Logistics News: E-Commerce Operations Are Increasingly Being Brought "In-House" and Developed As a Core Competency E-Commerce Operations Are Increasingly Being Brought “In-House” and Developed As a Core Competency

 

 
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Focus: Distribution/Materials Handling
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  - March 20, 2012 -  

Logistics News: E-Commerce Operations Are Increasingly Being Brought “In-House” and Developed As a Core Competency

 

Some Retailers Are At Risk of Being Left Out of the Cyberspace Marketplace

 
     
     
  by Cliff Holste, Materials Handling Editor
 
     
 
SCDigest Says:

When developing e-commerce plans it is important to remember that selling products in cyberspace still comes down to the physical movement of product through the DC to the final customers.


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As overall sales continue their gradual climb out of the recessionary hole, e-commerce sales are expected to keep rising at a strong pace in the coming months as busy consumers are increasingly attracted to the convenience of internet purchasing.

Up until a few years ago most medium to small distributors did not give much attention to planning for an e-commerce sales channel while the large brick & mortar distributors like Target, Walmart, Kohl’s and even manufacturers like Levi Strauss & Co embraced it. That has left many traditional consumer goods retailers and catalogers playing catch-up. While once dominate storefront chains such as Borders and Circuit City, who did not adapt well to the Internet, have disappeared and Blockbuster closed over 6,000 of its stores over the past few years.

As the e-commerce phenomenon gathers critical mass, the very power of its possibilities has accelerated change. It has happen across both the B2B and the B2C supply chains. I am currently working with a small (less than $100 Million per year) private regional B2B that is automating its 50K sq. ft. DC to accommodate this year’s launce of its new e-commerce sales channel. Once up and running the Company will be able to leverage its new e-commerce Continuous Order Processing (COP) system to tap into the national (even global) B2C market place. The possibilities are huge.

There is an element of risk though; if you can't fill every Internet order promptly, accurately, and completely - don't bother to promise it in the first place. Bad performance spreads throughout the web at blazing speed. Criticism on social websites, while often not justified, is especially damaging when there is a reoccurring history of it.

Incorporating a Business within a Business

The traditional mechanized/automated distribution center material handling picking and sorting systems are designed to handle medium to large orders, with the occasional processing of small orders. However, the internet consumer typically orders across one or two lines and in small quantities. But, with thousands of internet customers, the frequency of these smaller orders can potentially be astronomical, especially when promotions are in play, choking a traditional system – it’s a whole new ball game.

(Distribution/Materials Handling Story Continues Below)

 

 
 
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The three main order processing functions impacted by Internet orders include: Order Picking, Packaging, and Returns. Depending on marketing strategy, some Value Added Services (VAS) like monogramming, gift wrapping or some other form of personalization may be offered.

If you’re traditional pick/pack system design does not include provisions for e-commerce, there are relatively few options for integrating that capability into an existing operation:


  • Modify your existing processing methods and systems
  • Re-arrange and/or expand your existing facility to include a separate e-commerce area
  • Build a new facility with integrated e-commerce capability
  • Utilize a 3rd Party e-commerce center
  • Have your suppliers ship direct to your Internet customers from your website under your banner

In general, establishing best practice operations for e-commerce involves:


  • Modifications to order entry software and material handling systems as required for the adoption of a Continuous Order Processing (COP) system
  • Operating a high-capacity, high speed, highly accurate item picking operation
  • Maintaining 100% pick face inventory accuracy
  • Utilizing advance picking technologies  such as RF, Pick-to-Light, and Voice Directed
  • Achieving a one day or same day order shipping cycle time
  • Handling a high number of USPS, FedEx, and/or UPS shipping packages
  • Offer VAS
  • Supporting increased system transactions
  • Provide a quick and easy returns process

Processing E-Returns – Key Lessons Learned

The last bullet point above cannot be over stated. A few years ago I helped design and implement a reverse logistics process for QVC. At QVC managing and accurately processing returns is a high priority. They know that managing Internet consumer returns is a significant factor in whether or not an Internet consumer continues to buy from you or surfs the web for someone else.

Before Internet ordering only a small percentage of items were returned. With e-commerce you can expect 30%, or more, of on-line purchases to be returned. To support this volume, many companies outsource the management of returns to a third party operator. This option however should first be compared to processing returns in-house. The following are some of the key components of an efficient returns operation:

  • Customer-Crediting Process: Crediting the e-consumers account after a return is made is critical to maintaining a strong customer relationship. Failure to quickly process returns is the largest risk to e-retailers, according to a leading survey conducted on internet consumers. Achieving a crediting period of 48 to 72 hours from the point of mailing the return to crediting the customer’s account is an achievable goal. Advanced systems must be put in place to support this short cycle time. Streamlining the crediting process and making it easy to use will separate the on-line successes from the failures.

 

  • Quality and Control: Efficiently handling the products returned is essential for controlling costs and product quality. The goal is to maximize the value of the goods that are returned. Properly identifying the quality of goods returned, repairing damaged items, and repackaging destroyed packages are all examples of controlling the quality of returned goods. Establishing a network of aftermarket dealers and recycling services are also critical components of maximizing the value of returned goods.

 

  • Applying Technology: The material handling and storage equipment utilized in the returns area should support the anticipated peak volumes. The use of conveyors, sorters, racks and modular workstations should be considered in the design of the returns area. In addition, advanced systems must support the transaction volumes and quick crediting requirements. Integrating RF terminals is a must have for accuracy and efficiency.

 

Final Thoughts

When developing e-commerce plans it is important to remember that selling products in cyberspace still comes down to the physical movement of product through the DC to the final customers. Implementing an effective continuous order processing operation is not optional – it is essential in remaining competitive in today’s increasingly demanding e-commerce environment and in establishing and maintaining a customer centric relationship.

 

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