Distribution is going through a dramatic change due to increased volume of ecommerce business and fulfillment processes. This is affecting manufacturers, distributors and retailers and it is causing different business models to overlap and blur core competencies.
Manufacturers that used to ship pallet quantities are now becoming single item parcel shippers because their big-box retail customers are asking them to provide online order fulfillment services and serve as extensions of their warehouses and stores. Similarly, manufacturers are now key dropshipping partners of ecommerce sales channels. Distributors that used to sell to retailers are opening up their own ecommerce businesses either by setting up an online store on Amazon/EBay/Alibaba, or setting up their own web sites, and turning their warehouses into ecommerce fulfillment centers. Retailers that used to focus on their brick-and-mortar stores are extending their ability to sell via the internet by either creating their own fulfillment services, using a fulfillment company or a third-party logistics provider. In every case, supply chains and inventory management systems are stretched, often to the breaking point, causing disappointed customers, abandoned shopping carts or unprofitable growth.
Online order fulfillment services usually happen via parcel shipping (UPS, FedEx) and can include as few as one item on the order. For a manufacturer or distributor that is accustomed to shipping full or mixed pallet loads, dropshipping to support an online store can be very unprofitable. For a retailer operating a brick-and-mortar store, adding ecommerce usually requires having to grow beyond shipping out of their store’s backroom to a larger fulfillment services warehouse.
To support their ecommerce business, distributors and manufacturers will often have to create three warehouses in one, an online order or dropshipping fulfillment center, a mixed-item pallet quantity warehouse and a full pallet warehouse.
The online order / dropshipping fulfillment center part of the warehouse must be efficient at picking multiple orders with very few items per order. This is best achieved through wave or batch picking, where the order-selector will pick multiple orders in a single trip through the warehouse. Usually this requires a warehouse management system to determine how to batch orders (how many orders to include in the single batch given to one order-selector). In addition, the inventory management and warehouse management system must give them real-time visibility of inventory item locations for the batch so they can efficiently pick all items in a single trip.
The best warehouse layout for ecommerce business is a narrow aisle design using a drive-by-wire order picker that can travel through narrow aisles and allow for easy picking of items higher up in the racking. These order-pickers move vertically with the order-selector (connected via a safety harness) and are prevented from hitting racking by the lateral control. An advantage of this design is SKU placement by velocity becomes less important. With multiple orders the order-selector will usually drive through most aisles during their pick-trip. One important design consideration is the order-selector will need to have an easy way to separate items into multiple orders so items do not get mixed up at the pack-and-ship station.
At the end of the pick-trip the order selector will drop off orders (with items separated by order) at the “head” of the pack-and-ship line and pick up their next batch of pick-tickets (paper or electronic on their hand-helds). At the head of the line an organizer/quality inspector will review each order to ensure the order-selector didn’t put the wrong item with an order. (Even with barcode technology, when picking multiple orders at the same time, it is possible to get items and orders mixed up.) After the quality-check, the inspector will send the order to the pack-and-ship line, where an operator will put the items in a box and create the shipping paperwork, usually via UPS or FedEx’s system. Completed orders are staged for pick-up by the parcel shipper.
A key considerations of the ecommerce supply chain is fulfillment center location, inventory management, and minimizing shipping costs. In order to minimize shipping costs and fulfill orders from the online sales channel quickly, fulfillment centers must be close to their customers. This requires splitting up and managing inventory real-time in multiple warehouses and across multiple time zones, when previously you may have just managed one warehouse. For each order, the warehouse management system’s fulfillment process must decide how to choose which location to use as the fulfillment center. Is it the location that is closest, which is a simple order management model? Is it where you have the most inventory, which will help avoid stock-outs and split shipments? Is it from the store, which is located very close to customers but may result in a stock-out for an in-store customer, creating customer “abrasion” for people who still shop in the store? These are complex considerations but must be part of your ecommerce supply chain strategy. What can go wrong, if you don’t design for ecommerce fulfillment… increased shipments and lower profit. We worked with one manufacturer/distributor that tripled their shipments due to an increase in dropshipping ecommerce orders but had zero-unit growth overall. The challenge of ecommerce supply chain is achieving the right level of integration of warehouse design, facility locations, inventory management and fulfillment processes across multiple sales channels.