2023 Gartner Hype Cycle™ for Supply Chain Execution Technologies
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Ecommerce has come a long way since
Amazon was founded in a garage in the 1990s
The most famous ecommerce retailer began as an online bookseller. It expanded to become an online marketplace selling everything imaginable. This evolution neatly encapsulates just how far ecommerce has come. Indeed, perhaps the biggest innovation of ecommerce is its effect on brick-and-mortar retail to adopt aspects of ecommerce itself. In-store retail now offers buy online-pick up in store (BOPIS). Dark stores that lost foot traffic during the pandemic and well before have become large omnichannel fulfillment centers. The leading retailers take an omnichannel approach, capitalizing on comprehensive inventory visibility and fulfillment integrated across in-store and ecommerce.
Before 2015, however, omnichannel was a mere glimmer in the eyes of top retail executives. Companies were still building their own online offerings. Wave-based fulfillment and long turnaround times – a week or more – were standard for online orders. Returns processing was a big challenge. Going back further – to pre-ecommerce days during the first decade of this millennium and earlier – most companies didn’t have ecommerce. Amazon did, of course, but most retailers were focused on in-store sales.
Ecommerce and omnichannel retail – and warehouse fulfillment making them possible – have come a long way. Retail has been forced to change even faster since 2020. Here’s a look at how fulfillment has advanced since the start of the millennium and how retailers can go even further.
In the decade from 2000 to 2010, most companies had yet to adopt ecommerce as a distribution channel. Online selling was limited to marketplaces like Amazon, and warehouses were dedicated to in-store retail. Wave-based picking and order processing – with one picker handling one order and SKU at a time – was standard practice. Allocation and replenishment processes fulfilled orders through dedicated warehouses.Because fulfillment only served a (relatively limited number of) stores – rather than the exponentially larger number of customers served by ecommerce – the existing fulfillment process was adequate.
As the early online marketplace pioneer, Amazon was demonstrating the channel’s ability to bring a broader array of products to a massive array of customers in dispersed locations. eBay was up and running as well, but brands selling their own merchandise online was virtually unheard of. So it’s surprising that the genesis of electronic commerce – as ecommerce was previously known – goes back much further than the year 2000. In the late seventies, one on instance, electronic transactions were facilitated by TVs hooked up to a computer via phone lines.
Between 2010 and 2015, retailers were taking note of how Amazon had produced more than 10% of North America’s online retail sales in 2010. Amazon’s net sales were $34.20 billion, a 39.5% increase from $24.51 billion the previous year. North American net sales, meanwhile, totaled $18.7 billion – up 46.1% from $12.8 billion in 2009 – accounted for 54.7% of sales in 2010.
Major retailers understood that they had a lot of catching up to do. They began setting up their own online channels. To serve a consumer mass market, not just brick-and-mortar stores, they began establishing last-mile fulfillment centers. They set up online fulfillment centers that were separate from their in-store warehouses, or created areas in their existing facilities for online fulfillment.
Nevertheless, big retailers continued to use traditional wave-based fulfillment for online purchases. As a result, turnaround time was a week or more for online orders. What’s more, a problem that would only grow in the future began to rear its ugly head: returns processing became a bigger challenge due to a lack of visibility of products coming back into warehouses.
Ecommerce makes shopping much easier. Customers no longer have to drive to, and physically search, stores. Instead, the retailer brings the product to the customer. That’s the “last mile” in last-mile delivery – the trickiest part of the fulfillment process – which begins when a product leaves the warehouse and ends when it’s in the customer’s hands.
Positive last-mile experiences make or break customer relationships.
The product needs to arrive on time, whether in two days, the next-day or even the same-day. But the catch is the cost: Free shipping is common today for purchases over $50, sometimes even less, or when free shipping is included as part of a subscription plan. Before 2015, free shipping required a much larger purchase.
Of course, there’s no such thing as a free (last-mile delivery) lunch. Over 50% of the total cost of moving a product – across first, mid and last miles – comes from last-mile delivery. What’s more, while the retailer’s average next-day shipping cost is $27 a package, it’s just $5 for Amazon.
In short, succeeding as an ecommerce retailer requires crushing last-mile delivery.
Or to be more precise, fully evolving one’s fulfillment capabilities to ship merchandise quickly and economically.
Fulfilling in-store and ecommerce as two disparate channels sounds simpler on the face of it. But the bifurcated approach started to make retailers’ lives quite complicated. Ecommerce involves a dramatically different array of customer expectations compared to in-store fulfillment, that traditional wave-based fulfillment is incapable of handling.
Around 2015 retailers began moving to omnichannel fulfillment. With omnichannel, all channels can be fulfilled from any fulfillment node. Omnichannel helps enable same-day fulfillment – to compete with Amazon – by improving inventory availability. It also helps handle the 20% + returns that ecommerce creates, boosting inventory visibility across channels.
Omnichannel fulfillment shifts resources where and when they’re needed, optimizing the customer experience.
The best customer experiences aren’t exclusively in-store or ecommerce; they’re a little of both. Locked-down pandemic customers were big beneficiaries of omnichannel. Taking retail beyond mere ecommerce, the pandemic accelerated the emergence of multinode fulfillment, the latest features of which include BOPIS, dark stores and micro-fulfillment centers (MFCs). Retailers had to adapt to the peculiarities of these different channels to move inventory closer to customers and deliver flexible fulfillment options to create better customer convenience. Making buying easier also meant making returns smoother, including using in-store return fulfillment node in reverse to take merchandise back.
Omnichannel retail decentralizes the customer base
and multiplies fulfillment demands.
It goes way beyond a dedicated warehouse fulfilling a specific number of stores and population centers. That’s why omnichannel requires a multinode fulfillment network enabled by a warehouse platform that determines in real time which facility can fulfill orders with optimal speed and efficiency. Orders are fulfilled from the nodes that have the needed SKUs and are closer to the customer to accelerate delivery. Multiple warehouses no longer have to stock the same items, reducing the space required to accommodate inventory and streamlining the fulfillment process.
Physical stores closed in droves during the pandemic. But a new retail model rose up.
Originally zoned and used for in-store retail, dark stores aren’t open to foot traffic; the space is reconfigured so the inventory can be distributed to ecommerce customers.
While the average U.S. retail store is just under 50,000 square feet, dark stores range between 100,000 and 200,000 square feet. Ample storage and shipping space lets retailers keep more inventory on hand. Retailers have created dark stores to achieve the following results:
Convert idle or closed store space into last-mile fulfillment nodes
Execute faster deliveries – like same-day delivery and same-day pickup – from inventory located close to major population centers
Maximize omnichannel fulfillment at lower last-mile cost
To generate profits while meeting customer requirements, top retailers must adopt a fulfillment strategy that’s customer-centric – meaning that it’s
omnichannel, omninode and omnibrand.
This approach creates fluid workflows and operational sustainability without large capital investments by enabling the business to build capacity quickly, at different scales.
Right-fit fulfillment optimizes existing spaces and automation systems through reliable real-time decisioning. The result is a resilient automation structure that not only provides visibility into the entire inventory, but also facilitates easy accessibility via modular systems that harness the power of AI, robots and people.
Learn how GreyOrange can right-fit your fulfillment operations.