How Distributors Can Thrive with Ecommerce

by

ERP Analyst,

I’m a big fan of online shopping. This holiday season, online shopping offered me the perfect buying experience: I didn’t have to face mobs of holiday shoppers, items were easily located with a search query, and–my favorite part–everything was shipped to me for free.

Forrester Research predicts the U.S. ecommerce market will hit $279 billion in sales by 2015, up from about $200 billion today. To meet this explosive demand, more and more retailers are turning to distributors for help in fulfilling online orders. But this is creating headaches–as well as new opportunities–for distributors.

The challenge is increasing consumer expectations, coupled with a paradigm shift from fulfilling business-to-business (B2B) orders to fulfilling business-to-consumer (B2C) orders. Consumers increasingly want to get their merchandise faster. Instead of shipping by the case, the distributor has to ship by the item. And instead of fulfilling the order in five to 10 days (a common turnaround time in the B2B arena), the order is expected to be shipped out in two to three days. Oh, and the customer wants the order shipped at little to no cost.

Four Ways Distributors Can Capitalize on eCommerce

In order to capitalize on the exploding ecommerce market, distribution networks need to evolve. Servicing the B2C market means absorbing some up-front costs. The key is to defray those costs by improving efficiencies in some innovative, often-overlooked ways. I’d like to share four areas that distributors should focus on to best serve the B2C ecommerce market:

1. Make products easier to pick

Organizing the warehouse for the most efficient picking route is, of course, critical. A simple strategy to achieve this is to organize the warehouse so that products with the highest sales volumes are kept at the front, which makes them easier and faster to access. However, predicting product demand is tricky. To determine which products will sell the best, distributors should invest in demand planning software. These systems determine product demand based on past sales trends and distributors can use this data to create a more efficient flow in their warehouse.

Distributors that are looking for more automated ways to pick orders should look at an automated material handling system such as Kiva Systems. Kiva Systems improves picking efficiency by bringing the order to the worker for packing.

2. Minimize package space

Once the warehouse is set up for efficient picking, distributors should focus on the packing process–specifically, the packaging itself. Why? Because, as Jerry Hempstead, founder of Hempstead Consulting, explains, “Shippers have introduced a shipping penalty based on the amount of space a package takes up rather than its weight.” This is a critical area to focus on because fulfilling consumer orders greatly increases the volume of packages leaving the warehouse.

Hempstead suggests distributors consider using Packsize to reduce package space. Packsize is an automated packaging system that can build a box to the size of the package you’re shipping. That frees up shipping space and reduces the amount of space boxes take up in the warehouse. To get distributors on board, Packsize is currently offering to absorb the cost of the machine. The catch: distributors have to buy their boxing material directly from the company.

3. Boost efficiencies in delivery routes

To further drive costs out of your shipping process, don’t neglect to analyze your transportation routes from a cost-efficiency standpoint. A transportation management program can help distributors figure out the most efficient route of delivery. In 2004, UPS started routing their trucks to reduce the number of left-hand turns, which leads to excessive truck idling that wastes gas. Sound trivial? Well, to date UPS has saved more than 10 million gallons of gas.

Beyond intelligent routing, distributors can also use services like EquaShip to help in the delivery process. EquaShip can help small- to medium-sized distributors take advantage of massive shipping discounts by picking up shipments and delivering them to the USPS facility closest to the customer’s ZIP code. With this service, distributors can take advantage of USPS’ last-leg delivery service which delivers straight to the customer’s door.

4. Critically analyze how orders are shipped

Efficiency improvements alone will get a distributor well on their way to coping with the added cost of supporting ecommerce. However, Hempstead notes that these efficiency improvements do little good if there isn’t some way to ensure the right choices are being made. For instance, it may be more efficient to automate the picking and packing of an order on an individual basis. But if three orders are going to the same destination, it doesn’t make financial sense to ship three separate boxes.

To guard against this problem, Hempstead recommends that distributors look at random samples of orders that are being shipped. If multiple boxes are going to the same location at the same time, it’s a good idea to take a step back and analyze the packing process.

Distributors that are able to perfect the process of serving the ecommerce sector will gain an edge over their competition. They’ll be perfectly positioned to take advantage of a market that will inevitably continue to boom.

I’d like to hear from you. How do you think distributors should cope with the new demands of ecommerce? Please leave a note in the comments section. Alternatively, send me your thoughts over Google+.

Thumbnail image was created by hospi-table.
 
  • http://www.fulfilltopia.com Eric Brown

    Derek,

    Good information here. As a CEO of Fulfilltopia.com, an ecommerce order fulfillment company, I would like to add to this. Order fulfillment for individual products is a very different operation from bulk distribution.  Systems & set up require maximum efficiencies to be competitive and not lose money due to labor costs.  Specifically as you discuss here eCommerce order fulfillment.  

