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03/17/2021

3 Considerations For Transforming Supply Chains from Distribution to Fulfillment

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The pandemic has accelerated consumer buying behavior by a decade. This has created an existential crisis for retailers who must accelerate their digital transformation to keep up.

When consumers shop at a store, inventory moves from manufacturers and warehouses to stores through distribution centers. By contrast, when customers shop online, the supply chain inverts. The traditional big-box logistics problem is about distributing products from the inventory forward, but the future of retail logistics is about fulfilling orders from the customer backward.

Here are the top three considerations for transforming the supply chain from distribution to fulfillment.

1. Transforming Stores

With consumption shifting from store to door, supply chain automation needs to shift focus too.

Historically, stores have used tablets to manage online orders and POS systems for in-store purchases, but as more orders shift online, the store will deal with more complexity around curbside pickup and delivery workflows. Addressing this complexity requires better order management systems.

An e-commerce system assigns orders to stores based on inventory levels, delivery capability and order size. Stores need to be able to fully or partially accept or reject orders and assign accepted orders to drivers based on availability, vehicle capacity, order familiarity and other factors.

Stores might have the option to choose among delivery by store staff, a centrally available resource pool or third-party logistics providers. The store’s order assignment system must factor in the delivery cost for each, which might vary with the type of order. Orders must be tracked for delays or no-shows, and exceptions must be proactively addressed and managed in the store or central CRM to identify the cause and make improvements.

Depending on the category — food, groceries, medicine, electronics, furniture, apparel — store design will go through a significant change. The focus will remain on delivering a great experience to the customer, except that the customer is now at the door instead of the store.

2. Transforming Warehouses

Stores are accustomed to picking and packing single customer orders while warehouses are geared to packing and dispatching large groups of shipments. With more products delivered directly to customer doors, it makes more sense to ship certain orders from nearby warehouses, and skip the store altogether.

In a way, warehouse processes start looking more like stores servicing single orders — exchanging crates and pallets for tens of thousands of courier boxes. Individual orders must be packaged and delivered in the fastest and most cost efficient way possible. This requires warehouses to become fulfillment centers with new types of floor workflows, followed by fleets of drivers picking up packages and delivering them to customers’ doors.

This might lead to an interesting competitive dynamic between the store and warehouse, with arbitrage opportunities around costs such as rent, personnel, vehicles and utility bills. This competition will add even more importance to how online orders are assigned by the central order management system to one versus the other.

3. Transforming Fleets

The transformation of technologies and processes at stores and warehouses might seem ominous, but the most profound transformation pertains to delivery fleets.

Once inventory is in fulfillment centers, either by way of transformed stores or transformed warehouses, the overwhelming complexity lies in dispatching each order to one of many available drivers, picking from one of many available fulfillment centers, and delivering it to the customer. The only way to do this for thousands of orders a day is through technology and automation.

The key problem is matching each customer location with the optimal driver and store location. The perfect dispatch involves picking an available driver nearest a store at the time of fulfillment, which in turn is nearest the door where the order must arrive by the committed time.

For traditional retailers to compete with technology-first delivery apps, they will need access to technology that is just as sophisticated as, if not more than, the tech that big app companies have built: use live location to dispatch orders, measure the difference between predicted and actual ETAs, and capture and feed data back into systems for continuous analysis and improvement.

This will enable them to measure productivity, automate payouts, eliminate bottlenecks and elevate the customer experience — which is what true supply chain transformation is all about.

Kashyap Deorah is founder and CEO of HyperTrack.

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