Formulating the Distribution Centre of the Future: Prepare today for tomorrow's supply chain

Author: Raghav Sibal, Managing Director, Australia and New Zealand, Manhattan Associates

Over the past 10 years, e-Commerce has become increasingly prominent. Major online players such as Alibaba and Amazon have been the driving force behind the growth. As e-Commerce purchases and revenue have grown, the innovation and competition in the industry have increased.

Today, companies are working hard to offer more to their online shoppers. More choices, more flexibility and more promises, which bring more complexity to the operations. E-fulfilment has become increasingly complex when you consider all of the factors in play. In the last five years alone, distribution centres have been evolving to better serve their customers.

The dramatic growth in e-Commerce, which a recent report from ‘Research and Markets’ called ‘Asia-Pacific B2C E-Commerce Market 2015’, indicated that Australia leads the region with ‘cross-border online shopping’*, has changed how distribution centres operate. One example of this can be found in the way that orders are processed and shipping is handled. Long gone are the times of shipping in five to seven business days; delivery expectations have changed, and distribution centres are feeling the pressure. They’re expected to take action on an order within minutes of when it’s received and complete processing within a couple of hours.

While this does not necessarily result in same day delivery, the customer expects that it should result in same day shipping. Consumer demands have changed to a point where all standard shipping orders are expected to arrive in two or three days, or even sooner, regardless of where the distribution centre is located.

Managing Simple Orders…Seems Easy, Right?

In general, e-Commerce orders are small, and companies are doing a lot to account for and take advantage of this. Fulfilling “singles” orders is as easy as finding the correct item, boxing it up and shipping it. Many e-Commerce operations are set up to specifically handle such simple orders with a high level of efficiency.

However, if a company is not prepared operationally, even the simplest orders can be challenging when you take into consideration scale. Offering hundreds of thousands of unique stock keeping units (SKUs), processing tens and even hundreds of thousands of orders per day, and handling spikes resulting from promotions and/or social media exposure can be very disruptive to your simple order fulfilment strategy. As a world famous boxer once said, “Everyone Has A Plan Until They Get Punched In The Face.”

Now keep those taxing conditions in mind and reimagine how you might re-craft a more optimal fulfilment process: One that also takes into consideration more complex orders, conveyable and non-conveyable items, and shipping hard-lines and soft-lines products — all from the same e-Commerce distribution centre. Now you can see why distribution operations are being rapidly reformulated.

As e-Commerce continues to grow, ensuring distribution centre efficiency must be a top priority. This can be achieved with help from a warehouse management system (WMS) whose algorithms can ensure that processing a number of the same simple orders at once is handled as efficiently as if you were processing just one single order.

Addressing Complexity

Moving forward, e-Commerce will continue to grow, and larger, more complex orders will become more prevalent. To effectively manage them, companies must leverage WMS software that increases the efficiency of their distribution centre.

A world class software solution will allow distribution centres to reduce costs by picking and processing in bulk, thereby reducing time and travel. This includes batch picking the required items in carts and totes instead of into the actual shipping container.

In today’s world, mastering efficiency is a must, and distribution centres that are not utilising a modern WMS must start doing so before they fall behind their competition.

Handling Returns

Additionally, a challenge that e-Commerce companies face is a relatively higher percentage of returns. One cause of this is that consumers place orders based only on what they see online, without being able to physically touch the product. Upon receiving the item, they may decide it is not what they thought it would be.

For companies, dealing with reverse logistics is complicated — it requires specific logic and returns processing operations. Most importantly, in order for companies to handle returns, they must have interconnectivity and a strong set of policies and follow-up capabilities.

Distribution centres of the future must strive to make the return process as easy as possible, both for them and for the consumer. One example of an effective practice is when distribution centres include a label for return shipping inside the original package, allowing dissatisfied customers to return their packages with minimal hassle for both parties.

The Last Mile

Shipping is a rapidly changing element in the e-Commerce space, and many companies are turning to alternatives such as regional parcel carriers for additional shipping execution during the last leg of deliveries. These carriers typically offer lower prices and can provide shorter delivery times than national carriers, resulting in reduced costs for both the retailer and the customer.

Regional carriers play an important role; today’s customers care more about when their orders will arrive and how much shipping will cost than who’s delivering the package.

These are just a few examples of how e-commerce is shaping distribution centres. So long as companies continue to increase their online catalogues and offerings, distribution centres will continue to grow in size and complexity, adapting to the e-fulfilment landscape. In the future, more companies will leverage the latest WMS software to improve process efficiency and decrease shipping times.

*References: http://www.businesswire.com/news/home/20151015005789/en/Research-Markets-Asia-Pacific-B2C-E-Commerce-Market-2015

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