The trend toward regional distribution and same-day delivery
By Dave Lodwig, Systems Manager, W&H Systems
In the past, retailers built two types of distribution centers, one (or two) on the East and West coasts of the US to handle store fulfillment, and another to handle strictly e-commerce. These distribution centers were built to handle their own specific type of fulfillment and none other. The retail stores on the East coast were fulfilled from the closest DC, while the outlets on the West coast were fulfilled from a DC located in the Western US. Fulfillment typically took one to two days, but for stores in the Central US, they had to live with 3-5 day fulfillment. If the retailer received an e-commerce order, regardless of the location of the buyer, that order was fulfilled out of the e-commerce-only warehouse. The consumer could be located next door to the West coast distribution center, but since he ordered his item online, it would only be shipped from the e-commerce DC, and he’d have to wait to receive it. This scenario was more like customer “no satisfaction” than customer satisfaction.
Many larger retailers and department stores with growing e-commerce sales decided to use ship-from-store to fulfill these orders and therefore defer investing capital in additional distribution centers. With increasing e-commerce business beginning to stress fulfillment capacities to the breaking point during peak season, retailers without ship-from-store capabilities are often operating at maximum capacity.
Amazon has set the bar for product selection and fast delivery. You can buy almost any type of product in any quantity from them and have it delivered no later than tomorrow. Omni-channel retailers who want to compete with this need to leverage their physical stores to offer a level of flexibility Amazon cannot without jumping into traditional retail and the associated costs. This allows them to offer their customer the best of both worlds and generate more sales doing so.
But these companies still have to get the merchandise to the store from somewhere. As MHEDA points out in its 2014 Critical Impact Factors, there is a trend toward more local and regional distribution centers due to consumer demand for one-day or same-day delivery. To be successful and profitable in omni-channel retailing, retailers need to have distribution centers that are flexible and offer:
- Real-time visibility into the entire pool of inventory to reduce safety stock and inventory carrying costs.
- Dynamic control over access and allocation of inventory in real-time.
- Processing and shipping of individual orders at the lowest cost, either direct-to-consumer or direct-to-store.
- Highly efficient and responsive distribution processes that will increase productivity and fulfillment rates so that any type of order can be sent through any sales channel.
- Flexible fulfillment paths to meet demand, regardless of which channel it comes from.
- Maximized efficiency in every part of the supply chain to meet customer expectations.
- Minimum cost to serve.
Many retailers may be best able to meet omni-channel fulfillment challenges by retrofitting existing operations or adding new processes and technology. However, very few existing distribution centers of more than a few years old are set up to accommodate the needs of an Omni-channel distribution strategy. This is where integrators come in.
What makes Omni-Channel fulfillment so different? Typically, e-commerce orders are more frequent, smaller orders. A single shopper places a single order – and there are hundreds to thousands of them entered every day into a retailer’s e-commerce platform with consumers expecting same day or next day delivery. All the resources in the supply chain are focused on serving that one shopper to fulfill their single order. Many traditional warehouse operations are not set up to efficiently accommodate a large range of orders, so they must be either retrofitted or the retailer must build a new warehouse.
Omni-Channel Distribution Center Design
Developing an omni-channel supply chain strategy requires rethinking the number and location of distribution centers, as well as their layout and design features. The average omni-channel DC is greater than 250,000 square feet with clear ceiling heights of 36 to 40 feet to accommodate multiple platform levels for processing and shipping individual orders. Typically these distribution centers are built in areas where they can reach the most consumers and stores quickly and cost-effectively, such as Chicago, Atlanta, Dallas, Philadelphia, Long Beach, and New Jersey.
Different processes are required for the e-commerce order fulfillment area. Products are picked from warehouse shelves at the direction of distribution workers who use automated picking technologies like pick-to-light and pick-to-voice. Pick-to-voice and pick-to-light technology allows workers to pick items for an order at astounding rates with great accuracy using both hands.
These orders are typically processed via cart zone picking or zone batch picking. For increased productivity, the single-line or single-unit orders are typically processed differently in a batched, high-speed packing operation in a separate area of the facility.
