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CHANNELS > COMMERCE > CUSTOMERS
Supply Chain
Optimization
Sponsored by
chainstoreage.com / a Lebhar-Friedman® Publication
Fulfillment of Online Commerce is
Top Priority for Retailers
Creating a seamless customer experience across all
channels requires integration, innovation.
A
s retail sales emerge from the long, painful recession,
retailers are reviewing electronic commerce fulfillment strategies with
the goal of aligning with several key trends.
These trends include adopting omnichannel fulfillment strategies, implementing advanced technology tools and responding to an
e-commerce sales tax designed to level prices between e-commerce
and brick-and-mortar retail.
Retailers that fail to respond to these trends risk losing out to competitors who are already on track with the latest e-commerce fulfillment strategies.
This kind of visibility enables manufacturers to deliver goods to the
fulfillment centers as needed, ensuring that retailers can ship goods to
customers as orders come in.
Such enhancements in speed and accuracy also help reduce supply
chain costs. Goods are moving faster over shorter distances, driving
transportation costs down.
The Omnichannel Strategy
The term omnichannel is quickly replacing multichannel. The reason
is that multichannel fulfillment refers to two or three channels, while
omnichannel fulfillment means any channel customers want.
“Omnichannel fulfillment focuses on providing a seamless customer
experience,” said Kris Bjorson, an international director in charge of
the Retail/E-commerce Distribution Group with Chicago-based Jones
Lang LaSalle. “It means the marketer will fulfill orders however customers want.”
Omnichannel fulfillment offers a competitive opportunity right now.
According to the Retail Industry Leaders Association (RILA), fewer than
6% of retailers have installed and turned on effective omnichannel
fulfillment systems.
Technological Speed and Economy
In fulfillment centers, voice and other picking technologies can
increase speed-to-market and improve accuracy. Goods-to-people and
other automated storage and retrieval technology can further boost
speed and quality.
Then there are software applications that can enhance visibility
into the supply chain, telling marketers exactly what goods are where
— in stores, distribution or fulfillment centers, on different transportation modes, supplier warehouses or elsewhere in the supply chain.
Technology even makes it possible to track the color of products at
the carton-level.
Creating a Fulfillment Trend with Sales Taxes
State sales taxes have been looming over the e-commerce world
for years now. Brick-and-mortar retailers have been lobbying to make
out-of-state, online-only retailers charge state sales taxes. As the saying goes: Careful what you wish for.
Online-only retailers, such as Amazon, have, of course, fought sales
taxes. However, Amazon switched gears last year. Instead of worrying that sales taxes would force price hikes, the online giant started
building more fulfillment centers closer to customers in new states.
Goals include shorter shipping distances, faster fulfillment, happier
customers and perhaps overcoming the sales tax price hike with lower
transportation costs.
Legislation requiring online retailers to collect sales taxes has
already begun to work its way through Congress. In early May,
the Senate passed a sales tax bill and sent it to the House of
Representatives. n
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Making the
Supply Chain Work
Retailers must deal with three primary supply chain
execution challenges.
F
rom mastering big data to overcoming a shortage of truck drivers, retailers face a host of supply chain challenges on all fronts. But
particularly vexing are those aligning the supply chain with a unique
retail strategy, balancing supply and demand, and gaining visibility
and control over the end-to-end supply chain.
Aligning the Supply Chain With Retail Strategy
When defining their strategies, retailers take different things into
consideration depending on their end goal. Some retailers for example,
consider the merchandise, the selection and the price, while others focus on the customer experience, which could include two-day
delivery. Alignment in this case means putting fulfillment centers in
the right geographic locations and employing the right transportation modes, said Jim Tompkins, CEO of Raleigh, N.C.-based Tomkins
International.
The answer to that question lies in creating a balance between
supply and demand.
Balancing Supply and Demand
Accurate forecasts would balance supply and demand, but predicting the future consistently and accurately just isn’t possible. Think
about women’s apparel, for instance — 60% is sold at discount.
Thanks to poor forecasting, there is too much women’s apparel in the
marketplace.
