Omni Channel Distribution - TGW in the loop |02/2014 - Magazine - TGW Logistics Group
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TGW in the loop 02/2014

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Omni Channel Distribution

TGW FEATURE

TGW FEATURE

Omni Channel Distribution

Managing e-commerce and classic store distribution under one roof. Challenge and opportunity at the same time – Omni Channel Distribution.
The bar keeps getting set higher and higher. E-commerce has seen rapid growth over the last few years and the burden on retailers to deliver has never been greater. E-commerce customers are demanding faster delivery times without compromising order accuracy and quality. The success of the retailers depends on the ability to meet these customer demands. The retailer must get the right product to the right customer in a timely manner. The efficiency and accuracy is more critical than ever before but it is also more challenging.
This increase in e-commerce has shifted the paradigm with regards to how the distribution center (DC) fulfills orders. Historically, businesses have segregated product within their DC based on the order style. Product destined for their brick and mortar retail stores could be on one side of the DC and product destined for fulfilling the e-commerce orders on the other. Different picking methodologies drove this model as typical store replenishment saw full cases being picked and e-commerce orders are typically piece/pack picking with larger numbers of smaller orders. In some cases, the operation might have a department of E-commerce and a department of Distribution under the same roof. Each manage different inventories of sometimes the same SKUs and have different priorities that could cause maximizing one inventory and hurting the other creating an inventory block. However, there are many downsides to separating the inventory. This separation model in some cases doubles the cost of fulfillment. This model requires increased inventory which requires more space in the DC. With that comes the additional cost to carry the additional inventory. Other derivatives of this model are the increased labor requirement and the overall increase in facility operational costs.

Because e-commerce has grown 25% each of the last five years, distribution and fulfillment operations are compelled to have every product available driving fewer amounts of individual SKUs with more selection. To compound this further, e-commerce fulfillment operations are striving to recreate the store experience such as inserting fliers, adding tissue and providing wrapping services. The brick and mortar retail stores are also changing the way they carry product and satisfy the in-store customer at the same time. In many cases, retail organizations have downsized their store size so there is less inventory. Stores are ordering less with very little “back room” to hold inventory thus requiring just-in-time orders to be filled. All of these aforementioned dynamics only add to the complexity of segregated inventories.

So far, we have identified the nuances of multiple channel distribution. So what does it look like if we merge these inventories into one system? After all, the overarching corporate goal is to sell product no matter what channel it comes through. When all is said and done, picking is picking. It is as basic as that. With any major strategic move such as merging inventories there are both upsides and downsides. It was alluded earlier that shared inventory and combined space was an obvious upside. The downsides to merging inventories are the requirement for more active picking locations, an increased facility footprint due to the SKU increase and the potential for decreased productivity.

We now have a new fulfillment strategy that makes perfect sense if we can overcome the operational hurdles that have been created. There is a solution. It’s called Goods-to-Person picking. The concept is in the name itself. Instead of pickers going to the product, the product is brought to the picker that is stationary in a designated workstation. This process is accomplished with the means of an Automated Storage and Retrieval System (ASRS). Because there is no human interaction in the pick aisles the inventory area is now conducive to high density storage that leverages the cubic footprint of the facility. ASRS pick locations are dynamic in nature thus eliminating the requirement for slotting.

With a Goods-to-Person picking solution such as an ASRS, the operation can accommodate same SKU selection across multiple orders. The channel does not matter now when fulfilling an e-commerce order or an order from a brick and mortar retail store. Because the product is brought to a workstation the worker becomes more efficient leading to increased productivity in the operational metrics. If you are involved in an omni-channel operation then an ASRS Goods-to-Person picking solution might be a sound choice.