Omni-channel distribution centers can seamlessly combine both e-commerce and traditional store distribution channels, but they require significant capital investment in material handling, conveyor sortation and controls, optimized racking systems and lift equipment, inventory management software, and picking/packing technology.
In the store-based distribution area, automation is key. When a customer makes a store purchase, the bar code reader or point-of-sale equipment notes the transaction at checkout and it is pulled from inventory. The product picking process involves pick-to-cart, pick-to-voice, or pick-to-light of items into totes, which are then consolidated and packed into store shipments, and scheduled for delivery. Picked products are automatically back-filled in the next delivery cycle. Merchandise bought from stores one day is back on the shelf often the very next day, with little or no direct human action involved between the scanning of the sale and the restocking of the shelf by store employees.
What Equipment Is Needed for Omni-Channel Fulfillment?
Different fulfillment methodologies need to be taken into consideration when creating an omni-channel strategy. The different omni-channel flow paths – order in-store/deliver to home; order online/fulfill from any location; etc. – will all have different cost structures. A storage buffer of inventory that shares inventory across multiple distribution channels may need to be incorporated. Most importantly, order fulfillment systems need to be designed to be flexible, having the capability to ramp up quickly as demand grows.
Material-handling systems are being embraced as a means of getting products into the hands of the consumer more quickly. Typical equipment used in omni-channel fulfillment:
- Inventory management system that spans the entire supply chain for achieving real-time visibility
- Distributed order management system to decide cost-effectively whether to drop orders into a DC, e-commerce fulfillment center, combination DC, or store to meet customer service levels
- Warehouse Management System
- Warehouse Control System to direct the flow of materials within the warehouse and communicate with all the material handling equipment
- Conveyors for moving products around the warehouse to appropriate locations
- Sortation units that deliver items to shipping locations
- Picking/Packing Systems for directing workers what to pick, how many, where to pick or pack, etc. Some DCs are starting to use robotic picking technology, too.
- Automatic Storage and Retrieval Systems (AS/RS)
- Miscellaneous: Robotics, goods-to-person, transportation management systems, RFID, equipment to apply labels to cartons, etc.
Order fulfillment systems can be designed for one or more operators in the pick zones using real-time picking systems such as voice or light-directed technologies. Picking zone boundaries can expand or contract to optimize picking efficiency. Seasonal workers find these picking systems easy to learn and use, so you can ramp up labor quickly when needed.
“Goods to Person” fulfillment brings items to be picked to the worker, saving time from not having to walk to pick items and increasing productivity. “Goods to Person” technologies include the AS/RS, which stores a high quantity of items in a much smaller space.
Omni-channel distribution centers must be able to handle an increased volume of orders with one to many items. This creates significant issues in managing inventory because in most warehouses there are fast-moving SKUs and slow-moving SKUs. To take up less space, it is suggested that you use an AS/RS to store slow-moving SKUs.
A mini-load AS/RS can hold thousands of SKUs, with dynamic pick faces on the first level that can be used by order pickers to build orders. Only the SKUs required for order fulfillment are placed in the first level. The mini-load AS/RS moves and stores irregularly shaped goods or parts placed in: stacking totes, collapsible totes, nesting containers and case/cardboard boxes. Items are transported to/from this AS/RS by conveyor, shuttle fork, side belt, side clamp, Sorting Transfer Vehicle (STV) or Automatic Guided Vehicle (AGV). The benefit is that the distance walked between picks is minimized, reducing order fulfillment time.
And The Winner Is…
The process of setting up a strong omni-channel supply chain is a major undertaking for retailers, but those that fail to pursue omni-channel retailing and fulfillment have little chance of success in the new world of consumer expectations.
Despite the challenges, retailers can’t afford not to work toward an omni-channel organization. As consumer expectations around cross-channel experience, assortment and fulfillment continue to grow, the only retailers able to meet these needs will be those supported by an organization designed with an omni-channel world in mind.
Done right, the result is a win-win for distribution and supply-chain providers, retailers and consumers.
Dave Lodwig is a Systems Manager at W&H Systems and an expert in Omni-Channel Fulfillment. W&H Systems is a leading material handling systems integrator for retailers and apparel manufacturers and distributors.