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Manage DC daily operation activities at warehouse facility. To ensure strict execution of the SOP and meet KPIs.
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New Retail Strategies: It’s a Store! It’s a Site! It’s a Warehouse!
E-commerce continues to reshape the retail world. Brick-and-mortar stores aren't disappearing. But the growth of online shopping is forcing store owners to rethink the way they do business in order to negotiate the new terrain. Companies that sell entirely online are also shifting strategy, responding to consumer desire for more flexible shopping options. Many of those changes will affect the way retailers manage their supply chains.
Competition from dominant online merchants—most notably Amazon—has convinced old-school retailers that their survival depends on strengthening their online channels. "Brick-and-mortar retailers are trying to learn how to navigate the land of e-commerce," says Garrick Brown, research director at Cassidy Turley, a commercial real estate firm based in St. Louis.
High-end retailers and discount chains are still seeing strong in-store sales. But for mid-tier merchants, the world is changing. Increasingly, middle-class shoppers head to the Web—not to the mall—in search of bargains.
Consider these growth figures:
- U.S. consumers using traditional computers spent $56.1 billion on e-commerce sites in the first quarter of 2014—a 12-percent jump over Q1 of 2013, according to comScore, an analytics company that studies digital shopping.
- Mobile commerce purchases added another $7.3 billion—23 percent more than the same quarter the year before.
- E-commerce will make up nine percent of all retail sales in the United States in 2014, and 11 percent by 2018, predicts Forrester Research.
The most striking retail trend is the rise of omni-channel shopping. Many consumers no longer distinguish between buying in a store and buying online.
Today, 40 percent of purchases involve channel crossing—using more than one channel, according to the 2014 UPS Pulse of the Online Shopper, a study conducted for UPS by comScore.
Consumers who receive a discount offer by e-mail while riding a train to work in the morning might use their laptop to research the product during lunch. At home in the evening, they might use a tablet to make the purchase. "Then they might choose to pick up the item at a store, because it's convenient," notes Bala Ganesh, retail director at UPS.
Many traditional retailers are remaking themselves as omni-channel merchants, allowing customers to find, buy, receive, and return merchandise using whichever channels suit them best.
"Consumers want a similar experience when they go to the mall to buy a product and when they buy it online," says Joe Bento, chief sales officer at SEKO Logistics, a third-party logistics provider based in Chicago.
ONE INVENTORY FOR ALL
At a minimum, providing a seamless omni-channel experience means operating a robust e-commerce site. It also means making all inventory available to all customers, however they shop.
"To be successful in omni-channel, and compete against Amazon, retailers have to break down their inventory siloes," suggests Dave Lodwig, systems manager at Carldstadt, N.J.-based W&H Systems, an integrator of materials handling solutions.
Large retailers with e-commerce sites often maintain one inventory to serve their stores, and a second inventory—in different facilities, managed with separate information systems—for direct-to-customer channels. "Some retailers have done a good job merging these inventories," Lodwig says.
But others struggle. For example, when a customer can't find an item in the store, but a sales associate locates that product online, there may be no way to put a hold on it before an online shopper claims the last available unit.
Problems of that kind arise when a retailer's IT systems don't effectively connect the sales channels with the inventory system. Consider the experience of Dale Pro Audio, a New York City firm that sells equipment and accessories for sound recording and production.
Dale operates one retail store in Manhattan and one in Queens. Each has a warehouse attached, although most of the product resides in the Queens facility. Dale also sells through Amazon's online marketplace, and keeps product in Amazon fulfillment centers.
In 2000, Dale built a website to sell a small number of products. But without adequate software, the company couldn't develop a robust e-commerce channel, says Tim Brown, Dale's director of e-commerce.
Brown recalls seeing a co-worker process a Web order for a product that didn't appear in the company's inventory system. "We didn't even know what we were paying for that product," he says.
Clearly, the website and inventory management system were out of synch. Just because an item appeared on the site didn't mean it was available for sale.
A few years ago, if a customer ordered a product online, then found out it was out of stock, it wasn't a big deal, Brown says. But customers today are more demanding. "They expect you to have the product, or at least to make it clear how long it will take before the order ships," he adds.
