Increasing E-Commerce Efficiencies Block by Block
Consumer expectations continue to stack up, and pressures on e-tailers are mounting. Here’s how companies are building efficiencies and constructing e-fulfillment strategies.
Several years into the e-commerce sales boom, organizations face an evolving set of pressures.
Topping the list is the slowing growth rate of online orders. Total retail sales in Q4 2022 grew 5.2% year over year, with e-commerce accounting for 26.4% of that growth, DigitalCommerce360 reports.
While impressive, it’s a fraction of e-commerce’s 74.6% share of retail growth in the same period in 2020.
Inflation has also become a greater concern. Prices have jumped for numerous budget items, such as packaging, materials, and the cost of borrowing, with the Fed Funds rate increasing from near zero in March 2022 to about 4.5% one year later.
Boxed in By Consumer Expectations
Even with these challenges, many consumers still expect their orders to arrive within a day or two. Most also assume the orders will be accurate.
These shifts are prompting many organizations to rethink their e-commerce fulfillment and operations. “Companies are going back to the supply chain models that were developed out of necessity during the pandemic, and making them more efficient,” says Alan Amling, Ph.D., distinguished fellow, University of Tennessee, Knoxville, Global Supply Chain Institute.
Getting to the Next Level
For example, many companies are actively preparing for the next level of fulfillment automation, says Tim Smith, chief technology officer with MagicLogic Optimization Inc., which provides powerful load planning software.
One sign of this is the growing number of robotics deployments. Robots can streamline operations and cut the miles people must often walk within fulfillment centers, Smith says. By 2026, 75% of large enterprises will have adopted some form of intralogistics smart robots within their warehouse operations, Gartner predicts.
Yet robots also can present challenges. “Robots are not as smart or versatile or dexterous as people,” Smith says. “Software implementations that engage robots need to consider how the devices will actually move and place products.”
It’s also critical to consider what the robots will pick, says Amy David, clinical associated professor of management with Purdue University. For instance, when picking mammoth bags of dog food, the packaging materials need to provide enough tension that the robots don’t drop them, but not so much that the robots rip them.
Over time, it’s possible packaging will change so robots can better handle it, David says. If major retailers demand that vendors provide robot-compatible packaging, it’s likely companies will comply.
Given consumers’ continued expectations for rapid deliveries, companies need a streamlined fulfillment process and negotiated freight rates, says Aley Saleh, manager, supply chain implementation with Clarkston Consulting.
Supply chain organizations that leverage technology to automate order processes—while also ensuring accurate, complete master data across their enterprises—can mitigate supply chain risk, plan for various scenarios, and create an omnichannel strategy to provide customers an end-to-end e-commerce journey.
Visibility also is key to boosting efficiency and improving fulfillment operations. Systems that show the orders coming into the system, as well as the inventory available across stores, distribution centers, and warehouses, enable a “cost-optimized network,” says Lakshman Lakshmanan, managing director with the consumer and retail group of Alvarez & Marsal, a management consultancy.
Competing effectively in today’s business environment requires supply chain organizations to leverage every possible asset in their networks. This often means using technology to provide visibility that can help determine the optimal mix of fulfillment options for each order, Lakshmanan says. Does it make sense to ship from the store? To pull from a distribution center?
In making these decisions, e-commerce companies need to consider both optimizing costs and providing quality service, Lakshmanan says. For example, picking and shipping items from stores can be a way to quickly get products to customers, yet it also tends to be more expensive than filling orders in a warehouse.
“Dark stores” are an option when it comes to filling orders of dry goods and perishable grocery items, says Kirk Waldrop, managing director, operations transformation, with Grant Thornton.
These mini warehouses are similar to grocery stores, but dedicated to filling e-commerce orders. This keeps e-commerce traffic from stores and establishes dedicated stock for online orders.
Dark stores also add complexity, such as the potential need for a home delivery fleet to deliver orders, Waldrop says. An alternative option is a transportation solution that drops these e-commerce orders at the stores.
As companies implement automation technology, many are focused on gaining as much from their investments as possible, Smith says. Often, once a company chalks up a return in one area, management will ask how they can use the information the solution is generating to find gains in other areas.
To better take on the e-commerce behemoths, some small to mid-size retailers are banding together. Their goal? To lower costs and share capacity, Amling says.
Quiet Platforms, a subsidiary of American Eagle, says it “levels the playing field for small and mid-sized retailers by providing access to shared supply chain assets and relationships across every link of the chain,” according to a press release.
