Ayal Latz recently sat with Ed Fulford, Manager of Communications, Georgia Ports Authority and AnchorAge Magazine to discuss fulfillment, e-commerce and how the surge of technology has impacted the logistics business.
*Q1: How will moving to a direct-fulfillment DC model impact things like the necessary square footage of a facility and the number of employees?
Answer 1: The short answer is that it depends… The devil is in the details. For example, if we consider a DC that fulfills wholesale-level orders, this can generally equate to expansive warehouse facilities with a relatively low employee head count because the orders are generally fulfilled in case or even pallet quantities. Big space, big moves.
With Direct to Consumer fulfillment, the footprint needed can be smaller, inventory quantities per item lower, but more hands required to pick, pack and ship the small, individual orders.
The most likely result, at least during a transition period as retailers expand their e-commerce activities, will be a hybrid effect. The DC can now be used to handle both wholesale and direct orders. In general this will increase both footprint and head count. The facility layout now must include pick modules that are conducive to each picking, where as previously pallet level locations made sense for bulky picks. Also, packing, parcel shipping and returns areas must all be considered into the equation. This will take dedicated space and of course more people.
*Q2: With companies establishing their own e-commerce sites or contracting with 3PLs to run e-commerce fulfillment centers, do you expect an increase in total cargo, or simply a shift from traditional DCs?
Answer 2: Overall this is a zero sum game with a small bias towards increased cargo. This increase will come as shopping becomes easier for many consumers. And there is strong evidence that some retailers are enjoying overall sales growth as the percentage of their sales shifts to online. However, there will be individual winners and losers as companies try to refine their e-commerce platforms. Those who embrace the technologies and cultivate the mentality involved with direct-to-consumer shipping will be the winners. Rapid learning and ramp-up can be achieved by partnering with 3PLs who already have expertise in this field.
*Q3: How should retailers handle the runs on particular products that can occur among online shoppers, compared to the slower demand cycle at a brick-and-mortar store?
Answer 3: There are two scenarios where runs on product occur regularly. First, for seasonal goods. Second, for advertised products. Retailers operating e-commerce platforms can handle both of these situations the same way. Building inventory in anticipation of the seasonality or promotional spikes is essential. The process for fulfilling direct to consumer orders differs from that of building retail inventories because there is only one fulfillment center. Secondly, the fulfillment center can increase the workforce by raw numbers, run additional hours and/or shifts, and use sophisticated technology to process and ship the orders quickly. A retail outlet is limited in hours (few would be open 24/7). And their expertise is not in expanding their workforces dramatically.
*Q4: Who are some of the retail industry leaders in e-commerce and what are they doing well?
Answer 4: There are many examples of successful leaders in e-commerce ranging from small, highly focused product lines to big box retailers. What they have in common are easy-to-navigate websites, user-friendly shopping carts and near-perfect shipping capabilities.
* Q5: What impact has personal technology such as tablets or smart phones had in the way consumers interact with retailers — and the distribution networks that supply them?
Answer 5: Personal technology is a primary driver of the relationship that consumers have with retailers. Consumers are enabled to shop online whenever and from wherever they choose. They are exposed to and have access to countless items. Social media amplifies this knowledge exchange. Adding to this is the knowledge of pricing, taxes and shipping options – all act to confer upon the consumer a big advantage. Online shopping also benefits consumers living in areas that are not supported by retail outlets.