In 2006, Dale replaced its existing software with three solutions—for enterprise resource planning, e-commerce, and customer relationship management—from software vendorNetSuite, San Mateo, Calif. Since implementing NetSuite, Dale has built a complete e-commerce platform with access to all products in its inventory. Online shoppers receive correct information about what products are in stock, and the site always displays accurate pricing.
"The NetSuite inventory system and our website platform are now integrated," Brown says. "When changes are made, they propagate through all the systems."
Integration among the systems also benefits in-store shoppers. "Let's say a customer walks into a store looking for 100 connectors, and the system says you have 100," Brown says. "But when you go to the warehouse you find you don't have any. That's a problem.
"Or, you have no idea how many connectors you have, and need to search the warehouse from top to bottom every time. That's also a problem," he adds. "The software has eliminated those difficulties."
FULFILL FROM THE STORE
Besides tapping the same inventory for in-store and online sales, some retailers are thinking beyond the walls of the warehouse. Product in the warehouse and product in the stores form a single inventory pool, available to customers shopping via any channel.
"Walmart does this best," says Lodwig. It can ship product to e-commerce customers from a warehouse or from a store, or let the customer pick up the product.
"Walmart also gives customers visibility into its inventory by displaying product quantities and locations," he adds. "So they can decide not only to pick up an item at the store, but at the most convenient store."
Chicago-based Wrigleyville Sports is nowhere near Walmart's size, but it, too, has mastered the art of blending store and warehouse inventory to serve e-commerce customers.
"Any product that is available on the website is either at the warehouse or in the store," says Eric Castellucci, Wrigleyville's online marketing manager.
From a shop across the street from Wrigley Stadium, and a warehouse in the suburbs, Wrigleyville Sports sells shirts, caps, and other items to fans of Chicago's professional sports teams. It also serves fans of Pittsburgh and Philadelphia teams with stores in those cities. Wrigleyville launched its e-commerce site in 1997.
The two Pennsylvania stores keep all inventory in-house, and ship e-commerce orders for those products. But when a customer orders a Bulls shirt or a Cubs jacket, staff might pull that from either the warehouse or the Addison Street store.
Wrigleyville Sports used to struggle to keep data current for its e-commerce channel. "If the last of an item sold, it didn't get pulled off the website immediately," explains Castellucci. The inventory management system sent updates to the e-commerce platform only every six hours. In between those transmissions, it was possible for a customer to see an item on the site, place an order, then learn that it was unavailable.
"The system wasn't quick enough to update if we sold the last item at the store; it still might appear to be available for online orders," he says.
This became a problem particularly during the holiday shopping season, or when local teams made it into league playoffs, driving up demand.
Like Dale Pro Audio, Wrigleyville Sports found a solution in new software from NetSuite, which updates the e-commerce platform in real time. "Now, if a customer buys the last product, it is pulled off the website immediately," Castellucci says.
KEEP THE BACK ROOM FREE
For big retail chains, shipping from stores offers a possible strategic advantage. Merchants that use their stores as fulfillment centers can get product to customers fast, just as Amazon can with its huge distribution network.
But the ship-from-store strategy also poses challenges, because most stores weren't designed to handle frequent parcel shipments. "Retailers don't want to clog their back room with packages that are taking hours to handle, and pulling employees away from the shop floor," says Ganesh. Along with processes to manage fulfillment from the store, a retailer also needs the right technology and training to support those processes.
A retailer that adopts a ship-from-store strategy must also adjust the way it manages shipping costs. Lodwig once heard a retail executive complain that shipping from stores was driving up freight costs: the company no longer enjoyed the discounts gained when moving large volumes from a single location.
"If that was true, shame on the supply chain team for not negotiating a better rate," Lodwig says. "Retailers have to make sure they've got contracts in place with parcel carriers so they don't pay a freight penalty."
A good ship-from-store strategy can actually reduce freight costs, because each store will serve only customers located nearby. Parcel carriers charge less for short-distance deliveries.
A complementary strategy—shipping e-commerce orders from fulfillment centers to stores for customer pickup—also offers an advantage: It drives customers into stores, where they're likely to buy extra items. That strategy also demands the right combination of processes, technology, and training.
UPS has been working with one big-box retailer to implement a combined ship-from-store and ship-to-store strategy. UPS helped the retailer improve shipping processes, optimize inventory management, and plan the distribution network—which stores will serve customers in which regions.