As a solution, retailers should work on achieving a demand-driven
supply chain — one that reacts to actual demand as opposed to
forecasted demand. The demand signals should come from actual
purchases, with visibility to this data shared with partners throughout
the supply chain.
This kind of increased visibility would enable distribution and fulfillment centers to optimize inventories, improve delivery performance,
reduce costs and improve customer service, according to Tompkins.
Controlling an End-To-End Retail Supply Chain
Supply chain components must also align with other parts of the
strategy. The merchandise selection strategy, for instance, requires
fulfillment centers to carry merchandise that matches customer
desires from that geographic region.
“There are numerous alignment issues,” Tompkins said. “If a customer orders a sweater and a sport coat located in different fulfillment
centers, how will you get them into the same box — to deliver on the
customer experience part of the strategy?”
Supply chains, today, include six links: plan, buy, make, move,
store, sell. Typically, a manufacturer designs, plans, buys, makes,
moves, stores and sells to a retailer that has planned, bought and will
now sell.
The manufacturer is managing a seven-step end-to-end supply
chain. Retailers have traditionally managed a three-step supply chain:
buy, store and sell. Selling is the only physical step. But that’s changing, largely due to Amazon, which has set off an explosion of privatelabel retailing.
Amazon is underselling traditional retailers in hundreds of categories, from household appliances and hand tools to computers and television sets. Retailers are responding by introducing price-competitive
private brands that extend the retail supply chain to the six links
described earlier.
As a result, retailers will have to manage end-to-end supply chains
for each private-label product. But that’s a big challenge because
most brick-and-mortar retailers have only just begun to develop supply chain expertise. Consequently, as retailers change strategies and
channels, they will need to get smarter about integrating the supply
chain network. n
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The Container Store
Deploys Voice Picking
Chain puts employees first in voice-directed warehouse
application rollout.
T
he Container Store credits its “employees-first” culture as integral to its success, believing that if you make employees your highest
priority, they in turn will take better care of customers. It’s a business
model that extends to all facets of the chain’s operations — including
the decision to deploy a voice-directed warehouse picking system.
“As a company, the first thing we consider in anything we do is:
How is this going to help our employees?” said Christy Parra, logistics systems director, The Container Store, Coppell, Texas. “It’s very
important that any new technology we install be something that is
going to make life better for our employees, in addition to the company, our stores and customers.”
After reviewing voice-directed warehouse applications, the chain
decided to deploy Jennifer VoicePlus, from Lucas Systems, Pittsburgh.
The tool, in essence, creates a conversation with warehouse workers
that frees their hands and eyes to focus on the job at hand.
“Our distribution center employees had a big part in selecting our
voice system,” Parra said. “We had to make sure it was right for
them.”
Parra said employees preferred Jennifer’s human voice and voiceenabled help functions.
“We also liked the ability to tailor what the user hears, not just for
ease of use and efficiency, but also to keep things fun and interesting,” she said.
The application integrates with The Container Store’s warehouse
management system and supports order picking in the 1.1 million-sq.ft. center for direct-to-consumer fulfillment and store replenishment.
It includes the flexibility to use speech recognition and bar code scanning interchangeably using a standard multi-modal mobile computer.
Also, Jennifer gives distribution center supervisors increased visibility into real-time operational information and the tools they need to
effectively manage their work.
Parra emphasized that for The Container Store, voice picking is
about more than efficiency.
“For us, it’s not just about being faster,” she said. “It’s about safety
and making things better for our employees.”
Parra said that the new system makes picking easier and also
more consistent compared with the RF-bar scanning system that The
Container Store used previously.
“With Jennifer, you just have to follow directions,” she said, “as
opposed to reinventing the wheel on an RF device. Also, the RF bar
code-scanning device is big and a little clunky to hold. Voice picking
frees up both hands, which is a big plus.”
Prior to deployment, the retailer conducted training sessions for
every employee who would touch the system.
The training was less about the actual operation of Jennifer — the
system is easy to use — and more about getting employees comfortable with the new technology.
“Change can make people feel nervous,” Parra said. “We wanted to
make sure everyone felt comfortable the day we went live, so we did
a lot of training and let people practice on the system.”
“It’s very important that any new technology
we install be something that is going to make life
better for our employees, in addition to the
company, our stores and customers.”