The biggest challenge in this model often isn’t technology, but building trust between multiple retailers and carriers, Lakshmanan says. For instance, excessive inventory and poor order management can become embedded in the organization, draining efficiency and boosting costs for all.
Along with deploying technology, supply chain organizations can take other steps to boost operational performance. A growing number of e-commerce retailers are asking consumers if they’d like to consolidate individual orders and receive one shipment, David says. Customers who agree may earn incentives, such as coupons good for future orders.
Companies can legitimately pitch this option as an environmentally friendly approach. At the same time, it cuts costs and enables businesses to use their fulfillment and carrier capacity more efficiently, David says.
Building for the Future
To tackle the labor shortage, e-commerce organizations can diversify recruiting efforts and foster an environment in which all people feel welcome, David says. This can include reaching out to groups that historically haven’t been a focus of recruiting, like the LGBTQ community.
Streamlining processes also can boost efficiency. One seemingly simple example is placing items that are picked more often within easy reach. Sometimes there’s no rhyme or reason regarding which products go into which bins, so pickers wander back and forth, Waldrop says. When inventory placement reflects ordering patterns, pickers can work more quickly.
While many companies had to quickly react to the e-commerce jump a few years ago, they now have an opportunity to fine-tune operations and build a foundation for future success. Leveraging this opportunity will prove key, as most consumers have become accustomed to rapid, accurate deliveries.
“Consumer expectations don’t go in reverse,” Amling says.
MagicLogic: Optimizing Load Planning
From its headquarters in British Columbia, Canada, MagicLogic develops load-planning software that leverages powerful algorithms to optimize even extremely challenging loads.
“We play a niche, but essential role in shippers’ e-commerce operations,” Smith says. Over the past 24 years, the company’s solutions have been installed in more than 3,380 applications across 51 countries.Many shippers turn to MagicLogic when they’re tackling unique challenges, Smith says. Some are handling specialized products or managing unique workflows. Others have highly customized warehouse management systems; to work with these, most load management solutions will also have to be extensively customized.
MagicLogic’s adaptability and versatility allow it to offer customized solutions to help all shippers effectively address these and other challenges.
A significant and bottom-line benefit of MagicLogic is that it offers valuable metrics about each shipment that can inform decision-making and enhance operations. The metrics include information on how full and heavy each load was; how much (if any) damage occurred during shipping; and how much was spent on packaging.
By analyzing this and other information, shippers can identify trends and determine ways to adjust their fulfillment and logistics operations to gain efficiencies. This might include, for instance, changing carton sizes or slashing the portion of shipments that are expedited, while still meeting service level agreements.
“When you have a fast way to evaluate these issues before you take action, you can simulate and cost out all possible options, then choose the best one,” Smith says.
MagicLogic offers two types of solutions: Cube-IQ and BlackBox.
Cube-IQ is designed to assist with manual load planning. Among other features, it offers flexible loading and stacking rules to ensure load weights remain within limits, keeping them safe and legal.
Cube-IQ also helps load planners achieve maximum fill rates, while a sophisticated rules engine ensures the most efficient container is automatically selected. Near real-time response capabilities mean shippers can use the results during checkout as well as for picking, carton selection, and fulfillment.
The software runs in multiple languages, and additional languages can be added without new software releases.
Shippers looking for an automated load planning solution can turn to MagicLogic’s BlackBox, which can adeptly plan loads without user intervention.
“Industry-standard APIs allow it to become a seamless part of most companies’ existing ERP, or warehouse or transportation management systems, including many customized systems,” Smith says. New installations are often up and running within a few days.
BlackBox supports complex, mixed-case pallet-stacking, including robotics or manual pack stations. It’s scalable, and through its diagnostic and self-monitoring tools, easily maintained. BlackBox can support both shippers that must fill hundreds of e-commerce orders in real time, as well as those managing intense cartonization operations.
Cutting Shipping Costs
Among the many companies that have benefited from MagicLogic’s solution is a hardware company that needed help in packing products more efficiently while ensuring they arrived in perfect condition. With MagicLogic’s BlackBox, the company has been able to pack its products more precisely, cutting both packaging and transportation costs. In all, the company has slashed its shipping expenses by hundreds of thousands of dollars annually.
Results like these keep MagicLogic busier than ever. “We’re gaining an increasing list of happy customers and partners,” Smith says. n