Santa's Workshop 2.0: E-commerce and Fulfillment

The holidays are here. This holiday season, and across the industry in general, retailers continue to face new challenges, including the emergence of mobile commerce and a continued e-commerce boom. According to the National Retail Federation Online Holiday Forecast, online holiday sales are expected to increase by another 12 percent in 2012, reaching $92 billion to $96 billion. The good news is that online sales continue to grow. The bad news is that so does the pressure on a retailer's fulfillment system.

During the brick-and-mortar days, the majority of the world's consumer products had been distributed to retail stores in bulk. The most efficient method for handling this merchandise predominantly had been pallet movement and full case selection. So, in other words, lots of the same product easily moved out of the door in mass. Now, however, e-commerce and the smartphone revolution are fundamentally changing the nature of the retail supply chain. As online shopping continues to compete with — and, in many instances, overtake — brick-and-mortar retail, retailers are looking for more ways to expand their multi-channel operations. This is making it much more difficult to get product quickly out the door and onto Santa's sleigh.

The distribution center is now the store
According to the NRF, nearly 52 percent of U.S. consumers will shop online this holiday season. This is an increase from 46 percent last year, and represents the first time survey results have shown that more than half of shoppers plan to buy gifts and other items via the web. Due to this increase in online sales, many retailers are outgrowing the traditional supply chain infrastructure and rethinking fulfillment. Retailers must now factor in individual piece picking at their distribution centers, in addition to scheduled weekly store deliveries of pallets and cases. Empowered consumers now expect to click on their Jimmy Choo shoes one day and then see them on their doorstep within 24 hours. The same goes for their holiday gifts. This isn't Al Gore's Internet anymore.

Take these challenges and compound them with the emergence of mobile commerce, or "smartphone shopping." The recent release of iPhone 5 received two million orders in the first few hours – just think of the impact this will have on mobile shopping during the 2012 holiday season alone. Most top retailers have optimized their sites for mobile shopping and millions of consumers will be shopping on the go from anywhere at any time. The instant gratification culture that has taken over with the growth of mobile has put a greater burden on the retail supply chain to deliver more individual products, and deliver them faster.

Today's online holiday shopper expects a lot more in addition to competitive prices. They require cross-channel services such as "click-and-collect" and "order-to-deliver" wider online SKU offerings; in-store kiosks; consistent brand experience across the brick-and-mortar and online storefronts; order accuracy; fast and free delivery; free returns through any channel; and a mobile retail site. All of these services and demands require a retailer to have an efficient 21st-century fulfillment system.

The challenge with the e-commerce fulfillment process relates to having the right systems in place to dynamically process orders for e-commerce channels, versus historical store re-stocking fulfillment. Within e-commerce, where unpredictability is a constant factor, flexibility in the supply chain becomes critical. Retailers can gain flexibility by implementing the right system, one that can support the fluidity that e-commerce cross-channel services require. These new fulfillment systems leverage faster robotic technology, data inventory systems and a reexamined strategy of how warehouse space is utilized. They also rethink the sometimes harsh labor conditions that e-commerce has caused.

Next steps
E-commerce, and now mobile shopping, are fundamentally changing the nature of the retail supply chain. Retailers must learn how to adapt to rapidly expanding and changing e-commerce conditions and have 21st-century fulfillment systems to meet 21st-century demands. Efficiently optimizing fulfillment in e-retailing is required to attain not only customer satisfaction but also a profitable and future operation.

Bill Leber serves as director of business development for North America at Swisslog, a global provider of integrated logistics solutions.
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