Scalable technology meets the eCommerce challenge - Raghav Sibal

by Raghav Sibal on 2012-11-13 06:01:16


Raghav SibalA multitude of challenges face retailers who enter the eCommerce world, whether it’s an online channel for a bricks and mortar retailer or a pure play operation.

Tremendous peaks are one of the biggest challenges, with some retailers seeing volumes traded online over the two weeks preceding Christmas of up to five times that of their normal trading period over the year. Technology – along with distribution centers, equipment, people and resources - needs to be scalable to manage such peaks and must manage indeterminable compound annual growth rates – perhaps up to 70 percent over the coming years.

Such growth is driven by an ever-increasing number of players entering the market and also Stock Keeping Units (SKU) proliferation. Product diversification and SKU growth creates a challenge in terms of managing inventory availability and visibility not just within the walls of the warehouse but across the entire supply chain.

If the venture into eCommerce is an additional channel for a bricks and mortar business, there may be duplicate inventory leading to issues such as working capital restrictions, availability of inventory, which channel should have priority, etc. It needs technology that can be overlaid across duplicate inventory pools to treat them as a single virtual pool so the online consumer gets preference in terms of supply; if you do not make a delivery to your online consumer then the chances of having a repeat order diminishes dramatically.

Only a few major players can go down the road of ever-expanding online product ranges to gain competitive advantage and deal with the resulting SKU number explosion and subsequent complexity in meeting the service levels for such extensive ranges. Determining which products make margin, however, is a difficult calculation. Starting at the point of sourcing, it goes through costs to land, store, distribute and to deliver. This “Total Cost to Serve” requires a technology toolset to establish this.

Using such a toolset can help online retailers focus on what they are good at and decrease their range to specialist line items that make high-margin contributions to the business. This reduces the complexity of online order fulfillment, allowing a retailer to more easily assure the 100% service levels that eCommerce demands and, subsequently, enhance its reputation.
eCommerce idiosyncrasies

eCommerce comes with numerous idiosyncrasies that require technology tailored accordingly. For example, the gap between the web front-end and fulfillment needs to be filled by technology that can take receipt of the order requirement and confirm real-time online availability to the customer while they are shopping; sending an email to say the item purchased won’t be available for two weeks will create dissatisfaction. This technology needs to look at real-time inventory availability and make a soft allocation against a customer order.

Then there’s the challenge of picking singles; the hit rates at any pick slot will be a lot lower and all the travel involved for multiple single item orders will result in a greater average cost per pick. With more diverse SKU ranges comes complexity associated with mixed products going to the same consumer. If the new range of SKUs is different in shape and size, technology will need to determine if the goods can be combined in a single delivery and which carrier will take them.

Moving from traditional Warehouse Management Systems (WMS) to systems with eCommerce capabilities will enable the best possible decisions on issues such as pick routes, packing station operations and consolidation of orders.

Companies using ERP applications with some legacy WMS capability will need to invoke improved execution and order management capability and this will require software solutions that plug between ERP and execution WMS / transportation solutions.

In addition to being tailored towards singles picking and high availability requirements, the WMS needs to deliver high levels of inventory accuracy. This requires an overarching technology to manage verification processes, voice recognition systems, data checking and validation of outbound shipment loads to a point where accuracy levels can be assumed to be 100%.

These accuracy levels need to be measured by a range of factors so that if a customer is continually receiving a short delivery, the wrong product or a missing order, then it is checked on a more frequent basis, maybe using an activity-based cost (ABC) analysis. Equally, if the problem is with the product – being damaged in transit etc – this will also need attention. These issues need to be tracked and mapped more appropriately against criteria such as destination, location and consumer to maximise the customer satisfaction level upon delivery, because service is everything in eCommerce and customers will change brand at a moment’s notice.

ECommerce is different – it is more complicated and more challenging then bricks and mortar stores, yet aided by eCommerce-enabled supply chain technology, companies that embrace the eCommerce opportunity can reap greater rewards because the growth potential is huge.

By Raghav Sibal, Managing Director, ANZ, Manhattan Associates