"We've worked with the retailer to train store workers in both shipping and receiving," says Ganesh. The retailer has been gradually rolling out the operation to additional stores.
As the omni-channel trend drives changes in retail supply chains, some other developments are making an impact as well. One is the race for faster delivery.
Amazon, Google, eBay, Walmart, and others have experimented with same-day fulfillment. Given the cost of local courier deliveries, this super-fast service is likely to remain expensive. Only a small number of customers will choose same-day delivery as a premium option.
In fact, many customers will gladly wait longer for their merchandise in order to save money, according to the UPS/comScore survey. "Fifty percent of respondents say they choose the slowest transit time because it's free," says Ganesh.
If attempts to offer same-day service don't threaten Amazon's competitors, the promise of low-cost, next-day delivery might. Today, members of the Amazon Prime loyalty program get two-day shipping at no cost. What if Amazon were to cut 24 hours from that equation? "Next-day is a game-changer, if big surcharges are not part of the package," says Brown.
WHAT'S THE ALTERNATIVE?
In the future, customers in the United States might also seek a broader range of delivery options. Among respondents to the UPS/comScore survey, 74 percent say they want e-commerce purchases shipped to their homes. But, along with the seven percent who want orders shipped to a local store, some respondents favor alternative destinations—their workplace, the home of a friend or relative, a delivery locker, another retail location such as a grocery or convenience store, or another authorized location, such as a UPS Store.
The use of alternative pickup locations is popular in Europe. This strategy can be helpful for merchants that don't have stores, but want to offer a service similar to in-store pickup. It can also extend the reach of omni-channel merchants—say, big-box retailers that operate mainly in the suburbs. "They may choose to extend their store network into urban areas for easier pickup by using some of these access points," says Ganesh.
In a world where many more sales occur online, emerging demand for greater speed and flexibility will force retailers to better accommodate real-time decision-making in the distribution center. Today, most companies accumulate e-commerce orders, then serve them in batches to warehouse associates. While those employees pick the orders, the IT system pools up new incoming orders.
In a highly automated warehouse, order batching allows the company to use its equipment as efficiently as possible. "Orders come in a slug, and keep that automation moving 100 percent of the time," Lodwig says.
Batching doesn't work in the new omni-channel world, where retailers are trying to turn around orders faster. But the closer the retailer gets to releasing new orders to pickers in real time, the greater the risk of quiet periods, when machinery won't be handling any product.
"We have to develop ways to allow retailers to hand down one order at a time to the floor, while maintaining a high efficiency rate," Lodwig says. "Software and control systems have to get smarter."
FACILITIES OF THE FUTURE
Along with their materials handling processes, retailers are also re-examining the size and function of their physical facilities. "For example, maybe a retailer doesn't need as many stores, or needs smaller stores," says Bento. "Or maybe it needs stores in different markets that can be one-stop shops for omni-channel services."
Retail chains that aren't turning stores into local e-commerce fulfillment centers are still looking for ways to reduce delivery times. The sight of Amazon setting up a DC on the outskirts of nearly every major metropolitan area has frightened retailers into action. "The trend is to locate DCs much closer to consumers, and operate a lot more of them," Brown says.
While some companies are breaking down inventory siloes, others are taking the opposite approach. They're building completely separate store and e-commerce fulfillment networks, strategically placing huge e-commerce facilities to promote quick delivery. Others are housing store fulfillment and e-commerce operations in the same building.
The new e-commerce centers look very different from traditional DCs that ship in bulk to stores. "Retailers operating these e-commerce centers need more employees to pick orders," says Brown.
That's true even in highly automated facilities. "In the past, a distribution center might have measured 300,000 square feet, and employed 30 workers," he says. "Today, a DC might run 500,000 square feet, and employ 1,000 people."
These giant centers need more of everything—parking, break rooms, electrical power, and air conditioning. "There's a dearth of modern real estate that fits that requirement," Brown notes. The combination of high demand and scarce supply is driving up warehouse rental rates, he adds.
Whether they're hunting for larger facilities, creating shipping stations in their stores, or deploying new software to tightly link their channels, retailers share one common concern: They all need new strategies and tools to defend their territory, and promote further expansion in today's rapidly changing landscape.
Author: Merrill Douglas