Fast Fulfillment

The Machine that Changed Retailing

Sanchoy Das

• Publisher: Business Expert Press
• Year: 2021
• ISBN:
  9781637420775
• Topic: Business
• Subtopic: Marketing digitale
• Index: Business

This book provides insights and process details of how to design and build disruptive innovations, so that you are not flying blind or just throwing darts in an effort to pivot/expand to the online order fulfillment world.

The fulfillment machine is the delivery side infrastructure of an online business, it is the physical and digital innovations which make it possible to immediately deliver customer orders. Customers want to order everything, while sitting on their couch and they want immediate fulfillment. Fast fulfillment is happening, and everyone knows that, but most are scared of it.

Many experts describe the wonders of online retail, but none explains what fast fulfillment is or propose a solution to building a fast fulfillment machine. Managers are frustrated just reading about how great Amazon is, and how startups are innovating fantastic technology driven processes. Here is the book, written in a simple easy to read style which unravels the technical mystery of the fulfillment machine. It levels the knowledge field, reveals the secrets of fast fulfillment, and helps the reader construct a plan to innovate and be ready to face the disruptors.

What is happening in retail is contagious across industries, there are no wide moats. Managers and engineers are rushing to redesign their supply chains into fast fulfillment machines. This book provides insights and process details of how to design and build disruptive innovations, so that you are not flying blind or just throwing darts in an effort to pivot/expand to the online order fulfillment world. The book does not story-tell the fast fulfillment machine, it is informative and instructive.

CHAPTER 1

Paradigm Shift in Retailing Logistics—Fulfillment

Discover how innovative storage and distribution concepts have changed the delivery side of retailing—the supply chains that move goods from warehouses to customer doorsteps in hours. The disruptors have weaponized these innovations into a pivoting enabler—using fast fulfillment to capture and pivot customers from brick-and-mortar to online. Fulfillment machines are rapidly disrupting all industries and no product or service is immune to these innovations.

An Enormous and Amazing, (Humongous! Massive! Gargantuan! Take your pick) change has occurred in how consumers buy the things they need, and in the last 10 years, this change has been explosive both in terms of the number of people and the number of products affected. Wow! You no longer need to go to the store to see, buy, and pick-up the products you want. Instead, you can review, select, and pay for the product online, and do it whenever you want and from wherever you wish. Then, in a few hours or a day or so, the product is delivered to your doorstep. Most people, particularly millennials, already know this, and the narrative is frequently repeated in media outlets, textbooks, and social conversations. It goes by many names, online retail, and electronic commerce being the two most commonly used. What is surprising, though, is that many of the successful online retailers are new companies. Of these, the most well-known is Amazon, accounting for close to 50 percent of all U.S. online sales in 2017. Why were traditional retailers not online pioneers? Did they not see the change coming? Did they not know how to respond? Were they too deeply vested in their existing retailing infrastructure? Many would argue they just could not innovate fast enough, and strangely brick-and-mortar became a synonym for an old and fading retailing model. This is the new normal, the customer is unleashed from the information tether of the past, and now demands a highly responsive and superefficient fast fulfillment machine that delivers products to their door immediately. Get used to the trend and make it your friend. My job in this book is to position you with tools and knowledge to design-build a winning solution.

One thing is certain, online retail is very different from traditional retail; it is a chain of innovative ideas put together by some brilliant and futuristic people. They recognized that the age of information transparency had dawned, and built online retail businesses that leveraged this new consumer power. The online retail businesses they built had two distinctive parts:—Sell Side: Digital marketing and customer engagement, and Delivery Side: Order processing and fulfillment. The sell side is the more visible part and as customers, we have all experienced it and recognize the innovation. The delivery side, though, is behind the scenes and as customers, all we hear is the doorbell ring and a package delivered on our doorstep.

Online Order Fulfillment—Starts from the receipt of a customer’s online order and ends with parcel delivery. Fast refers to the time or speed with which the fulfillment is completed.

The fulfillment machine is the delivery side infrastructure of an online business and consists of the physical and digital innovations that make it possible to deliver customer orders in short time. Relative to the sell side, the delivery side or fulfillment process is more difficult to develop, and is both capital and technology intensive. Commonly, the delivery side is described as the supply chain and logistics infrastructure of the retailer and its partners. In this book, we investigate the delivery side innovations and identify what determines success. We learn from the innovations of the online retail leaders, mix it with traditional supply chain knowledge, and garnish it with technology trends. We present a pathway to innovating a fast fulfillment machine for your business.

What Does a Supply Chain Do?

A supply chain brings products from a manufacturer to the point-of-use, which could be your home, your office, or wherever. If you are buying cheese from the dairy across the road from you, well in that case there is no supply chain. If on the other hand, you are buying that fancy French brie at Whole Foods, then there is a significant and complex supply chain that makes this convenience possible. The many physical distribution facilities, transportation vehicles, and talented people together constitute the supply chain logistics infrastructure, which brings the brie to your home. Now let me let you into a little secret, you, the consumer, are also a part of this supply chain logistics and an unpaid participant. Every time you get in the car and drive to the retail store or mall, buy one more item and bring them home or somewhere else, you just completed the last leg of that supply chain. Why did you do that? Most likely you had no choice, drive to the grocery store or go hungry.

