment center to prevent damage to goods while the inventory is still within your control.

SPOTLIGHT ON DATA

To develop a successful fulfillment strategy or assess if an existing fulfillment strategy is working, it is important to first understand the underlying data.

Retailers should look at a wide range of data categories when planning, executing and evaluating their fulfillment approach, including customer, operational and warehouse metrics. More specifically, the data that should be on every retailer’s radar includes:

• On-time Shipping - the ratio of orders that were shipped on or before the requested shipping date versus the total number of orders.

• Order Cycle Time - the average length of time from when a customer places an order until they receive it.

• Internal Order Cycle Time - the average length of time from when an order is taken until it is shipped.

• Perfect Order Percentage - the percentage of orders that move through the fulfillment process with no errors or deviations.

• Order Picking Accuracy - the accuracy of the order-picking process.

Retailers that systematically capture and analyze these metrics, can leverage the insights to significantly optimize fulfillment operations, reduce costs and increase customer satisfaction.

OUR TAKE: AI will become the new standard

Artificial intelligence is starting to have a real impact on many areas of digital commerce and will likely,

in coming years, significantly impact logistical efficiencies by automating processes and enabling more

accurate predictive forecasting.

• 20 percent of products are damaged

• 22 percent of products look different than presented on site

• 23 percent involve a wrong product received

• 35 percent are other reasons, such as the fit of apparel items82

THIS REPORT IS BROUGHT TO YOU BY–

OUR MEDIA SPONSOR–

ChannelAdvisor has been on the front lines of e-commerce since 2001, helping retailers and brands connect with customers, optimize operations and grow sales channels. We’ve grown from a small company in a young industry to an industry leader at the forefront of a global revolution — with thousands of clients and billions of dollars in transactional revenue flowing through our platform every year. For more information, visit channeladvisor.com

Adweek is the leading source of news and insight serving the brand marketing ecosystem. First published in 1979, Adweek’s award-winning coverage reaches an engaged audience of more than 6 million professionals across platforms including print, digital, events, podcasts, newsletters, social media and mobile apps. As a touchstone of the advertising and marketing community, Adweek is an unparalleled resource for leaders across multiple industries who rely on its content to help them do their job better.

Adweek is part of the Beringer Capital portfolio that also includes BrandShop, a leading full-service partner that works with major consumer brands to employ digital commerce to increase sales, gain valuable consumer insight and create the type of end-to-end experiences that build loyalty and keep brands ahead of the competition. Learn more at adweek.com and brandshop.com

http://channeladvisor.com

http://www.adweek.com

http://www.brandshop.com

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FitForCommerce is a leading boutique consultancy that helps hundreds of online and multichannel brands and retailers make informed digital, ecommerce and omnichannel retail investment decisions. Leveraging years of experience, state-of-the-art tools, strategic diligence and tactical planning, FitForCommerce helps brands and retailers define strategies for growth, improve the customer experience, plan and hire the right organization, and find "best fit" technology solutions. | www.fitforcommerce.com

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