“Retailers may start to face the same competition present in the pharmaceutical industry…where an order is put out to multiple suppliers and the fastest to deliver wins the business and the others are sent back.”

OP/ED by Larry Sweeney

Online shopping is without a doubt the biggest trend to have impacted on the retail supply chain landscape in recent times. Consumer online shopping habits are showing no sign of slowing up and 2013 alone was highlighted by a massive rise in Australian domestic online shopping. This was reflected in an Australian Bureau of Statistics (ABS) report that showed a growth in online retail turnover from $358.9 million in March 2013 to $439.7 million in October 2013.

It is untrue, however, to say that Australian shoppers have ditched their past shopping habits and are now exclusively shopping online. Rather, the rise of e-commerce has clearly indicated a new desire amongst consumers for the flexibility to choose between a range of shopping preferences: physically visiting a store, ordering online and picking up at a store, ordering online and having the item delivered to their home or work, and many more.

Retail supply chains are feeling the pressure to offer this wide array of shopping experiences and better place themselves to compete with purely online international e-commerce operators. As a result, they are currently in a state of flux evolving from a single channel, to a multi-channel to a cross-channel and, lastly, to an omnichannel supply chain. Across the globe and in Australia, retailers are at varying points of this transition, with most at the initial multichannel phase and only a few large companies having already achieved an omnichannel warehouse.

Evidence that there are revenue benefits to be earned by moving away from a single-channel warehouse is present in ABS data that showed $267.3 million of the total $439.7 million spent online during October 2013 was multichannel online retail trade (online store and physical store). This compared to the smaller amount of $172.4 million spent on pure-play online retail trade (solely online store).

The introduction of e-commerce saw a reversal of the roles played in the industry, positioning consumers as the driving force behind the retail supply chain. Retailers are no longer as powerful and for the first time ever they face the challenge of meeting each and every shopper’s demands in order to survive into the future.

Confident consumers are constantly pushing retailers for cost efficiency and a seamless buying experience between retail bricks and mortar stores and online shopping. They want to be able to buy exactly what they want, when they want it and how they want it every time they shop.

The transformation in retail trends has posed a number of major challenges and changes for retail supply chains. Distribution centres long used to only having to pick bulk batches for delivery to a set number of retail stores on a weekly basis now have to adapt to picking small, one or two item orders for thousands of individual consumers on a daily basis.

Picking and delivery turn-around has also been drastically cut due to e-commerce and increasing demands from consumers around the immediacy of deliveries. Where once they competed to deliver orders within a 24-hour period, retailers are now being pushed to deliver same day or in a matter of hours. Those using e-commerce are often cost savvy customers, however there are some online shoppers prepared to spend a little more to get their delivery quicker.

Looking ahead, retailers may start to face the same competition present in the pharmaceutical industry, where there exists something similar to a tendering process, where an order is put out to multiple suppliers and the fastest to deliver wins the business and the others are sent back.

A few of the larger retailers are ahead of the game in setting up efficient e-commerce operations, however the trend for the majority, including in Australia, is for retail businesses to quite slowly build up their e-commerce operations. That means currently most retailers only have a small e-commerce section of their business that is actually costing them rather than earning profits, but they realise there is a need to keep building up this area because it will become much bigger and important to business in the future.

The first stage of a distribution centre’s transition commonly takes the shape of a tiny e-commerce corner of the warehouse, sometimes used merely as a clearance tool. Its efficiency and accuracy are not usually of a high standard due to picking small orders being so different for workers. With a little more time and experience, many distribution centres will introduce different picking carts for bulk store orders and e-commerce (a higher number of cart slots), which will be taken to different areas for dispatch. While bigger operations that have been fitted out for e-commerce for some time and are doing it well will grow to have whole sections dedicated to store delivery and e-commerce or even look to move e-commerce into a separate warehouse.

The good news for those retail supply chains that are still formulating their e-commerce operations is that they can now reap the rewards of basing their decisions on the experiences of those who adapted their warehouses for e-commerce some years ago. This experience is now arming warehouse consulting companies with methodology they can pass on, which will avoid other supply chain businesses having to experience the pain of trial and error felt by many warehouses who had to take it on themselves. The focus in the early stages should be for retail supply chains to work out a 5-year reconfiguration plan before any financial investment is made.

Retail supply chains should also avoid thinking that automation will guarantee their success in meeting the demands of e-commerce, as automation usually requires a minimum level of product or throughput and it is hard to justify the investment when e-commerce remains a small section of a distribution centre. A return-on-investment ROI will not be seen until e-commerce grows and retailers are in a position to open a dedicated e-commerce facility.

Larry Sweeney is the founder and senior vice president of Vocollect by Honeywell.