Over the decades, many innovations have tried to free you from this supply chain bondage: mail-order catalogs, shopping concierge services, and home delivery options. For the most part the convenience, immediacy, fun and excitement, and most importantly the economics of retail shopping have won, and these innovations were just footnotes. Then the Internet was invented, online shopping was born, and a bunch of really smart people made fast fulfillment a reality. Suddenly, many of the core advantages of retail shopping were challenged by an innovative logistics machine. The big gorilla in fast fulfillment, actually the T-Rex, is Amazon Fulfillment. Embracing every dimension of technology, they, and their partners, have defined a new form of retailing logistics. Lesson one, it’s not a change, a modification, or an improvement, rather, it’s new, it’s a paradigm shift.

There are in general two types of supply chains: Manufacturing supply chains—a converging network of product movements that bring parts and materials to a factory; Retailer supply chains—a diverging network of flows that distribute finished products from the manufacturer to retail stores. With the growth of online retail, we are witnessing transformational changes in retailer supply chains, for the simple reason that more products are not being distributed to a store but forwarded instead to a fulfillment center. Retailer supply chains, global or local, are designed to move bulk volumes of products speedily and economically. Post-1980, and with the start of the Walmart era in retailing, supply chains became a competitive advantage for many retailers. Rapid developments in information technology allowed progressive retailers to build logistics networks that tracked shipments from distant manufacturers, many located in the far corners of the globe, all the way to the retail shelf. A stellar example of such a solution is Walmart’s RetailLink system that collected cash register data from all stores into a central database. These data were then used to run powerful supply chain models that optimized their inventory usage. Similar IT-driven innovations were implemented by all retailers to improve the efficiency of their supply chain infrastructure. In the last decade, though, a host of innovations have led to the development of a completely new supply chain and logistics infrastructure. It is so radically different that it has made the old infrastructure a business handicap.

Eight Paradigm Shifts

So, what are the paradigm shifts that have driven the growth of a fast fulfillment infrastructure? Figure 1.1 lists several inventory storage and product distribution paradigms that are changing retail logistics. Next, we discuss each paradigm and explain why old systems cannot respond to online customer needs.

Figure 1.1 Fast fulfillment—New paradigms

1. Online Shopping—The growth of the Web and mobile devices allowed retailers to bring their product catalog straight to the consumer. Through online shopping, customers could then complete the sell-side activity entirely at home, which meant no visit to the store. Early on many assumed, mistakenly, that this was just a replacement for the mail-order business and would remain a niche market. Were they wrong! The ease and convenience of online shopping grew quickly and in 2017 accounted for 15 percent of all U.S. retail sales. The Pew Research Center reports¹ that 80 percent Americans are online shoppers and 15 percent buy online on a weekly basis. Unfortunately, online shopping was not compatible with a retailer’s existing supply chain and logistics operations, making it difficult for them to organically expand into the online space.

Why could they not just use their existing supply chains? Retailers hold inventory in two locations: stores and distribution centers, and their logistics networks are designed to efficiently bring the product to the store. During the 1990s, Walmart built a highly efficient network of cross-dock facilities to quickly replenish store inventories. Likewise, the apparel retailer H&M built warehouses, IT systems, and gathered a trucking fleet, for daily replenishment of store inventories. These are just two examples of the wonderful supply chain and logistics innovations that brick-and-mortar retailers had implemented. The problem is many of these innovations were a misfit for the logistics of online shopping, and for many retailers, their core competitive advantages did not transfer to the new economy. The shipment volumes, packaging, and destination are not just different, they are completely different. Even the customer is different, for a brick-and-mortar supply chain it is the store, for an online retail supply it is the actual customer. Sure, they could fulfill orders from their stores and distribution centers but it was not fast, and fast is what the online shopping customer wanted.

Almost no retailers are safe from the shift to online shopping. Products that we would have assumed could not be sold online are now being successfully sold and delivered. Take the case of Casper, which is selling mattresses online and shipping orders within 24 hours. The product is designed certainly for comfort, but also for shipping ease, and requires no special delivery service.

2. Point-of-Use Delivery—Retail supply chains come to a screeching halt at the store, then you the consumer drive to the store, pick up the item and take it to the point-of-use. In logistics vocabulary, the consumer is performing their last-mile delivery. Online shopping changed this process; customers wanted their purchases delivered to their home, office, dorm room, or anywhere. The range of delivery options and delivery speed are key determinants of online shopping convenience, and these may at times trump other factors such as price and quality. Dominos is very likely not the best pizza in your town, but more than likely it’s the highest revenue pizza store. Why, because of the convenience and reliable efficiency of its delivery infrastructure, both of which are key business differentiators for Dominos. Sure, the gourmet family owned pizzeria can hire a delivery driver for the evening rush, but the strategy is not scalable. The pizzeria is focused on its store customer and is never able to match the speed and reliability of the Dominos delivery service.

Retailers are not in the point-of-use delivery business, except when the product is too large or heavy, even then it is usually an outsourced service. For any retailer the logi...