Why Businesses Must Redefine Their Fulfillment Strategies

There has been a lot of talk about supply chain disruptions, pandemic, war, inflation and an atmosphere of growing uncertainty.

But there’s one aspect we haven’t paid much attention to.

How have these disruptions impacted customers and their buying behavior? And will customers ever return to their old buying habits?

These crises have led to the advent of the “24/7 customer” who is always in the channel, always online and demanding ever-increasing service levels, says Robert Giacobbe, vice president of global supply chain consulting at GEP.

In general, customers today are more informed and powerful than ever before.

An efficient fulfillment strategy is therefore key to a brand’s reputation and its ability to retain customers. And this strategy should meet the customer’s new requirements on item availability, rapid replenishment, and omnichannel services that were not possible just 2-3 years ago.

The Need for Omnichannel Capabilities

Instead of physically visiting stores, customers now prefer to shop online for varied reasons, even for basic commodities. As a result, most of the merchants are selling via newer channels, including social platforms, third-party marketplaces as well as mobile apps.

Additionally, customers want to be able to shop, buy and return products via a variety of physical and digital channels.

This has compounded the problems of operators who must now look to devise omnichannel fulfillment strategies. And the operator must carefully manage the costs of operating these incremental channel capabilities while making sure that they provide a competitive advantage in terms of service.

Giacobbe says the challenge for operators is two-fold: one, to develop and consistently execute in these new channels, and two, to do all this without blowing up cost on non-strategic customers and channels that may not deserve the investment.

While it’s not uncommon for an operator to partner with logistics providers, carriers and facility operators, integration and visibility of these partners often leave a lot to be desired.

Many ecommerce platforms also offer easy returns, thereby putting pressure on merchants to have well-defined reverse logistics in place, which often also involves value-added services such as testing, repair and refurbishment.

All these new-age requirements have meant that the traditional role of the warehouse is slowly fading away.

The warehouse is evolving into a dynamic fulfillment center.

Be it cross-dock, drop ship, proximity depots in the market, authentication centers or dedicated returns facilities, these warehouses are not single purpose anymore.

Time to Overhaul Legacy Fulfillment Systems

Increasing business-to-consumer order volumes and changing customer expectations have rendered yesterday’s fulfillment models unfit for today’s dynamic environment.

Labor shortages, freight cost pressures, faster order cycle times, high fill rates and capacity constraints in shipping have all put companies in a tight position.

Multiple, disparate systems for order management and fulfillment have added to the complexity. When in place, these systems are poorly integrated and do not allow a centralized view.

Many of our clients have been investing in their ERP landscape for the past decade while underinvesting in “new tech” like robotics and IoT infrastructure, says Giacobbe.

As companies look to resume operations at full capacity, they must transform legacy fulfilment models and replace them with advanced, next-generation fulfillment strategies that can swiftly respond to customer demand and provide a competitive edge.

If they fail to do so, they risk losing out to competition in the rapidly evolving new normal.

The Last-Mile Dilemma

Solving the last-mile dilemma has also necessitated a change in next-generation fulfillment strategies.

Leading ecommerce players such as Amazon have successfully partnered with local delivery service partners to develop a mechanism to efficiently deliver thousands of packages to customers every day.

These partners often focus on a small market radius by locating dark stores or satellite stores near concentrated areas of demand.

The new emerging fulfillment model features highly automated warehouses and distribution centers that straddle 1-2 major market regions and can rapidly replenish to dark/satellite depots to meet unique, changing demand.

This model – often referred to as market level logistics (MLM) – is an attempt to enable rapid, differentiated fulfillment responses in high-demand areas while not drowning the channel in expensive inventory.

Successfully executing MLM requires not only strong warehousing practices but also deep skills in forecasting and inventory deployment.