Christy Parra, logistics systems director, The Container Store
The retailer also assured employees that they were not going to be
“automated out of a job” by the new technology.
“We try to be as transparent as possible and make sure everyone
knows the end goal,” Parra said. “So we held a meeting for everyone
in the distribution center and made it clear at the outset that [the
voice-picking system] wasn’t about cutting anyone. Instead, it was
about helping employees be safer and do their jobs better and allowing us, as a company, to stay ahead of our growth, keep pace with
technology and be continuously evolving.”
The actual deployment went very smoothly and only took two to
three days.
Since going live with voice picking last fall, The Container Store has
seen steady increases in picking productivity, and a sharp reduction in
employee training time.
“Our employees think it’s much faster, and it is,” Parra added. “We
can pick 10 to 12 times faster than before. Employees also like that
they don’t have to ask someone what to do next. We deploy the work,
and Jennifer takes them through the day in a very fluid manner.” n
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Achieving a Smarter,
Integrated Supply Chain
How Retailers Can Improve Supply Chain Execution
Thomas Pettit is senior VP and general manager of Ryder’s Supply Chain
Solutions division. He is responsible
for leading the operations of Ryder’s
supply chain industry groups, including Automotive & Industrial, Hi-Tech/
Electronics, Consumer Packaged Goods
and Retail.
Pettit brings experience from a
20-year career in operations and
supply chain management. Prior to
joining Ryder, Pettit served as VP
global operations and supply chain for
Pentair, Ltd., as well as VP finance and
operational transformations for ADC
Telecommunications, Inc.
Recently, Pettit talked to CSA about managing retail supply chains.
CSA: What is supply chain visibility, and how is it useful to retailers?
Pettit: Supply chain visibility is having the technology in place that
tells you where goods are in the supply chain — what is on the retail
shelf, what is en route to stores, what is in the warehouse or what
goods are in movement. This kind of visibility will help create a more
streamlined supply chain and support better decisions in unplanned
situations. Suppose a ship will arrive late, throwing a shipment behind
schedule. You can accelerate those goods, perhaps shipping them by
air or truck instead of rail for the next leg of the trip. Faster transportation costs more, but you can compensate by slowing items that are
ahead of schedule.
You must know what is going on across the entire supply chain
so that you can manage events and deliveries without raising costs.
There are many opportunities. Suppose, for instance, that warm
autumn weather persists into winter. If a retailer and its supply chain
partner are alert to the opportunity, they can slow down winter apparel
shipments and use the savings to accelerate other goods.
In addition, there aren’t many natural gas equipment manufacturers
yet. So it’s important for retailers to look for solutions that can help
them optimize and maximize the use of transportation.
CSA: What do you see as the most common challenges retailers
look to a partner for help with?
Pettit: The most common request concerns regional retail expansions.
Adding stores to a region adds local distribution capabilities. Managed properly, local distribution can enhance e-commerce services
and make a retailer more competitive. The right partner should have
a national and international reach and should be able flex up with the
retailers to support future expansions.
CSA: You raise an interesting question. What advice would you
give a retailer who is thinking of outsourcing?
Pettit: First and foremost, look for a long-term partner. Too often,
retailers look for 3PLs that can solve today’s problem. Of course,
that’s important, but even more important is the problems that
will arise tomorrow and the next day. Look for a long-term partner
that can provide a broad array of services across the entire
supply chain. n
CSA: What is an area that retailers should focus on?
Pettit: Optimizing transportation networks. The transportation
system is in flux. Truck drivers are in short supply. Diesel prices are
rising, causing some fleets to switch to less expensive natural gas.
But natural gas equipment costs more than diesel equipment.
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Global find for the
word e-commerce
Study: Fulfillment of .com, mobile and tablet orders
a growing priority.
E
-commerce sales continue to grow and have a major impact
on multichannel retailers, according to a new report from RILA (Retail
Industry Leaders Association) in partnership with Auburn University
and with sponsorship from Accenture.
The most significant takeaway from the third annual “State of The
Retail Supply Chain” report centered on the importance of multichannel operations, including fulfillment of .com, mobile and tablet orders.
