During the current and sometimes seemingly endless recession, many brick and mortar stores have struggled. Online businesses, on the other hand, have continued to expand and been a bright spot, if not the only one. According to Datamonitor’s Global Online Retail 2011, the global online retail sector had total revenues of $434.6 billion (USD) in 2010, representing a compound annual growth rate (CAGR) of 16.3% for 2006 to 2010. In the year 2010 the growth rate was 17.8%.
Signs of Growth
E-commerce growth also is spanning all retail sectors which is more good news. Datamonitor reports that electronics sales proved the most lucrative for the global online retail market in 2010, with total revenues of $102.4 billion, equivalent to 23.6% of all online purchases.
Online sales of apparel, fashion accessories and footwear generated revenues of $66.1 billion worldwide in 2010, equating to 15.2% of total e-commerce revenues. Books, music and videos accounted for 14.1 % of global online sales. The remaining 47.1% of 2010 global online purchases include food products (grocery and beverage), health and beauty products (pharmacy, vitamins and cosmetics), hard goods (appliances, furniture, sporting goods and tools), and leisure and travel goods and services.
Representative of this rapid growth in the electronics sector are Internet retailers like Komplett ASA. In 2010, Scandinavia’s leading Internet computer products and consumer electronics retailer posted sales of more than $700 million (USD), while servicing 675,000 active online customers. Since 1996, the company has grown to host nine separate web shops, including those ranked as the first and second largest e-commerce sites in Scandinavia.
Strain On Supply Chain
Due to the rapid increase in online sales, many brick-and-mortar retailers are outgrowing the traditional supply chain infrastructure. The vast majority of the world’s consumer products are distributed to retail stores in bulk, and, in the past, the most efficient method for handling this merchandise was pallet movement and full case selection. Now, retailers must factor in split-case picking, item-level touches and multi-line item sortation to fulfill fluctuating volumes of online orders which frequently require delivery to consumers within 24 to 48 hours, in addition to scheduled weekly store deliveries of pallets and cases.
From the moment an online order is placed to when it is picked, packed and shipped, every step in the process must be handled efficiently, consistently and cost-effectively. In e-commerce, it is the distribution center that provides most of the customer experience. Simply delivering goods is no longer an adequate mission for the fulfillment center, and customer satisfaction must be a leading priority.
Of these expectations, consumer demand for free and fast delivery is among the greatest challenges supply chain managers are facing. Retailers must closely assess this area in order to remain competitive in the marketplace. An additional factor that should be considered is the threat of under-stocking, which can be influenced by unknown or seasonal demand. An online retailer does not want to find itself unable to meet demand and face loss of sales and goodwill.
Specific E-Commerce Challenges
When these consumer needs are compared to the challenges of distribution in an
e-commerce environment, there are significant obstacles for fulfillment. These challenges include:
- Large SKU counts with a long, slow-moving tail;
- High and unpredictable growth;
- High penalty for poor performance resulting in potential brand damage;
- Uncertain business terrain that demands flexible and adaptive solutions;
- Demand for real-time and accurate inventory visibility;
- Small number of orderlines per order;
- High returns from end customer; and
- Extreme peak season volumes.
As brick and mortar retailers integrate e-commerce and transform into multi-channel organizations, they increasingly seek to separate the inventory in their supply chains. The challenge with this process relates to having the right systems in place to dynamically process orders for e-commerce channels.
Within e-commerce, where unpredictability is a constant factor, flexibility in the supply chain becomes critical. Flexibility can be derived from implementing the right system, one that can support the fluidity that e-commerce cross-channel services require.
The New E-Commerce Supply Chain — Beyond Fulfillment 2.0
A stepped approach to e-commerce automation, especially where future demand is difficult to predict, is often the best route. With scalable software and infrastructure in place, retailers can build out automation as their e-commerce business grows. In essence, the automation can be targeted. Automation that addresses specific tasks, such as picking for fast- or slow-moving SKUs, can sometimes turn a better ROI than completely automating a full warehouse. The gold standard of flexibility for any e-commerce business is to be able to easily increase fulfillment throughput and SKU density over time in a capital-efficient manner. Such an order fulfillment system should be able to scale seamlessly with a business year after year.
E-commerce fulfillment is fundamentally a piece-pick operation, which is historically a hands-on procedure. The right automation facilitates the minimization of manual touch, resulting in more accurate orders, improved ergonomics, lowered labor costs and travel time, lessened returns and saved space by operating in a smaller footprint.
With e-commerce fundamentally changing the nature of the retail supply chain, distributors must learn how to adapt to rapidly expanding and changing e-commerce conditions. Efficiently optimizing inventory, storage space, labor, costs and time in e-retailing is required to attain not only customer satisfaction, but a profitable operation. The key to managing this challenge is automated warehousing and distribution technology that has the flexibility to adapt to changes in supply chain systems, distribution networks and processes.
Bill Leber is the Director of Business Development for North America for Swisslog. Prior to joining Swisslog, Leber spent 26 years with Ciba Specialty Chemicals in a variety of roles including manufacturing, logistics, sales & marketing, business development and general management. Leber received his B.S. degree in Chemical Engineering and an MBA in Management from Rensselaer Polytechnic Institute.