By Fabrizio Brasca
Australians spent $4.5 billion on domestic online retailers in 2011-2012 alone and this number has been growing steadily. Consumers have grown to expect a consistent and seamless shopping experience, regardless of whether they are connecting with a retailer via store, website, catalogue, mobile phone or social media. Fulfilling online purchases by parcel freight is putting pressure on margins as consumers’ reliance on e-commerce grows. Additionally, as online retailing becomes more of a commodity, retailers will be under greater pressure to offer free shipping — especially during holidays — to incentivise consumers to shop with them.
Many retailers are realising their transportation and fulfilment processes are simply not agile enough to profitably serve the demands of today’s all-channel consumer. As companies look for ways to reduce costs, retain service levels and create agility, transportation can no longer be viewed as an ancillary function.
Adopting a holistic approach
E-commerce and stores can no longer be serviced by different fulfilment channels. Instead retailers need to look at the network in its entirety to identify multiple, cost effective ways to fulfil a customer order. For instance, this may mean looking for opportunities to fulfil an online purchase via store pick-up instead of home delivery. In that case, the package could be added to a truck that’s scheduled to deliver inventory to the store on a weekly basis — a more cost-effective fulfilment option than incurring a parcel freight charge.
In order to look at the network holistically, retailers need to be able to evaluate multiple modes simultaneously when building their transportation plans. Retailers can break down silos across transportation patters to drive the most value out of their available assets, evaluate the optimal balance between customer service levels and costs, and ensure that they have all of the necessary information to determine the most profitable way to fulfil an order.
The value of incremental planning
The ability to plan incrementally and react as store and online orders change is critical to profitably meeting the needs of the all-channel consumer. By leveraging continual optimisation capabilities, retailers can aggregate demand and identify economies of scale.
For example, say you have numerous orders that you need to fulfil to a specific city or region. If you have the ability to aggregate your freight, you may decide to deploy a zone skipping strategy. Instead of shipping these orders direct to consumer, the aggregated orders can be put on a truck to a local depot, and then delivered via parcel to the consumers.
Another key facet of incremental planning is the ability to re-plan and re-route as store and online orders get cancelled or added. In order to maximise the value from this dynamic planning process, it’s important for retailers to view the entire network — all the way downstream to the warehouse operations. It’s essential for retailers to understand where inventory sits from an order-state perspective to ensure incremental plans can be implemented.
Retailers can continually optimise their transportation plans by employing dynamic capabilities at multiple points throughout the day and potentially modify fulfilment strategies to meet the changing needs of the all-channel consumer. Improved supply chain flexibility enables retailers to make more sophisticated changes on the fly such as re-planning remaining delivery legs while goods are still in transit. Retailers can also mix modes in creative ways such as leveraging local freight for in-bound pickups in order to drive bottom-line benefits for the company.
Mastering all-channel execution
The complexities of global logistics, the volume of data involved and the frequency of change make it difficult to gain sufficient agility and maximise potential value using spread sheets and manual processes. The good news is that retailers can gain substantial advantages by replacing less efficient, multi-site transportation functions with sophisticated technology that enable them to manage their supply and distribution networks in a more agile and cost-effective manner.
Retailers that can go beyond the traditional transportation planning activities to incorporate value-added services such as network modelling, centralised procurement and a wide range of analytics will be well positioned to meet the needs of the all-channel consumer. Not only does this help retailers to better utilise all of their transportation assets, but it also enables them to be more agile in responding to order changes, disruptions or the inevitable hiccups in execution.
The ability to incrementally plan and re-plan as exceptions occur is the key to mastering all-channel execution, and enables retailers to identify what mix of risk, cost and service for each shipment will drive the greatest value across the organisation.
Fabrizio Brasca is the vice president of global logistics at JDA Software.