A Segregated Approach to E-Commerce Fulfillment

ecommerceOver the last two years, I’ve done extensive research on omni-channel fulfillment at ARC. My most recent survey was completed toward the end of 2015. One of the biggest growth opportunities for retailers and other B2C companies is the rise of e-commerce. Based on our survey respondents, digital retailing is continuing to grow in prominence. Currently, 83.8% of respondents indicated they receive direct retail orders through their online channel, compared to 75.7% who receive direct retail orders through a brick and mortar location. This is mainly due to the increase in the number of retailers selling exclusively on the Web.

However, even with this increase in e-commerce activity, brick and mortar locations are still bringing in the majority of revenues. Our survey respondents indicated that on average, 63% of revenues come from the physical store. The remainder of the revenues are made up of online / mobile at 24% and 13% from call center and catalogs. However, this is an area that warrants keeping an eye on, as this holiday season showed that e-commerce is continuing to grow at a rapid rate, while store traffic is not showing signs of growth.

Not surprisingly, the e-commerce landscape is seeing the largest growth rates, over the last five years and looking forward five years. In the last five years, e-commerce revenues have increased 51%, while call center has increased 12% and brick and mortar 9%. Considering the scale of brick and mortar revenues, a 9% increase is pretty impressive. Looking ahead, survey respondents continue to see a similar growth trend – 42% growth in e-commerce, 10% in call center, and 5% in brick and mortar.

The e-commerce boom is having a large impact on planning and resources. One of the big areas of concern is how to fulfill e-commerce orders. The majority of our survey respondents indicated they fulfill e-commerce orders through a traditional distribution center (63%), while 46.6% indicated they use a web-only distribution center (DC).

e-commerce fulfillmentSurvey respondents were able to select multiple responses, as different items and categories may be housed in different types of DC’s. The majority of respondents, or nearly 70%, are using the same facility for e-commerce fulfillment as well as traditional fulfillment. This means that companies are replenishing stores, fulfilling call center orders, fulfilling store-based delivery orders, and fulfilling e-commerce from one facility. This central DC gives the company more visibility into inventory control processes and helps to align their separate channels of operation.

There is always the question of whether to segregate e-commerce fulfillment operations from traditional fulfillment operations within the DC. According to our survey, 62.5% of survey respondents segregate the operations.

segregationMany companies use different segregation techniques at different DC’s, depending on inventory volumes, picking processes, or types of merchandise in the DC. The most common way to segregate fulfillment operations, according to 85% of respondents was by physical layout. In this scenario, there is an actual physical separation between the two operations – either a barrier that separates the two or distinct set-up locations for pickers, packers, and shippers. Additionally, 63% of respondents segregate operations by inventory. Store replenishment inventory is kept separate from e-commerce inventory. And finally, 60% segregate operations by labor management. This is taking a completely different approach, as the inventory is common, but workers are assigned to either e-commerce or traditional fulfillment.

Two-thirds of respondents are using the same warehouse management system (WMS) for both e-commerce and traditional fulfillment within the DC. Additionally, within these DC’s, 53% of respondents indicated pickers are using a WMS with radio frequency, while 34% are using a paper based WMS. The WMS with radio frequency are most commonly used at larger DC’s with higher volumes, while paper based are used at lower volume DC’s with less complex operations.

In conclusion, e-commerce is changing not only the nature of commerce but also of fulfillment. There are more options for delivering orders to the end consumer, and retailers are trying to find what works best. As of now, the majority of retailers are using a traditional DC to serve their e-commerce orders. Because the DC is storing items for home delivery as well as store replenishment, nearly two-thirds of respondents indicated they segregate their e-commerce operations from other operations. This ensures that e-commerce orders have dedicated inventory for on-time fulfillment.

Comments

  1. Interesting set of facts and figures. Like you’ve mentioned,ecommerce has a huge impact on planning and resources, while a large percentage of such retailers do not use a robust or appropriate warehouse management system. With ecommerce growing at the phenomenal rate that it is, retailers need to focus on fulfilment and invest in a strong WMS.