Supply chains are under pressure. From eCommerce to essential healthcare supplies, organisations have focused on delivery speed and flexibility to sustain sales and meet surging customer demand. But at what cost?
When physical stores went ‘dark’ during lockdowns, many retailers took the opportunity to redeploy their resources – people and space – into online order fulfilment. And that met immediate needs. It kept people employed and kept cash flowing. But now, as people return to bricks and mortar stores and sales staff are back to their usual roles, is store-based fulfilment still the answer?
The perception is ‘store to door’ means lower last-mile delivery costs and quicker delivery – because products are closer to consumers living in the same area. The reality is, parcels still need to enter the distribution network for processing. While Australia Post is looking at alternative models to meet customer demand for one-hour and same-day local deliveries, it’s unlikely to become the right solution for all customers in all locations.
Supply chain efficiency is a balancing act between cost and speed, expectations and capabilities. And it’s an increasingly complex equation once you factor in the number of different channels and touchpoints customers now expect, and the wider range of fulfilment options available.
A changing customer view
Omnichannel supply chain and omnichannel customer experience are two different things. Customers now expect to shop anywhere, at any time – and to be able to access the same products and service experience whether in store or on their mobile. It’s no longer about simply offering multiple touchpoints, but providing a single, unified experience.
This is not just true of retail. Banking customers expect the same level of functionality and access from their app as they would get in a branch. Patients want to move seamlessly from online bookings to a clinical experience – with their healthcare records available, yet secure. The question is how supply chains can better support this experience. To manage the flow of physical products, services or information – so it meets those expectations.
An omnichannel supply chain does this in a unified way across multiple contact points – stores, branches or outlets for fulfilment or ‘click and collect’, micro-fulfilment centres and centralised fulfilment centres – with all the logistics points in between. To make that work efficiently, and to meet customer expectations, you need fully-integrated systems that provide complete visibility. It can no longer be a manual, reactive process.
Weighing up fulfilment options
As retailers and their delivery partners rose to the challenge of meeting surging eCommerce demand that created Christmas-level volumes every day in 2020, we learned a great deal. It suddenly became even more important to know where inventory was and create more flexibility in distribution networks.
Now, we need to find new ways to keep meeting that increased customer demand – with an average of 5 million Australian households still shopping online every month this year1 – but also invest in more sustainable, scalable distribution models.
Depending on the size of your business, the assets and resources you have available, and the relative maturity level of your fulfilment model, the answer will vary. The first step is to prioritise what matters most to your customers.If it’s all about fast delivery and convenience, and you have a physical network available, ‘store to door’ could be part of the solution. If you’re more concerned about keeping delivery costs low for customers and making sure every aspect of the supply chain is working efficiently – then distribution centres or dispersed micro-fulfilment centres may make more sense.
And for some businesses, it may be a matter of doing both. To do that well, you need to build the model to support it, and take all the nuanced variables into account, at every step of the supply chain.
For example, we recently helped an iconic South Australia-based manufacturer and retailer develop distribution strategies on the east coast, where most of its customers live. This gave them the opportunity to save almost $2million in freight costs while also improving delivery speed to customers. Balancing the scalesWhen we work with our customers to find opportunities to optimise costs and processes – and find better supply chain balance – we see three similar challenges regardless of their size and capabilities.
Split-shipments add to the total cost of servicing an eCommerce customer. And it’s not the best experience for customers either. If a customer orders an outfit online, the top might be delivered from a local store in three days, while the bottoms arrive from an interstate store two weeks later. This can be even more problematic during clearance events, where stock is fragmented, baskets contain multiple items and discounted margins run the risk of being further eroded by multiple shipping fees.
When we worked with a major homewares retailer to resolve this issue, we focused on building a better algorithm. Setting fulfilment strategy rules allowed it to better manage costs and customer expectations. With full visibility of inventory, the retailer can automate allocation from the closest store or warehouse with the majority of items.
2. Physical space and staff capacity
Warehouses are designed for pick and pack efficiency – fulfilment processes underpin their operational rhythm. Retail stores have a different focus because the customer does most of the fulfilment process – finding the product, picking it and driving it home. That’s why staff are trained in customer service, not parcel management. But with store-based fulfilment, retail staff find, pick, stage, pack and send the product. Manifests and labelling require specific equipment, and ULDs and pallets take up space. Time spent in the stockroom is time off the shopfloor.
A smart store-to-door model could focus on stores where there is excess capacity, effectively creating ‘hub stores’. These stores may need to be prioritised for stock allocation – especially for peak sales events – and could also act as click-and-collect hubs. Staff will need to be trained in fulfilment, but can also be incentivised – for instance online orders despatched from the hubs could contribute to overall store KPIs.
3. Stock and parcel visibility
To make the dream of omnichannel fulfilment a reality, you need an accurate view of inventory regardless of its location. This means linking warehouse, eCommerce, POS and lodgement systems together.
When Cue switched on its ‘endless aisle’ strategy, giving customers access to any product in any store or warehouse, it increased sales by 130% in the first week2 – because customers suddenly had 90% more inventory to choose from.As well as reducing the cost (and risk of error) of manual handling, integrated systems can provide greater visibility to customers.
Partnering for faster, more flexible fulfilment
Ultimately, the aim is to balance the scales to enable faster transit time, lower distribution costs and a better customer experience – in equal measure. Australia Post has the breadth of experience to help organisations of all sizes – and across all sectors – optimise their supply chain efficiency to meet the needs of omnichannel customers today, and in the future.
This is the first in a series of three stories on optimising your supply chain. For support with your supply chain, please call Craig Bamford on 0418 371 447.