Prior to Covid19, retailers were already undergoing dramatic changes. However, the pandemic caused a massive exodus towards eCommerce purchases that quickly started to overwhelm the retail supply chains and take them to almost the breaking point.
From March to September 2020, US online orders from Walmart tripled because of the pandemic. The major retailer saw a 20 percent increase in sales. Best Buy experienced a 50 percent increase in sales. At the same time, the king of eCommerce, Amazon stepped up their game by providing delivery in a day or less. Bain & Company research shows that the US eCommerce market is forecast to grow by 30 percent before 2025.
Forecast of eCommerce Sales
The forecast growth in eCommerce sales has only compounded problems for distribution networks which are already aging and failing with inventory pileups, notoriously slow cycle times and poorly located supply warehouses. Currently, executives are struggling to increase the network speed, increase flexibility and keep costs low. However, it is a perilous supply chain balance problem with no viable solution in sight.
New Approaches to Meet Customer Demands
Retailers are trying to explore new approaches to effectively meet customer demands but the investment needed is straining distribution facilities. Clearly some longer-term strategy must be implemented. Many stores are relying on their vast network to help relieve the strain on distribution. They are using the infrastructure they have in place to design long term strategies and help improve the supply chain performance without causing unacceptable delays.
Successful retailers are improving their network efficiency, speed, and flexibility by figuring out what matters the most to their customers. They can then use existing supply nodes such as distribution centers, hub stores, individual stores, and micro fulfillment centers to better meet the pressing needs and categorize what is important. The process also improves customer satisfaction at a minimal cost.
Retailers enjoy convenience, fast delivery, and more with their e-commerce fulfillment. They are achieving gains with cost, speed, and flexibility while managing to battle the problem of inefficiencies in the overall omnichannel fulfillment.
Minimizing Cost and Delivery
United States specialty retailers with supply chains designed to minimize cost remain on track to double their same day and next day delivery capacity and make their entire network highly competitive. With the hardcore shift to store-centric fulfillment the forecast increase in operating costs is less than one percent.
Retailers are rushing to build a variety of micro fulfillment centers to and continue to offer the benefits of centralized operations and facilities. In some cases, retailers can fulfill their e-commerce orders efficiently from their existing retail store locations which helps cut down on the last mile delivery costs.
Target has made the move to offer customers the option of making an online purchase and picking up their purchases at the store. The ship to store feature is cheaper than shipping the order to a micro fulfillment center. Target has also started to explore how to fulfill eCommerce orders from a sorting center and then send the purchases from the store closest to a customer to a local center where it is then packaged and shipped for what is called the last mile delivery.
Certain retailers, such as Best Buy, are also starting to scale their store fulfillment strategy by delegating their hub stores with extra capacity and letting them fulfill online orders. The labor costs are also reduced, and they need less inventory. The goal is just to deliver goods quickly.
Retailer Delivery Goals
Retailers are focused on delivering orders the same day or the next. It’s all about improved speed and responsiveness. The approach is ideal for large stores that accommodate in-house fulfillment workers.
Walmart uses their approach on a global level such as in China and the U.S. They offer one hour grocery delivery within a very limited radius. The instore fulfillment helps to reduce the cost. However, shipments are split which does increase the need for inventory stock.
Efficiency and Cost
Efficiency is all about cost. Centralized fulfillment is productive with picking and packing every hour. The gain helps to balance out the added cost of delivery. However, picking and packing efficiencies in a centralized fulfillment model does result in higher delivery costs.
Currently, consumer expectations for quick delivery continue to increase.
Kroger has focused on efficiency by fulfilling online orders using automated warehouse technology. They have partnered with British grocer Ocado to make use of their automated technology to better deliver directly to customers’ front doors.
The world continues to change. It is far less predictable. However, retailers are forecasting the continued growth of eCommerce and they are putting their customers’ needs first with a strong focus on speed, efficiency, flexibility, and fulfillment.