Making the Last Mile Your First Priority – Part Two

By Andy Powell | 13 Jun 2012

In his first instalment on logistics and fulfilment in e-commerce, Andy Powell discussed how to start planning the right strategy. Now, he identifies some key difficulties that exist in the sector and what options for outsourcing are available.

Issues and Obstacles to Effective Fulfilment

In the first instalment of this series on fulfilment, I discussed the importance of getting your planning and strategy right, as well as some potential models to consider. So, if building the right fulfilment capability models is so obviously crucial, why is it so hard?

Two reasons:

  1. Changing scale and complexity
  2. Immature infrastructure and capabilities

Scale and Complexity

Servicing digital channels requires the opposite capabilities to servicing store-based physical channels. Instead of a few large orders to store, there are many small orders to homes or collection points. Instead of bulk cartons on pallets, most things are shipped as a collection of single items in a parcel. Instead of anonymous, largely predictable, “milk run” scheduled deliveries, most orders are time-sensitive, with personalised packing, and delivered into the customer’s hand.

While this complexity can be managed at low scale, it gets much harder to manage at scale. It requires:

  • Sophisticated picking approaches such as batch/wave picking using specialist equipment and sortation of batch picks to individual orders
  • Picking at all locations, not just ground and often with multiple items in the same storage location
  • Large physical spaces to sort and individually package/size/weigh orders
  • Efficient use of a variety of packaging materials
  • Warehouse management systems which can maximise the operational efficiency and space in the warehouse and support efficient cartonisation of product to minimise freight costs
  • Tight integration between order fulfilment execution (pick/pack ship) and freight management systems

Marketplace Maturity

We have played a game of catch-up over the past three years with the US and Europe in the realm of customer engagement and front-end sophistication. Althoughstill a way to go, Australian retailers have closed this gap considerably. However, we are still lagging in back-end order fulfilment.

Increasing volumes of parcels shipment to expanding geographies and with multiple service options makes sourcing a single freight provider harder.

Additionally, online only retailers have no physical network from which to offer distributed fulfilment or distributed network collection; while in a central distribution model, building these kind of large scale capabilities in-house demands capital investment, management focus and specialist expertise.

At the same time, not too many service providers can offer this as a ready-made solution. This is because traditional logistics providers have built infrastructure, processes and systems to service the traditional brick and mortar retail model, and changing is hard.

What Options Exist Currently for Australian Businesses?

There are three new types of specialist service providers in the Australian logistics landscape. They have sprung into existence to address the issues above and to fill the gaps not covered by the established logistics service providers in regard to the specialist requirements of online and omni-channel retail fulfilment. While each category of service providers listed below requires serious consideration in its own right, I have provided a brief overview of each.

  • Specialist online order fulfilment providers – specialist providers with systems and operational capability to pick and pack individual items and multiple small orders accurately and cost-effectively. Many of these players are coming directly into the market as start-ups, aimed directly at online retailers. Some are arriving as a sideways step, possibly from other industries, such as service parts fulfilment, in which high numbers of small, individually-picked, time sensitive deliveries is the norm, and for whom this is a clear opportunity to piggy-back on existing capability.
  • Freight optimiser/aggregators – providing access to multiple rate cards and optimising solutions to minimise cost at individual shipment level (see above). The key differentiation over traditional rates aggregators is order level systems-generated optimisation and direct integration to ecommerce solutions.
  • Distributed network infrastructure agents – providers offering a network of service agent collection and delivery points to support distributed network collection for those retailers without a physical network. Prevalent in the UK and US, this service is just coming into existence in Australia.

Choosing one or other of the models above is easier for online only businesses, as they have potentially less already invested in physical distribution network operations. For established retailers with this kind of infrastructure already in place, it is very difficult to move directly to these models, and a transition strategy is required, often employing a hybrid model or models. Such complexity requires robust operational design.

Watch this space for more information on planning out a top-shelf fulfilment strategy with Andy Powell. His forthcoming publication,’Getting online fulfilment right – A buyer’s guide to sourcing the new logistics services’ will be released later this year.

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