E-commerce has forever changed distribution and created a level of complexity never before seen, with higher customer expectations and new retail demands.
But the question is, how do you ride the economic wave of e-commerce, and enjoy the new revenue opportunities, but also drive profitable fulfillment?
It’s complicated. Because the new distribution requirements make it astoundingly complex to accurately track fulfillment costs, traditional ERP and WMS systems don’t have the cost analytics visibility, and the burden is falling on operations teams to sort it out.
Ship It This Way…And That Way…And Oh Yeah, Another Way
Distribution centers are now required to ship several different ways:
- Bulk Ship – Traditional full pallet/container shipments to retail distribution centers, then further broken down and shipped to retail stores.
- Direct-to-Retail – Many retailers are now asking shipments go direct to their stores versus through their distribution centers. These shipments require mixed products per pallet.
- E-Commerce (parcel ship) – Direct-to-consumer shipments via USPS, UPS, DHL, or Fedex.
Each method of shipment requires a different business process and use of labor. E-commerce is the most labor intensive per unit shipped, whereas bulk shipments require the least amount of labor.
So how do you know exactly how much this is costing? And how do you know if all this would just be smarter to outsource or go through an e-tailer? And most importantly…what’s the best model to get profitable with every single e-commerce order fulfilled?
It starts with setting getting the foundational elements in order.
Key Components of E-commerce Distribution
There are several key components your distribution center will need to drive profitability at an omni-channel distribution center. These are:
- Technology – You will need a warehouse management system (WMS) that can handle variable units shipped, i.e., pallets, cases, and eaches. Most of the newer WMSs are configurable for varying units of measurement, but older systems are not. You will also want a Performance Analytics System, which Easy Metrics can provide. With direct-to-retail and e-commerce shipments, timeliness and efficiency become critical. Without a good analytics system, your cost to serve will be excessive, and your shipment speed will suffer.
- Warehouse Reconfiguration – You will want a separate area of the warehouse dedicated to parcel shipments. Doing parcel pick from the main warehouse will kill your efficiencies with travel time. Setting up a small warehouse within a warehouse, with pick walls for each pick, is vital for efficient picking and shipping. Direct-to-retail will also likely require some row reconfiguration for optimal picking.
- Reverse Logistics – Anywhere from 15-50% of e-commerce orders get returned. You will need both the technology, work area, and business process to handle this.
The Economics of E-Commerce Operations
This topic is bigger than this article, so we wrote a white paper on how the operations financial model works best for e-commerce distribution operations. It covers a critical element, which is cost to serve, across all your fulfillment types. We encourage you to download it here.
We talk about:
- Why omni-channel distribution through your own owned DC is more profitable than outsourcing
- The operations technology you need to expose your true cost per SKU
- The economics of e-tailer relationship, and who should handle the fulfillment
- The performance analytics you need to drive profitability in every e-commerce order fulfilled