    Some specific areas are:

    A. Integration between order management systems
    B. Picking process
    C. Packing/Inspection process
    D. Shipping process
    E. Returns process

    —–
    A. Integration – How you receive the orders are vital to managing and processing. Without the right integration, you spend more on labor to manage. Some key ways to manage the orders are:

    1. Batch files – files that may have a grouping of orders to be processed that day.  Typical formats maybe xml, csv or txt files.  With the right systems, you (or your client) can simply drop the file in an FTP site.

    2. Web-services – this is the best way to sub orders between systems.  This is an automated process. Typically web-services is a middleware that becomes a dispatch of sorts.  Web-services can be set up to pull or push data either live for individual orders, process orders for a certain time of day or process exceptions (international vs domestic orders)

    B. Picking process with waves – Three fundamental styles of picking are:

    1. Picking by paper
    2. Pick by scan
    3. Pick by voice

    Along with this are: pick to tote (bin), processing the orders in waves based on a shipping method (International vs domestic, US postal vs. next day delivery, etc.)

    C. Packing/Inspection process – Imagine a manufacturing line.  eCommerce Order fulfillment acts the same way. When you start processing 500-1000 consumer (B2C) orders per day, you will have to separate the positions in the warehouse. A ‘Picker’, should never also pack the same order. Your ‘Packer’ should inspect and verify that the items picked are correct. This is the most important vital step in the process. It can make the difference going from 99.00% to 99.85% accuracy. Your clients will not tolerate 99% accuracy. If you had 5000 orders per month, that’s 50 shipments with errors (picked the wrong items, wrong quantity, etc) compared to 7 orders.

    D. Shipping process – There are many variables to this. A good multi-carrier shipping system can help manage this process. It can help you choose the right carrier based on weight and shipping zones/distance.  This can offer big savings on shipping costs.

    E. Returns process – Just when you thought you were done…having a good returns process is often an after thought to the fulfillment process.  Certain types of products have higher returns percentages than others – apparel being the highest.  Areas included in the process are: efficiently processing the orders, communicating to your client about the return to issue a credit to the customer quickly and how to handle the products (discarding or putting back in stock)

    Eric Brown, CEO
    Fulfilltopia
    Leading provider of eCommerce Order Fulfillment and Multi-channel distribution globally.

  • http://www.ecommercefulfilment.co.uk James Hyde

    Great article – you look at some very cool kit, though it’s worth pointing out that there are some much easier gains to be had, just by ticking the basics. Get products well labelled, barcoded and sorted, design processes to eliminate mistakes and reduce necessary actions.

  • http://www.efulfillmentservice.com/ John Lindberg

    Eric Brown did an excellent job of pointing out the many technical differences between B2B vs B2C fulfillment.  The only thing I can add is the differences in facility layout when the focus is individual orders to consumers instead of case lots to stores. 

    A key labor cost consideration is pick travel time as the number and complexity of picks for individual consumer orders is so much greater than for business to business fulfillment.  In our picking layout for example we focus shop floor design on “visits per SKU” instead of items per SKU per shift, week, month or quarter. 

    Travel time, even when batch or wave picking can be considerable when retrieving tens or hundreds of thousands of individual items in small quantities and it pays to consolidate high visit rate SKUs to a single hot zone to minimize wasted steps. 

    Likewise, it pays to design for flexible pick bin sizes from a small pull out drawer system for tiny item SKUs, to multiple size bin boxes for larger SKUs, defined shelf space for larger yet and even pick from pallet locations for high SKU visit rates or large sized SKUs. 

    In short, the facility, equipment and software design for B2C fulfillment, in our experience, is quite different from traditional B2B processing.

    John Lindberg – President
    EFULFILLMENT SERVICE INC

  • http://www.efulfillmentservice.com/ John Lindberg

    Eric Brown did an excellent job of pointing out the many technical differences between B2B vs B2C fulfillment.  The only thing I can add is the differences in facility layout when the focus is individual orders to consumers instead of case lots to stores. 

    A key labor cost consideration is pick travel time as the number and complexity of picks for individual consumer orders is so much greater than for business to business fulfillment.  In our picking layout for example we focus shop floor design on “visits per SKU” instead of items per SKU per shift, week, month or quarter. 

    Travel time, even when batch or wave picking can be considerable when retrieving tens or hundreds of thousands of individual items in small quantities and it pays to consolidate high visit rate SKUs to a single hot zone to minimize wasted steps. 

    Likewise, it pays to design for flexible pick bin sizes from a small pull out drawer system for tiny item SKUs, to multiple size bin boxes for larger SKUs, defined shelf space for larger yet and even pick from pallet locations for high SKU visit rates or large sized SKUs. 

    In short, the facility, equipment and software design for B2C fulfillment, in our experience, is quite different from traditional B2B processing.

    John Lindberg – President
    EFULFILLMENT SERVICE INC

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