The COVID-19 pandemic accelerated changes in an already growing e-commerce sector. According to a recent white paper, it disrupted online order fulfillment amid a spike in consumer demand, labor shortages, and supply chain issues.
The paper by Vargo, an Ohio-based warehouse management systems provider, shows that e-commerce fulfillment requires more advanced systems and technologies to face the most significant industry changes. That includes overloaded parcel carrier systems, labor shortages and increased consumer demand for fast, accurate order delivery.
According to the white paper, the overloaded parcel carrier system has led e-commerce fulfillment operations to take on more of the work previously handled by parcel carriers. Instead of parcel carriers, e-commerce companies now sort packages for ZIP code zones before regional carriers transport them to local markets. According to Vargo, if building new or upgrading existing warehouses, e-commerce fulfillment operators must consider the space and labor to handle the different sort processes.
The white paper shows that parcel carriers couldn’t absorb the demand spike at the onset of the pandemic. Even before the pandemic, capacity was tight amid consumer delivery expectations of two days or less. As a result, e-commerce fulfillment centers brought in-house some parcel carrier operations. Many fulfillment centers have added an automated sort process. Sorting packages by size, weight and ZIP code has become expected, according to the white paper. Some systems can match the parcel with the best carrier based on the package’s destination, dimensions and weight. Advanced transportation management systems can account for the cost and available capacity of parcel carriers.
According to Vargo, some warehouse operators work with regional carriers to haul sorted packages to local markets for final mile delivery by parcel carriers. Other operators are building delivery routes and establishing customer pickup points to cut final mile costs.
According to the white paper, automation is a solution to the labor shortage at e-commerce fulfillment warehouses. But automating the right tasks and efficiently integrating the technology with the existing warehouse workflow are challenges. Other challenges are the significant increase in returns and the impact on the labor required to manage inventory effectively. The paper shows that reducing work via automation is essential to consider when building or retrofitting a facility.
Also, positioning inventory closest to demand is crucial for e-commerce fulfillment facilities and requires more sites within a network. “Combining store inventory, dark stores, warehouses and other sites to create an integrated fulfillment network continues to be one of the most impactful solutions to decrease overall order cycle time,” according to Vargo. “These types of integrated site networks take time to establish and are strategically placed geographically. Each node/site will maintain a different inventory mix, have different workflows and varying processes for fulfilling orders.”
The white paper noted that operating multiple micro-fulfillment sites rather than large distribution centers can mitigate inventory carrying and transportation costs. The key to using micro-fulfillment sites is to position inventory to accurately meet demand with the support of transportation resources, the paper shows. Positioning inventory for micro-fulfillment can be completed via store fulfillment, dark stores or dedicated micro-fulfillment centers.
With store fulfillment, the accuracy of inventory locator systems can slow the order cycle time, and integrating the point-of-sale with the warehouse system to accurately track orders and inventory can create challenges.
Dark stores comprise closed stores and operate as fulfillment centers. The white paper shows that moving into a closed store can be a cost-effective way to expand into a new territory or market without a long-term commitment and the capital expense required to build a distribution center. Challenges with dark stores include limited inventory space and identifying the correct inventory mix. Scaled-down warehouse fulfillment technology might still be needed to manage them. Also, package storage space would be required.
In dedicated micro-fulfillment centers, daily inventory transfers take place based on location, according to the paper. They are like dark stores but larger and with inventory placed in strategic locations to meet consumer demand.
According to Vargo, returned merchandise is one of the most labor-intense processes within an e-commerce fulfillment operation. It requires multiple steps that cannot be easily automated, including what happens to the item after it is returned. However, the initial storage area for returned items is being automated. One strategy allows the areas to handle multiple items at multiple locations and simplifies each item’s put-away task. Another approach is to eliminate returns. That would include issuing credits or refunds in all cases and allowing the customer to keep or discard the item instead of returning it.
Another trend in e-commerce fulfillment has been automating warehouse workflow. That includes using robots and artificial intelligence to supplement or replace repetitive tasks, such as matching multi-line orders into put walls, on-demand box making custom to the order size and storage and retrieval of inventory. Challenges with automation have been to design workflows to include its use and its cost. According to the white paper, the robots as a service model allows companies to pay for robots by piece or transaction and includes repairs, maintenance, upgrades, and replacement of equipment. The model can be more affordable and allow warehouse operators to add hundreds of robots to the workflow without capital outlay.