The report found that electronic e-commerce sales have grown by
more than 15% to $35.3 billion versus an overall sales growth of
4.1% versus the previous year.
With predictions that e-commerce sales will grow 10% annually, multichannel has become a game changer for retailers. It has
also added a new layer of fulfillment complexity that retail supply
chain management executives must manage.
More than 85% of survey participants indicated that direct consumer fulfillment is a top priority for them and that it is imperative
to create a seamless customer experience regardless of the fulfillment channel, order size, origin or delivery requirement.
“Consumer expectations are changing, and as a result, retail
business models are changing,” said Casey Chroust, executive
vice president of retail operations, RILA. “Traditionally, retailers
have used separate operational models to move goods and fulfill
orders. Now those models need to be merged so that companies can
continue to deliver the products consumers want across any channel without losing efficiency or adding cost. This requires advanced
integration and innovation, and working closely with suppliers and
service providers while utilizing technology.”
As the report highlighted, retailers face a number of multichannel challenges, including variation in shipment size, order filling
processes and delivery methods, as well as the inconsistent SKU
assortment of multichannel retailers. For example, less than 18%
of the retailers surveyed offer the same SKUs across channels.
“The real challenge for today’s multichannel retailer is to
become channel agnostic and fulfill demand effectively regardless of order type or origin,” said Brian Gibson, professor of
supply chain management at Auburn University. “As sales volume
grows in nontraditional channels, achievement of technology
integration, operational flexibility and process visibility will separate the leaders from the pack. These capabilities provide the
fulfillment agility, accuracy and cost efficiency needed for multichannel success.”
The report data was compiled through a series of executive interviews and industry surveys with retailers across every segment
of retail, with the goal of understanding the capabilities that drive
exceptional retail supply chain performance. All told, 199 retail supply chain executives took part in the research. n
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The Lean
Warehouse
Lean processes eliminate waste and use fewer
resources to meet retailer requirements.
L
ean management aims to eliminate waste, which in turn
improves productivity and reduces costs. Lean thinking first emerged
in manufacturing plants, specifically Toyota Motor Company manufacturing plants. Today, however, lean processes have found their
way into many different kinds of organizations, including warehouses
and distribution centers.
“Lean methods use as few resources as possible to meet customer requirements,” said David J. Graham, managing partner and
co-founder of Lean Quest. “In a warehouse or distribution center,
resources include space, equipment, packing materials, people, time
— whatever it takes to move materials into, through and out of the
facility. Lean methods attack problems that waste resources.”
Done well, a lean implementation will lower costs while increasing
speed and accuracy, enabling a retailer to outperform competitors.
In a lean system, retailers order only what they need. As a result,
individual pallets will now hold multiple SKUs, instead of the single
SKU, and supply and demand quickly come into balance.
Lean focuses on cross training, labor management programs and
process standardization to make sure that distribution operations can
easily flex up and down depending on demand. Cross training allows
employees to carry out different assignments in the distribution center based on demand and the number of orders to be filled.
“This changes the routine in the warehouse. It enables you to
design a value stream that is synchronized from end to end,” added
Graham. “Materials move efficiently from the receiving dock to the
shipping dock, with shorter stays in storage.”
Miami-based Ryder Supply Chain Solutions, a division of Ryder
System Inc., has emerged as an innovator in lean warehouse management. It follows five lean guiding principles in managing its own
or its customers’ warehouse operations.
1. People Involvement: Employees must work as a single team,
with everyone — from the CEO to the newest hire on the loading
docks — pulling in the same direction. Lean cultures value communication skills and use them to solve problems, root out waste and
make improvements.
2. Built-in Quality: This means striving to prevent mistakes
before they happen and engineering processes to make them “mistake-proof.” When a mistake does occur, lean teams dig out the root
causes and develop processes that will prevent the mistake from
recurring.
3. Standardization: Well-tested procedures should be developed
for every task carried out in the warehouse. Management communicates these best practices clearly and creates schedules and designs
work areas that facilitate their use. Finally, management tracks the
work to ensure that it proceeds according to plan.
