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Focus: Distribution/Materials Handling

Feature Article from Our Distribution and Materials Handling Subject Area - See All

From SCDigest's On-Target E-Magazine

- Nov. 14, 2012 -

 
Logistics News: Should E-Commerce Fulfillment and Regular Distribution Be Housed in the Same Distribution Center?


enVista's Jim Barnes Says There are Opposing Forces that Need to Be Juggled

 

SCDigest Editorial Staff


Multi-channel commerce is roiling the logistics operations of many companies, as consumer direct channels bring major changes to distribution requirements and processes for manufacturers, wholesalers and retailers.

Even more, logistics costs, from piece picking to discounted or free shipping, are taking a big bite out of e-commerce profits, to the point where many if not most retail consumer dot com businesses are said to be losing money.

SCDigest Says:

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Barnes also believes the "Amazon effect" will push many retailers to separate store and B2C distribution.
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Last week, SCDigest editor Dan Gilmore explored these issues and more in his weekly First Thoughts column (See Multi-Channel Commerce and the Supply Chain.) Part of that discussion was the question of whether dot com/consumer direct fulfillment operations should be located within the same distribution center where normal fulfillment to stores or regular distribution channels is operating, a debate that has been going on as long as e-commerce itself.

Gilmore included some comments in that column on this issue from Jim Barnes, CEO of enVista, a consulting firm that does a lot of work in the retail supply chain. As promised then, we have more of the extensive comments Barnes offered to SCDigest here.

"We like the idea of combining the dot com and retail distribution operation if and only if the retailer has the ability to consolidate reserve inventory but logically keep it separated using a Distributive Order Management (DOM) or what I like to refer as enterprise commerce flow (ECF) application," Barnes told us.

The problem, however, is that many retailers don't know how to do manage that or have the right software capabilities, Barnes says.

"So you see a lot of physical or virtual fences separating dot com from retail order distribution. Why? The inability to separate inventory and protect the channel, and the fact that order profiles are vastly different," Barnes says.
Barnes also says the very different distribution missions in retail between store service and consumer direct have to be considered.

"With retail it is all about store ready merchandise (making it easier for stores), picking by department or by store planogram, allowing stores to receive and put to shelf without sorting. The order profile is few orders per day, but many lines," he says.

Barnes notes that enVista has a specialty cosmetic retail client that picks 75 stores per day and 10,000 lines, all picked by its six major departments. Naturally, he says, the slotting for their retail orders is much different than that required for its dot com order profile, where the retailers sees 15,000 orders per day, with 3.2 liners per order or roughly 30,0000 lines per day.

He says that "Although the picking methodology is the same for both channels (pick to cart with Voice) the slotting of their SKUs for each channel is completely different," and the form factor of the product makes picking automation difficult.

On other hand, Barnes says, there are retail sectors such as apparel and footwear where the picking process can be automated through utilizing a sorter (cross-belt, Bombay, tilt-tray, etc.), making it more attractive to combine retail and B2C in one facility.

(Distribution/Materials Handling Story Continues Below )

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"This level of automation is an expensive proposition and the economics have to warrant it, but in the case of many our shoe retailers, the sorter is used for both channels and it is very effective," Barnes adds.

Barnes also believes the "Amazon effect" will push many retailers to separate store and B2C distribution.

"I believe to keep up with Amazon, retailers are going to be required to establish more satellite (spoke) locations in larger demographic areas that allow the retailers to service customer same day or at worse case next day. These spokes will be located in major metro areas with population over a 1 million people," he says.

He also said that "What I find interesting is that we are moving away from centralized networks in retail towards decentralized (hub and spoke) networks because retailers are competing on time, compressing time in order to improve service to their on-line customers."

He adds that all this is really putting a premium on the "the need for enterprise commerce flow technology or DOM solutions that allow retailers to optimize orders allocation and fulfill to anyone, anytime, from anywhere (even competitors). Don't lose a sale!" he says.

Barnes also says that many "mid-market retailers with legacy, store-centric software are in a panic right now," relative to multi-channel requirements.

The bottom line, Barnes says, is that "it is like any good consultant will tell you. It depends."

Next week, we are going to add additional comments on this topic from David Schneider, former logistics executive at auto parts retailer Pep Boys, now running his own consulting company.


How do you think about the question of combining e-commerce and traditional distribution in the same facility? What are the decision drivers? Less us know your thoughts at the Feedback section below.

Recent Feedback

Co-locating ecommerce & traditional distribution is essential to minimizing the capital cost of inventory.  But Barnes makes good points about the similarities and the differences.  The differences are often more difficult for traditional operators to get their arms around.

I don't think the same-day or next-day delivery is as significant as Barnes suggests, but it does depend upon who you're competing against and how commoditized your products are.  In most cases, free shipping is a better offer than same-day or next day delivery.

But, as a consultant, I agree with Barnes, "It depends."


David P Himes
Partner
Direct Commerce Advisors
Nov, 14 2012

Adding to the factors stated by Mr. Barnes for separation of e-commerce and retail DCs. I would like to substantiate the factors by quoting few examples of recent relocations in DCs.

1. Emergence of e-commerce has caused separation of  online fulfillment DCs from retail DCs example: JC Penney has closed its 516,800 sq.ft. DC in Breinigsville and Home Depot has closed few of its DCs in Braselton and Baton. This hints towards closure or large DCs and move towards maintaining separate DCs for retail and online orders.

2. Improving customer access and following Amazon's steps, Target is planning to open small format stores in Chicago, Seattle, San Francisco and Los Angeles. Also, Best Buy is planning to decrease size of its store by 20% and increase their presence by 20% through small format stores.

3. Efficiency through Automation as mentioned in the article is feasible mainly in apparel and footwear retailers and is evident through consolidation of six DCs in ontario into a 1.8 million Sq.ft. DC in Moreno Valley by Sketchers.

Other factors deciding the separation of DCs are federal tax incentives, Panama canal expansion, logistics infrastructure and labour availability. 


Hardik Singhvi
Sr. Research Analyst - Logistics, Warehousing & Distribution
Beroe-Inc
Nov, 16 2012
 
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