Why online order fulfilment will be a key metric for 2021, and how retailers must adapt and strengthen their fulfilment capabilities to keep up with the higher demand.
Online Fulfilment in the ‘New Normal’ of eCommerce
In the final instalment of our series exploring predicted retail trends for the coming year, we analyse why online order fulfilment will be a key metric for 2021. With COVID-19 causing an unprecedented acceleration in the shift towards eCommerce, retailers must quickly adapt and strengthen their fulfilment capabilities to ensure they can keep up with the higher demand. Read on to learn what the priorities are for retailers to achieve this, and what technologies are delivering the answers.
Why fulfilment will be a priority in 2021
Online shopping or eCommerce has been steadily growing since its invention. This means that the number of online orders that a retailer needs to fulfil gradually goes up year-on-year. The gradual increases required to a retailer’s order capacity are normally easy enough to anticipate and plan for. Like so many other things, however, 2020 kicked this idea to the curb.
This year has seen a massive shift towards eCommerce as a result of COVID-19. Even after things go back to normal, experts predict that a large portion of this growth will remain. In fact, according to data from IBM’s U.S. Retail Index, the pandemic has accelerated the shift away from physical stores to digital shopping by roughly five years. Online or multichannel retailers are therefore faced with dealing with a seismic shift in the industry. Many brands will have to deal with the fact that the sudden shift may put the demand for online orders beyond their current capacity for fulfilment. Retailers then need to strengthen and invest in their fulfilment capabilities to avoid being caught out. But where to look first?
What are the priorities for retailers looking at fulfilment in 2021?
So, when we say fulfilment will be a key priority for retailers, what exactly does that mean? What are the limiting factors for online fulfilment, or, in other words, what areas will struggle without additional investment or technology?
The first step in any online purchase – a customer going online in the first place. For a webshop, or indeed any website, capacity simply means the number of visitors it can support. How much capacity is needed will vary, for example – this website does not need to have the same capacity as Amazon (at least for now). With regular demand, capacity is easy enough to get right. It’s sudden shifts or surges that can cause problems. We have all likely experienced this ourselves at one time, with a recent example being the PlayStation 5 UK launch crashing several major retailer’s sites! With eCommerce numbers predicted to stay high – web store capacity may need some attention.
Delivery is one of the biggest challenges (and costs) of online retailing. Shipping products across an entire country at scale is already a challenge. What makes it worse is customers are starting to expect more and more from online retailers. Amazon has set the bar high for this, with next-day and free delivery now more and more sought after by customers. As eCommerce channels grow in popularity, retailers may find their delivery models only scale to a point.
Supply chain bottlenecks can be a killer for fast online fulfilment. The most likely place for this to occur is where the majority* of online orders are shipped from – the distribution centre. If the way orders are being processed is time-consuming or inaccurate, the whole process can slow down. This supply chain efficiency is particularly important for new products (go-to-market) or restocking OOS (out-of-stock) products. If the process for a DC receiving and processing goods is not efficient enough, drastically increasing the number of products required for the DC to process could cause problems.
The final big consideration for retailers attempting to scale up their fulfilment capabilities: the cost! All of the previous points are also examples of running costs associated with fulfilling online orders. Many retailers, particularly multichannel, often struggle ensuring their eCommerce arm stays profitable as the margins are much finer. If the balance between online and offline shifts too much, those fine margins could cause problems. Next year will see many of these retailers invest in their fulfilment processes to reduce long term costs and keep their increasingly crucial online channels sustainable.
Is ship-from-store the answer?
One of the leading trends with retailers investing and expanding their online fulfilment capacity is ship-from-store, also known as in-store fulfilment. SFS is an omnichannel retail strategy where retail stores are used to fulfil online orders, essentially leveraging stores as miniature distribution centres! The strategy has many advantages including taking pressure off of DC’s, reducing shipping costs and increasing delivery time. Ship-from-store also benefits the stores themselves as Idle inventory that is sitting in stores can instead be sold – preventing stock building up and keeping stores busy even if footfall is low.
Many major retailers have already started leaning into in-store fulfilment. Walmart expanded their ship-from-store capabilities to 2,500 locations earlier in the year, while target fulfilled 90% of their online orders from stores, cutting the cost of fulfilment by 30% and coinciding with a 100% increase in digital sales year-on-year. These two examples are interesting in that both brands are attempting to ‘take on’ Amazon by leveraging what amazon doesn’t have, a sign that ship-from-store is only going to grow in stature in the years to come.
What fulfilment technologies will become more relevant in 2021?
As demand for online orders goes up, distribution centres have to evolve. More modern DC’s with high order capacities are highly automated. This includes conveyor systems, automated processing and exception handling (with RFID). High-tech DC’s such as these are more efficient in terms of throughput of items and are far less susceptible to bottlenecks. An example of such a DC is Detego customer Marc Cain, who’s highly automated DC can process 35,000 articles a single day, with 100% accuracy.
Big data and Artificial Intelligence
For larger retailers, online channels produce a lot of data. For retailers who have the technologies to keep track of them, their supply chains also produce huge amounts of data related to the movement and flow of merchandise. As we often say though, data is useless if it’s not being used to produce actionable or useful insights. With AI, retailers can utilise all of this data from their web stores, supply chains and stores to great effect. Operational KPIs like DC throughput and dwell times (how long an item sits at a certain stage of the supply chain) are incredibly valuable for optimising fulfilment. This data can also be used for more advanced algorithms like demand prediction, so retailers can adjust their inventory levels for different regions before there is a shortage of products.
Tagging products with Radio frequency identification makes a huge difference to supply chains and online fulfilment capacity. Not only does RFID produce real-time item visibility from the factory to the customer, meaning more efficient handovers, but for DC’s it is a game-changer. RFID tunnels within an automated conveyor system can automatically count and check the content of cartons without needing to open the box, in a matter of seconds. This means all products coming in and out of the DC are processed in seconds and with complete accuracy. After the initial investment, the solution also drastically lowers operational costs, not to mention the reduction in chargebacks of incorrect shipping penalties.