Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.
Once upon a time, the retail industry was a safe, predictable way to make a living. Businesses simply had to take delivery of inventory, stock the shelves, and greet eager customers at the door.
Sign on for a retail job in 2016, however, and you'd better buckle up for a wild ride. This industry is one of the fastest-changing sectors of the U.S. economy, with companies hustling to adapt to trends like drone delivery, virtual reality, and mobile commerce. One change looms over all the others, however: the rush to join the omnichannel revolution.
To get a better understanding of how companies are meeting the challenges of omnichannel commerce, DC Velocity and ARC Advisory Group, a Dedham, Mass., management consulting firm, teamed up to conduct our fourth annual survey on retail fulfillment practices. Respondents answered 37 questions on their approach to meeting current challenges in omnichannel commerce and their plans for the future.
The results showed that in spite of an array of new logistics strategies and processes, most retailers have simply bolted their new omnichannel operations onto existing infrastructure, fulfilling multiple order streams in the same DCs where they handle traditional store fulfillment. The survey statistics that follow tell the story of why, how, and where businesses are performing omnichannel fulfillment.
PRESERVE MARKET SHARE
When it comes to why companies embark on the omnichannel journey, the answer seems to be all about preserving their slice of the market. Asked for the top three reasons they were participating in omnichannel commerce or intended to do so, respondents said they wanted to boost sales, increase market share, and improve customer loyalty. Those responses finished far above cost-focused alternatives such as increasing margins, improving ability to rebalance inventory, decreasing markdowns, or reducing capital expenditures associated with building a new e-fulfillment warehouse.
We asked respondents which omnichannel capabilities they currently support, and they ranked the five options as follows:
Order at store, fulfill from warehouse (67 percent)
Return to store, even when goods are ordered online (65 percent)
Inventory rebalancing, shipping excess inventory from one store to another (54 percent)
Order at store, fulfill from another store (42 percent)
Parcel return, even when goods were bought in a store (32 percent)
As for how respondents fulfill online orders, the answers were all over the map: 75 percent said orders were fulfilled through a traditional DC that also handles e-commerce, 44 percent said orders were filled from a store, 38 percent said items were shipped directly from a manufacturer or supplier, and 32 percent use a Web-only DC. It should be noted that respondents were allowed to select more than one response, and as the percentages indicate, a number of those companies are using multiple methods. (See Exhibit 1.)
With three-quarters of retailers fulfilling orders from multiple channels in a single facility, that approach is clearly a foundation of omnichannel practice. And as our survey made clear, they're not backing off from that practice. Seventy-seven percent of respondents to this year's survey said they handled e-commerce fulfillment and traditional fulfillment at the same facility, an increase from the 69 percent who answered the same way in last year's survey. (See Exhibit 2.)
Retailers are taking orders from a diverse range of sources. In fact, when it comes to ringing up sales, it appears all doors are open: 86 percent said they took orders online (including mobile), 77 percent said brick and mortar, and 42 percent said call center and catalog. (Totals came to more than 100 percent because most businesses support multiple channels.)
Although many retailers are fulfilling orders from multiple channels in a single building, our survey also revealed that there is plenty of room for them to merge those operations more completely. When we asked whether respondents' e-fulfillment operations were segregated from traditional fulfillment, 59 percent of respondents said yes. That indicates that retailers run their e-commerce and traditional fulfillment streams in a single building, but use separate operations, employees, and inventory.
TOOLS OF THE TRADE
Within the warehouse, retailers are using a range of sophisticated software tools to manage their operations. When we asked respondents what technologies they used to support their omnichannel initiatives, the top seven answers were: warehouse management systems (WMS), demand management software, distributed order management (DOM) systems, total-landed-cost analytics software, inventory optimization software, transportation management systems (TMS), and labor/work force management systems (LMS). (See Exhibit 3.)
Retailers are investing in those tools because they expect e-commerce revenues will continue to rise, no matter where the fulfillment happens. As for where that fulfillment will happen, the situation appears to be in flux. Asked how they see e-commerce fulfillment locations changing over the next five years, 32 percent of respondents said they expected to see a rise in e-commerce orders fulfilled in traditional DCs, compared with 28 percent who expect to see more fulfillment taking place in stores and 19 percent who said Web-only DCs.
DELIVERING THE GOODS
So that's how the orders are sorted and picked, but how does the actual merchandise reach consumers' doorsteps? The omnichannel approach offers practitioners a dazzling array of options, from the latest high-tech drones to the do-it-yourself alternative: pick up in store.
We asked how retailers handled "last mile" deliveries and found that in practice, most retailers stuck with tried-and-true methods. The most common answer was courier delivery service (FedEx, UPS, etc.) at 43 percent, followed by a third-party logistics (3PL) partner at 23 percent, and arranging for items to be drop-shipped by partners at 20 percent. (See Exhibit 4.)
Some retailers are also experimenting with more creative alternatives, including deliveries made by store staff (via car, bicycle, foot, etc.) at 5 percent, drones at 2 percent, and crowdsourced delivery services (Deliv, Instacart, etc.) at 1 percent. And the future may hold even greater change. When we asked which delivery methods our respondents do not currently use but plan to use, the top three replies were crowdsourced delivery service with 8 percent, drop-shipped by partners also with 8 percent, and 3PL delivery partner at 7 percent.
Despite the rapid rise of omnichannel commerce, our survey revealed that e-commerce revenue has a long way to go before it passes sales from physical stores. When asked what percentage of their direct retail revenue currently came from each channel, respondents said 67 percent came from brick-and-mortar locations, 24 percent from online sites (including mobile), and 9 percent from call center and catalog sales. (See Exhibit 5.)
Overall, the survey indicated that omnichannel fulfillment remains in a state of flux. As retailers scramble to adjust to a shifting marketplace, they are experimenting with a wide variety of fulfillment practices and technologies. Stay tuned as DC Velocity continues to track the evolution of omnichannel fulfillment practices and shares the hard-won lessons of industry leaders.
ABOUT THE STUDY
This year's omnichannel study was conducted by ARC Advisory Group in conjunction with DC Velocity. ARC analyst Chris Cunnane oversaw the research and compiled the results. The 2016 study builds on research done last year in this area.
The study explored the details of DC operations to support omnichannel initiatives as well as how companies are handling the last-mile dilemma. The findings reported here are based on 109 responses. Respondents included logistics professionals from a variety of industries, who submitted answers between May and August of 2016.
As for the demographic breakdown, the majority of respondents (63 percent) sold goods through a combination of direct and indirect sales channels. Another 27 percent sold merchandise through direct retail only, and the remaining 10 percent through indirect sales channels only.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.