It wasn’t that many years ago, prior to the growth of retail ecommerce, that TV shopping channels proudly proclaimed ’14-day delivery’ to differentiate their service from the 28-day norm. Oh, how the world has changed. As consumers we are becoming increasingly impatient. With online shopping, next day delivery is now the expected norm, and as an increasing number of retailers roll-out same day delivery, then that will start to be the new norm.It wouldn’t be a surprise if Google, based on your search history, isn’t working on an algorithm with Amazon to get a product to your door before you’ve even realised you wanted it!
Of course, retailers need to ensure they have the inventory available to meet this level of service. If a customer is ordering at 16:00 on Monday and wants delivery on Tuesday, then there is little room for error. The stock needs to be there on the shelf and every single process that gets the product from the shelf to the customer has to be super-quick.
The speed at which a retailer can process an order and get it to the customer is a key differentiator in the ecommerce retail market. The order needs to ‘flow like water’ between point of order and delivery, with no bottle necks and no unnecessary processing time.
So what are the processes that need to be measured, reduced and monitored to ensure ecommerce retailers can deliver?
Firstly, you need to understand what your customers are likely to buy and when they’re likely to want it. Forecasting is the foundation stone of customer order fulfilment and it is undoubtedly the most difficult element.
Forecasting is not an exact science. There will always be a level of forecast error and the important thing to do is understand what that level of error is, and drive that into your inventory strategy. The aim is to get the right stock on the shelf, but not so much of it that you erode margins.
Purchase order cycle
When you have a reasonable understanding of what inventory you’re likely to need from your forecast, you should then turn your attention to the purchase order cycle time. The aim here is to develop service level agreements that provide you with the lowest volume and highest frequency of delivery, at the shortest lead time.
The ultimate (but unrealistic!) target here is ‘1 for 1’. Each time your customer orders 1 item, then your supplier immediately replenishes you with 1 item. Of course, this is absolutely not realistic – but it demonstrates the aim, you need to get your inbound supply as closely synchronised with your customer demand as is possible.
Once your supplier has delivered, it’s now crucial to get the product from ‘dock to stock’ as quickly as possible. It’s not unusual to see rows of trucks queuing outside distribution centres waiting to be off-loaded; this is dead-time.
Whilst the product is still ‘in transit’, it cannot be entered into stock, it can’t be picked and consequently it can’t be sold. Efforts you’ve made to reduce purchase order cycle time can be compromised if your resourcing and processes for inbound receipt aren’t in line with your demand plan.
Order processing needs to be undertaken within a fully integrated system that manages the online store, live inventory reporting, payment and despatch labelling. The order processing system also needs to be interfaced to your Warehouse Management System (WMS). There are many WMS packages on the market, but the principal aim of all WMS is to facilitate the efficient physical movement of goods within the warehouse, including order pick, pack and despatch.
Dependent on the volume of orders you receive, most WMS can be configured to either pick single orders at a time (very low volume) or for larger volumes there are batch, wave or zone picking methodologies (all variants of picking multiple orders at the same time). You need to configure your methodology based on your throughput in order to minimise pick time (and resource).
So, you’ve forecasted what you’re going to sell, got the inventory on the shelves, received the order, picked the order and now it’s ready to go to the customer. This is the first part of the process where most companies (unless they have outsourced their warehousing) now rely on a 3rd party – a logistics transport provider.
It’s simply not good enough to buy transport services on price alone. In addition to price, you have to of course consider service, but also time. In essence what you need is a transport provider that will give you the latest collection time and the earliest delivery slot. This will depend on many factors, including your warehouse’s proximity to the transport provider’s distribution hub and of course the location of your customer.
Measuring and Managing Cycle Time
There are a multitude of techniques to monitor and measure cycle time. However, they all follow a basic theme of mapping each process, timing each process, identifying opportunities for improvement, simulating those improvements and finally implementing the improvements. This should also be a continuous exercise and not a one-off.
In companies that follow the traditional functional organisation model, a silo mentality often exists and each function effectively self-serves without a holistic view of servicing the customer. This can lead to sub-optimisation…
Sub-optimisation is when one process is ‘optimised’ with a detrimental impact on another process in the chain. Where functions operate in silos, to departmental budgets, then this can become highly problematic. For example, purchasing may develop a new strategy of high frequency low volume deliveries which reduces stock. Great. However, this increases the number of vehicles into the distribution centre which has a direct impact on the waiting time of vehicles and increases the ‘dock to stock’ time.
It’s the art of supply chain management to balance the best performance of each function. Reducing cycle time is not about making each individual function as quick as possible, it is about minimising the total elapsed time across all functions.