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It is common knowledge that order fulfillment strategies can enhance your bottom line and a customer’s experience. However, the current macroeconomic environment has not been kind to supply chain folks in their ability to execute order fulfillment in a timely manner. Overseas factories have been shutting down intermittently due to Covid outbreaks. High customer demand and capacity constraints have made container shipping exponentially more expensive and with longer dwell times. Warehouses are more difficult to staff than ever due to a labor shortage. Parcel shipping costs continue to increase, eating into profit margins. Forecasting demand is a fool’s errand (note, I’m not calling demand planners fools, it’s just that it’s so difficult to plan these days).
These challenges might be cyclical, but that does not mean wholesalers, distributors, retailers, etc. can just sit tight and wait for the cycle to end. There are long-term strategies that can mitigate these issues for when they occur again in the (hopefully distant) future. There are sourcing strategies like nearshoring, reshoring, supplier diversification, etc., but these could take years to accomplish.
In order to mitigate the effects of these supply chain challenges in the short term, companies need to implement order fulfillment strategies that not only make a positive impact on the bottom line and on the customer experience, but more importantly can be up and running in a year or less. Let’s review the top three order fulfillment strategies where this is possible.
Hyperlocal fulfillment is a simple order fulfillment strategy: fulfill orders from locations that are close to your customers. What that means is going from centralized fulfillment (orders for all customers are fulfilled and shipped from one to three facilities) to a decentralized model.
For distributors, a decentralized model could mean having 20+ small distribution centers (DCs) spread out across the country. A key advantage of this model is faster and cheaper replenishment, fulfillment and delivery.
For retailers, using this order fulfillment strategy means having access to inventory across the entire store and fulfillment network to fill online orders. In a world where replenishment inventory could be stuck in a container on a ship waiting to be unloaded for weeks, having access to all of your stock could mean the difference between a happy customer and a disappointed one. In addition, fulfilling and shipping from the store means delivery is faster and cheaper.
In the retail world, this concept of hyperlocal fulfillment is not new and continues to grow in adoption. The reason is that this order fulfillment strategy is relatively easy to adopt. There is an existing store (i.e., fulfillment) infrastructure with staff and inventory. The only missing piece is how to connect them all together — and that’s an order management system.
In the world of distribution, hyperlocal fulfillment is still a new order fulfillment strategy. However, as customer expectations around rapid delivery rise and inventory supply decreases, this might just be the way forward for savvy distributors. But wait! Didn’t I just mention earlier about labor shortages also being a problem? If you are wondering how a distributor that has difficulty staffing two DCs can staff twenty, the answer to that is automation.
According to Gartner’s Dwight Klapplich, “for most companies, the question is no longer if they should embrace robotics, but when, where, and how many.” It’s definitely an order fulfillment strategy you should at least be investing in now. What’s important to note is that automation does not necessarily mean big, expensive and potentially multi-year projects. There is a flavor of warehouse automation out there for every type of distributor, including small- and medium-sized enterprises.
For retailers, the opportunity for automation as an order fulfillment strategy is twofold. In the warehouse, it can be used for store replenishment, e-commerce fulfillment and wholesale fulfillment. In the store, smaller, lighter systems can be installed in stockrooms or adjacent buildings for ship-from-store and click-and-collect replenishment.
While websites, online stores and assorted customer-facing peripheral systems tend to get the most attention when it comes to digital transformation, that should not be where the project starts or ends. Digital transformation should touch all aspects of the business, and sometimes the low-hanging fruit might be the best place to allocate immediate resources.
For distributors and retailers, digital transformation as an order fulfillment strategy might just be that low-hanging fruit. Software like order management systems (OMS), warehouse management systems (WMS) and automation systems do have a measurable ROI. They are proven to increase productivity, accelerate inventory turnover and reduce fulfillment and shipping costs. While updating a website might make the biggest organizational splash, supply chain and order fulfillment optimization projects can make the biggest financial splash.
The world of supply chain might never be the same and that might be a good thing. If anything, the current retail order management environment forces us to be smarter, more efficient and more productive with limited resources. And that’s exactly what the three order fulfillment strategies listed above were initially designed to do.