4. Short Lead Time: The shorter the lead time, the leaner the
supply chain. A lean organization reduces lead time by streamlining
the work — eliminating steps that don’t add value and saving time;
designing facilities to keep work flowing without waste.
5. Continuous Improvement: No matter how well a process
works today, there is always room to make it better. Employees
might figure out how to shave a few seconds off of a procedure, or
create and implement an idea that improves accuracy. n
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Weathering
the Storm
Hurricane Sandy shows the need for a reset of supply
chain infrastructure.
O
ver the last decade, America’s Atlantic shores have faced
the wrath of more than a dozen hurricanes, causing damage worth
several billion dollars. Year after year, retailers have been learning and
fine-tuning their strategies to respond to the critical needs of consumers in the impacted areas, both in preparing for a disaster and immediately after.
Examples of such refinements include capabilities such as forecasting and inventory planning. Many retailers such as Walmart and
The Home Depot now have the capability to plan adequate inventory
to cater to natural disasters. However, many retailers are limited by
their infrastructure, most notably their distribution network, to respond
quickly to natural disasters.
In the 1980s and 1990s, retailers built their supply chain focusing on cost and efficiency. Simply put, retailers created a distribution
network that enabled them to move products from suppliers to their
stores at the lowest possible cost. This approach resulted in a distribution network that was built for scale — i.e. consolidating inbound
merchandise from suppliers upstream so that they could save on
inbound transportation costs.
The recent hurricane event only
accentuates the issues brick-and-mortar
retailers face in serving consumer needs,
quickly and efficiently.
These large warehouses also provided other benefits. First, such
large distribution centers were able to justify capital investments on
automation, substantially reducing handling costs. Second, these
distribution centers also allowed retailers to send full truckload shipments to the stores, saving precious dollars on outbound transportation. Lastly, scale-based networks were suited well for relatively stable
demand patterns and lower SKU assortments.
However, in today’s environment, these strategies are crippling
brick-and-mortar retailers. Ability to respond to markets impacted by
natural disasters highlight the lack of speed and flexibility of these
retailers — a result of their own making. The scale-based distribution network impedes speed and flexibility in several ways. First, the
distribution centers are located far from individual stores; in many
instances they are 200 to as far as 500 miles away. The fewer the
number of stores in the network, the farther the distribution centers
are located. Theoretically, the response time to ship merchandise to
a store is at least a day, but realistically, it will take two days to fill a
truck with merchandise and service individual stores.
Second, in most instances, stores are “hardwired” to a distribution
center. What this means is that a store can get its merchandise only
from a predetermined distribution center. So, if the designated distribution center is out of stock on an item, the store demand cannot be
fulfilled by the next nearest distribution center. The store will have to
wait until the designated distribution center receives the item (either
from the supplier or from the nearest distribution center). This limitation is mostly a result of the lack of IT enablement — the systems are
designed to single-source from a distribution center.
The irony is that the same network that once was designed for low
cost has not only become a high-cost-to-serve model but has become
a source of competitive disadvantage for brick-and-mortar retailers.
Some online retailers such as Amazon.com are experimenting with
same-day delivery. Meeting these service levels can only be possible
if inventories are deployed closer to the consumer, not in a distribution
center that is say, 300 miles away. Online pure plays do not have to
deal with high-cost, low-speed distribution networks.
Bottom line, there are several reasons why retailers should go
through a reset of their supply chain infrastructure, enabling systems
and processes. Such a reset is not easy. Many retailers are already
embarking on this complex and costly exercise of resetting their capabilities to move from a “low-cost” network to a network that focuses
on “speed and flexibility at optimal cost.” The recent hurricane event
only accentuates the issues brick-and-mortar retailers face in serving
consumer needs, quickly and efficiently.
Kumar Venkataraman, a supply chain expert, is a partner at A.T.
Kearney, a global management consulting firm, and leads its retail
operations practice. n
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Chart The Course.
Predict Conditions.
Synchronize Positions.
Harness Speed.
Create Balance.
Navigate Uncertainty.
Execute Fearlessly.
Execution Is Everything.
SUPPLY CHAIN • DISTRIBUT ION • T RANSPORTATION • CONTROL TOWER
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