Converting your store into a fulfilment centre: Is it the new retail mantra?

Converting your store into a fulfilment centre: Is it the new retail mantra?

Converting your store into a fulfilment centre: Is it the new retail mantra?

(This article was originally published in the Economic Times – link)

E-commerce continues to reshape the retail ecosystem. While brick and mortar stores will continue to exist, the growth of online shopping is forcing store owners to rethink the way they do business to adapt in the changing paradigm of retail landscape. One of the significant impact of digital transformation in retail is noticed in the supply chain management.

At a minimum, providing a seamless omni-channel experience requires a robust inventory management where customers can order from anywhere and get his product fulfilled anywhere. What it requires from the logistics point of view is a dynamic and agile warehousing strategy that will help to achieve quicker and seamless last mile fulfilment. This is crucial, especially since logistic costs in India for retailer is significantly higher than its global counterparts. According to Mckinsey, the current wastage cost by inefficient logistic is equal to 4.3 percent of GDP, and if not corrected will increase to five percent of GDP or $100 billion by 2020. With all these challenges, Distributed warehousing can play a critical role in streamlining the logistic functioning of retailers.

What is distributed warehousing?

Traditional retailers who deals with bulk orders on a daily basis manages their e-commerce fulfilment through captive warehousing where all the fulfilment of products is handled by third party logistic service providers. This typically results in large scale investment in maintaining, outsourcing and less control on the spend and operational efficiencies.

Besides tapping the same inventory for in-store and online stores, enterprise retailers are thinking beyond traditional fulfilment mechanism. Product in the warehouse and product in the stores forms a single inventory pool, available to customers shopping via any channel. Distributed warehousing involves fulfilment from anywhere either from stores or its own warehouse and delivered anywhere.

Right time to implement distributed warehousing

For big retail chains, shipping from stores offers a possible strategic advantage. Merchants that uses their stores as fulfilment centers can get product to customers fast in the same way as top e-commerce brands does it through its huge distribution centres. But the distributed warehousing system also poses challenges, because most stores aren’t designed to handle ecommerce orders. Along with processes to manage fulfilment from the store, a retailer needs the right technology and formal training to execute e-commerce fulfilment. Also, it is imperative that retailers first get used to the fulfilment mechanism before adopting full-fledged distributed warehousing. To enable an efficient shift to the new model, formal knowledge transfer and training to logistic personnel of the brands through BOT (Build Operate Transfer) consulting model is absolutely important. BOT is a type of arrangement where a third party builds a project, operates it and eventually transfer ownership of the project to the brand or retailer.

A good distributed warehousing strategy can reduce freight cost significantly as well as brings more controllability on e-commerce operation and bring in customer convenience by enabling faster delivery to nearby customers. The reduction in Supply chain cost (as percentage of sales) is expected to be in double digit if retailers adopt transition from captive warehousing to distributed warehousing mechanism.

In a world, where sales occur predominantly online, emerging demand for greater speed and flexibility without inflating supply chain cost will force retailers to better accommodate real-time decision making in the distribution center. Today, most companies accumulate e-commerce orders, then serve them in batches to warehouse associates. Batching doesn’t efficiently work in the new omni-channel world, where retailers are trying to turn around orders faster. But the closer the retailers get to releasing new orders to pickers in real time, the greater the risk of quiet periods, when machinery won’t be handling any product.

Today, we are talking about next day shipments for e-commerce, but the industry is buzzing with rumors of big retailers moving into same-day shipment. To be able to make same day shipment a reality, retailers needs to increase their geographical proximity to the customer to a large extend. In addition, there is a need to look at all the different point of distribution – including one that ship from store – and formulate the most cost effective and efficient system to meet the demand of the modern-day customer.

Interested in implementing distributed warehousing for your business? We can help.

avishek bm
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