Chain of Thought

Five-Day Order Fulfillment? How Quaint.

The Material Handling Industry’s (MHI) latest material handling equipment manufacturing forecast calls for new orders to grow 6% next year. It’s encouraging to hear positive numbers in an era of uncertainty, but is that projection realistic?

Bill Leber thinks so. He’s director of business development at Swisslog, an MHI member company and manufacturer of warehousing and distribution systems. His company projects its own growth at 4-5% next year, so it sounds like his company is being a bit more conservative. But his company’s growth depends on its customers’ growth, and e-commerce promises to be a major channel of its delivery.

Leber told me of a customer survey Swisslog did, asking clients involved in e-commerce retailing what kind of growth they’re anticipating for this channel next year compared to this year. Almost half expect more than 20% growth in e-commerce in 2013. According to Leber, internet commerce grew something like 11-12% this year. The remaining respondents expect at least that same level of growth next year.

So it sounds like retailers are pumped about e-commerce. Businesses that have invested in material handling technology to capitalize on it should feel encouraged by those stats, but they should also feel challenged to remember there are consumers behind the numbers whose daily struggles with costs are driving them to this channel. The onus is on supply chain professionals in retail to get to know these consumers better—as their technology vendors are trying to do.

In fact Leber told me that based on what his company’s clients told them, they’ve discerned two retail markets in ecommerce, each of which feels different service obligations. One retail segment is built on specialty items that don’t require expedited fulfillment—at least according to the retailers who responded. According to Swisslog’s client survey, more than a third of the respondents indicated that as long as they get the right product to the right customer in 5 days, their management is fine with that. However, 45% indicated their products had to be delivered within 48 hours.

Five-day fulfillment seems like an old-fashioned service expectation in the e-commerce era. But if you want to up your service level, expect it to cost you. In fact, that need for speed is one of three factors driving the cost of fulfillment, Leber says. The other two are larger assortments and accuracy. Besides technology, what are the best strategies for improving e-commerce logistics performance?

“One school of thought is to consolidate inventory at one site but then you set yourself up for other risks,” Leber said. “But if it’s spread around it’s difficult to have the critical mass to be efficient in any one place. Then you end up having to multiply efficiencies all around, making it more difficult because you need inventory and the right capabilities all around. To me the visionary companies are looking at centralizing and building a world class operation to handle it. The others are trying to use worn out infrastructure and underutilized stores, and that’s inefficient in the long run.”

Swisslog is backing its own market growth projections with new technology, catering to the visionaries cited above. Leber cites his company’s “Click & Pick” system as an example. It’s both an inventory storage system and a high-speed robotic picking system that can respond to consumers placing orders on their smart phones.

“You can start picking an item 20 minutes after a customer clicks an order and 30 minutes later it can be packed and shipped,” he said.

Leber footnotes his company’s optimistic forecast for next year with the observation that historically U.S. businesses have been more reluctant than European counterparts to adopt such cutting-edge fulfillment solutions. He’s hoping that as e-commerce order volumes grow with the consumer’s use of smartphones, more retailers will find 5-day order cycles unacceptable. With Amazon finding ways to deliver same-day, you know consumers will.

Related Articles:

Robotic Order Picking and Fulfillment

Automated Picking: Internet Retailer Ups DC Efficiency 30%

Keeping Up with the E-Giants

Fitting Automation into a Lean Environment

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