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22.12.2020

Local fulfillment – then and now

Especially since the start of the pandemic, we have seen how local fulfillment has changed.

Online grocery shopping, slowly gaining popularity over years, suddenly surged due to store closures and lockdown measures. According to research carried out by management consulting firm Bain & Company, the adoption of online grocery shopping has accelerated by two to five years in the US and Western Europe amid the pandemic. Plus, depending on how fast e-commerce grocery penetration will continue in the five coming years, Bain is forecasting up to 1.7x increased capacity requirements by 2023 and 1.7x maximum expected increase in online grocery penetration in 2025 vs pre-COVID-19 forecast in the US. [1] For grocery retailers, this means losing out on upselling opportunities in-store and tighter margins. Creativity and efficiency in selling and fulfilling online becomes paramount in this situation.

But it is not just about online grocery shopping. E-commerce in general has increased the need for better local fulfillment solutions - close to the customer to satisfy the ever-increasing expectations when it comes to choice, costs, and speed.

So, how can businesses keep up with the challenges? First, let’s take a look at how the process has changed.

Then vs now

Not all that long ago, the fulfillment process had manual processes, many of them. So much paperwork. Much less transparency. Orders were placed through catalogues. Customers were more patient, as a delivery could take several weeks to arrive. Visibility for the customer was almost unheard of.

Fast forward to today. The customer shops online, can change the order until the last minute. They will know when the order is going to be delivered or when they can collect it. For customers of retailers such as Amazon, that means even being able to trace the parcel in real-time en route as it passes through carrier consolidation points to the last mile.

There is a lot of communication taking place, especially when a distribution partner of the selling site is handling the shipments, and different systems have to communicate with each other and the consumer.

The challenges

While seemingly simple for the customer, behind the scenes it’s complex, especially from an IT point of view. Electronic business to business communications, carrier certified labelling, reconciliation after delivery with invoices on the system, the list goes on.
A lot can also go wrong: invalid customer addresses or customer refusals when the product is damaged or not as described. What all these things have in common: the costs incurred

weigh heavy on the shoulders of those shipping the products.

Especially where next-day delivery is involved, the time frame to make changes when things do not go as planned is tighter than ever.

If a seller resends a product a customer wasn’t originally satisfied with – how can you make sure the customer doesn’t get the exact same product again?

Support in form of technology

Having a solid warehouse management in place from the moment you have the order is crucial. Effective distributed order management is increasingly important, as sellers need to have more and smaller fulfillment sites closer to their customers. These solutions help to make good decisions regarding where to fulfill an order from. The “where” is often more important than the “how”.  It is easier to get orders to the customers quickly if they are closely located to them.  This significantly reduces transporting costs. Especially when it comes to making decisions in real time, this is where technology can help.

For online sellers and their 3PL partners, it’s helpful to invest in a transportation management system which delivers functionality such as order consolidation, least cost shipping and track and trace for shipments along the transport routes. 

The trends

Dark stores

We are witnessing the rise of dark stores - local fulfillment centers which are not open to the public and cater solely to e-commerce activity. This is especially prevalent in the grocery sector. However, even other non-food retailers have turned some of their brick-and-mortar stores into dark stores due to COVID-19 restrictions. [2]

On the one hand, this offers the benefit of being able to store more products in the available space, as they only need to be accessible for the workers to pick the orders. Warehouse space, especially in cities, is already costly, so this allows more efficient use of it to store more products. On the other hand, these stores or fulfillment centers are already located close to the customer, meaning products can be delivered faster.

However, in order to meet customer service obligations for last mile delivery, it is essential to have a good system in place, especially to keep up with the speed. That means having the right inventory at the right quantities at the right time, otherwise a business is set up to fail.

At this point, what we can expect is for those processes to speed up even further. Once the customer expectations are set, it is difficult to change them. We will also see more dispersed inventory and low-carbon fulfillment solutions that cater to local requirements. And combined with that, more sophisticated warehouse management systems that can scale up and down to the needs of dispersed inventory positions.

So, how can companies keep up?

The rise of third-party logistics providers

There is a real risk for businesses to incur heavy costs they can’t cover if they try to meet customer expectations, such as trying to keep up with the likes of Amazon.
As it is not viable for every seller to stand a warehouse(s) due to costs involved, we will see more companies leveraging third party logistics providers. 3PLs can amortize the cost through consolidating merchandise and shipping on behalf of many organizations. As a result, parties involved benefit from cheaper fulfillment shipping costs. These can then be more easily passed onto the customer. Given the complexities of third-party logistics, it is crucial to also support these processes with a reliable solution.

In a nutshell

Customer expectations around online selling are here to stay. However, with the advances in local fulfillment technologies, we will see greener solutions that reduce costs and meet expectations of the consumer at the same time. Going forward, it is all about smart inventory management to offer customers the choice and speed, while keeping the costs down.

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