So you’re good at fulfillment. Why shouldn’t you be?
You’ve been shipping catalog orders for years, and you know what you’re doing. Then you open stores. And you find out how little you really know.
Retail fulfillment is different.
For one thing, the orders are bigger. Up to half of all consumer direct purchases are for a single product. But in retail you can end up shipping dozens of lines, or items, according to Bill Kuipers, partner at Spaide, Kuipers & Co., a management consulting firm specializing in fulfillment.
You also need to think about floor sets and displays. Does this mean you need to invest in a separate distribution center for your stores?
Not necessarily. The Container Store doesn’t, despite the fact that it sells from 39 stores and a Website.
“We use the same distribution center for both,” says Amy Carovillano, vice president of logistics and distribution for the firm. “There’s a tremendous efficiency there. There are two separate processes, but having them in the same building allows you to keep inventory as fluid as possible. If we were to open two distribution centers, we would have to carry 40% more inventory to have safety stock in both.”
But it’s no small job. The stores average 25,000 sq. ft. and showcase more than 10,000 products.
And they’re spread out. The Container Store’s DC is in Coppell, TX, and its retail locations are scattered from Boston to Los Angeles.
“Freight costs are a growing expense and a big consideration,” Carovillano says. “With direct to consumer, it’s easy to pass those costs on to the purchaser, but it is absorbed into the cost of doing business in the retail stores.”
Carovillano speaks from experience. The Container Store used to have a distribution facility for the stores and a satellite location for Internet orders.
The trouble with double warehouses is that “you’re constantly shuttling merchandise back and forth,” she says. “If you can get the inventory in the system to be one shared inventory, it lets you get a better ROI.”
Even if you do go for a single DC, you still must decide whether to combine your retail and direct operations.
“If the volume is very high for one type of fulfillment over the other, or the product flow in the distribution warehouse is very different, it may be more productive to split the work,” says Kate Vitasek, managing partner of consultancy Supply Chain Visions.
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Going from direct to retail is a big step for a fulfillment center — you need equipment, training and a new warehouse management system.
Where to begin? “Start from the customer requirements and work back up the supply chain,” says Vitasek. “Successful companies are the ones that support the customer best.”
You also have to consider what your stores need. They may not have identical requirements, especially when your company owns more than one chain.
For example, Gap can ship apparel to its stores sans hangers, while sister brand The Banana Republic insists on them.
Then there’s the technology. While there is some commonality between direct and retail systems, each has holes that would prevent it from serving the other channel.
“Retail systems are usually terrible at fulfilling consumer-direct orders,” Kuipers says. “There’s inefficient, poor order batching.”
At the same time, consumer-direct systems are weak at tasks like “full-carton/large order processing, radio frequency support, EDI, and LTL (less-than-truckload) shipments,” he adds.
Kuipers says you should start by analyzing how the types of orders differ.
“Visit or at least interview some retail or even business-to-business companies that are proficient at retail fulfillment to understand what the best practices are,” he says. “Ask specifically about shipping requirements, unit prep and/or labeling requirements, information exchange with stores, carton labeling requirements, and ability to ‘pick and hold’ orders for specific delivery schedules.”
Next, work backwards to adapt each part of the supply chain to fit those needs. This will keep you from investing in the wrong systems.
Let’s say you’ve done all of the above. There’s one other requirement.
Whether you do fulfillment at your original center or create a second one for retail, it better be efficient.
“There tends to be a different mentality between retail and consumer direct,” says Kuipers. “Direct tends to be very entrepreneurial — you have tightly held small companies, with an emphasis on the marketing. There’s not a lot of emphasis on the operations side. Retailers are more likely to be chains that invest in things like automated conveyor systems.”
Retail distribution requires different material handling equipment, picking methodologies, and even different shipping carriers.
For example, The Container Store uses parcel carriers and occasionally LTL delivery to ship orders to individual consumers, but sends full truckloads to its store locations.
Kuipers also urges merchants to implement cross docking.
Say incoming product has arrived at your DC and some or all of it is for immediate delivery to a retail location. Instead of putting it into the pick and reserve locations, create a temporary staging area so that the goods come off the truck and go directly to the easily accessible staging area. Warehouse workers can then pick the merchandise from there to send it to the stores.
Above all, keep an open mind.
“Some of the specific tricks that are critical for a large volume of small orders won’t matter much on the retail side, and things like cross docking that are important for retail won’t matter for consumer direct,” says Kuipers. “You have to be very flexible — the people who are good at doing both don’t have a one-size-fits-all pick method.”
Finally, learn from the mistakes of those who have gone before you. Too many businesses fall into what Carovillano calls automation-think.
“For example, some people in the industry have an ASRS (Automated Storage and Retrieval System) and they use it for both direct and retail to get the most out of it,” she says.
But if your ASRS system is designed to pick individual items or “eaches,” sometimes it’s easier to get a pallet and pick big orders manually.
One pitfall is “over-automating and forcing everything through the same process,” Carovillano says. “Having robotics pick 12 eaches and then having someone assemble and pack them into a box to ship would be more work than manually pulling a case. That can be hard to recognize if you have an existing picking methodology that works well, be it ASRS or other systems. You want to leverage the existing investment, but that might not be the best strategy.”
Instead, look at both sides of the business to determine the best systems for material handling and other processes.
Another mistake new retailers make is to build their active pick location with both full cartons and single pieces so they can pick both large retail orders and small direct orders out of the same picking location. Kuipers recommends picking small orders from the pick areas and keeping full cartons in a reserve area.
One more snafu is lack of communication. This can affect all areas of fulfillment, but it especially spells trouble when marketers are first jumping into retail.
“I have seen instances where the marketing team spent many hours working with the supply base in preparation for a huge promotion or product release,” Vitasek says. “The failure came when no one let the distribution center and the transportation teams know of the promotion, so the DC was overwhelmed when the suppliers began to push out product and the orders began to flow.”
Vitasek concludes: “It’s more common than you might think that a critical link in the supply chain is left out.”
Concord, NH-based Linda Formichelli has written for Call Center Management Review, Nation’s Business, and USA Weekend, among other publications.