Supply Chain Brain - February 2012

RETAIL
E-Commerce Causes Major
Distribution Challenges

The rapid growth of internet retailing is creating serious challenges for supporting retail and wholesale distribution operations. The good news is that growth rates for e-commerce are significantly exceeding expectations for most companies. The bad news is that there are some very stressed distribution operations behind the scenes that are having difficulty keeping up with sales.

—Marc Wulfraat, president, MWPVL
International Inc.

he complexities of fulfilling internet orders are now better understood as a result of record shipping volumes in 2011—in some cases exceeding 100,000 units shipped per day. Key differences exist between providing distribution support services for a high-volume retail web storefront versus a traditional retail store network.

For starters, web commerce peak shipping days are sharper, more intense and more concentrated than traditional store order fulfillment. Peaks run between November 1 and December 20 based on the buildup for Black Friday, Cyber Monday and Christmas. These massive surges place tremendous stress on the underlying throughput capacity and staffing requirements for supporting distribution operations.

Another challenge is that many retailers sell products on their web store fronts which are not stocked in their distribution center(s). They rely on a network of wholesale distributors to fulfill consumer orders with transparency for these non-stock items. This involves a fairly complex set of wholesale distribution support requirements, including: inventory reserved for retailer web storefronts, compliance issues, retailer-specific pricing/taxes, paperwork, and rapid order-delivery cycle times, which are expected by the consumer.

Distribution center operations are also vastly different for internet order fulfillment as compared to retail store order fulfillment. Most often, the shipping unit of measure ordered by the consumer is different from the unit of measure ordered by the store. Unlike retail store orders, consumer orders tend to be small in terms of order lines and units. The design of the picking and packing operation is critical to the success of the e-commerce fulfillment center. Intelligent order-wave planning, intelligent batch and/or cluster picking, and slotting optimization are vital strategies needed to minimize the travel time required to pick internet orders. If volumes are high enough, a mechanized pick-to-belt system may be required to efficiently manage split case picking operations.

A final challenge: many retailers have outsourced their e-commerce fulfillment operations to third-party logistics services companies because the supporting distribution requirements are so different from what they are used to. This strategy has not been entirely successful. Increasingly, retailers are now looking at ways to bring web order fulfillment operations in-house for self-distribution.