Editor's Note: We will be having an interactive webinar on this topic on Tuesday, October 25 at 2 pm EST. Click here to register!
Have you joined the online shopping craze? Perhaps the better question would be, who hasn’t joined? For the past six years, US e-commerce web sales have grown near or above 15%. In 2015, e-commerce web sales totaled $341.7 billion, according to non-adjusted estimates released by the U.S. Department of Commerce. With e-commerce sales accounting for the majority of the retail sales growth (66.4% in 2015), the impact on retail distribution and fulfillment centers is not going away. Encouraging this growth is continued enhancements with the online experience and use of mobile devices. This rapidly growing 'Mobile Channel' has made purchasing online more frequent and convenient.
As a result, today’s operations are dealing with an increase in the number of SKUs, the need to capture market share, and thousands of orders with one to three lines per order. For many firms, internet order volumes are reaching thousands of orders per day, with orders averaging fewer than three products. The past few years have seen Cyber Monday and other key seasonal dates spiking these volumes considerably. Another retail trend that is increasing the frequency of smaller orders is multi-channel fulfillment. An example of this trend is allowing customers to order an item online or inside a store and then having it delivered from a distribution center to the store for the customer to pick up at a later date.
The challenge facing many operations leaders is the “original” retail distribution center was designed to process orders with a higher volume of multiple products. Similarly, manufacturer and wholesaler facilities were designed to ship mostly pallet level quantities. The continued growth of online purchasing and other supply chain trends are creating a major shift from high-volume shipping to selecting orders from a wide range of products and handling/shipping these “tiny orders.”
So, what does a tiny order operation look like? Whether you squeeze it into an existing operation, expand your building or establish new space, the best practice for a successful tiny order operation involves the consideration of many factors, such as:
-- Order management processing capacity for increased frequency of orders
-- Processing one to multi-line order sizes
-- Pick locations for a high number of SKUs, with potential wide range of sizes/weights
-- Picking less-than-case line quantities (piece-picking, broken-case, open-case)
-- Handling high frequency of orders, with tight shipping windows
-- Product slotting and advanced WMS capabilities
-- Packaging into envelopes through various box sizes.
-- Dealing with special packaging /gift wrapping
-- Shipping small parcel and considering major providers including USPS, UPS, and/or FedEx
One of the primary concerns is dealing with the increasing number of SKUs. While online orders are typically less than three line items, the assortment of online items for most retailers is growing. This explains why online orders account for the majority of the retail sales growth — you can’t buy many of the items in the store! This means the distribution center/fulfillment operation must provide additional storage, pick locations, and handling equipment for more SKUs. Compounding this opportunity is the fact that many facilities are out of space and facing the challenge of adding storage and pick locations within their current infrastructure. The right solution depends on your specific requirements, and current layout & equipment. Here are some ideas to consider:
-- Identify the fast, medium, and slow moving items
-- Factor in the size of items, from small to large, including if the item can be conveyed
-- Conduct a SKU cubic velocity analysis to identify the slower/smaller items
-- Remove dead moving SKUs (not sold in 12-18 months)
-- Add shelving within a current case flow module for the slower/smaller items
-- Add additional levels / mezzanine to utilize vertical space
-- Convert storage areas to very narrow aisles (72” vs. 96”-144”)
Now, how do you handle the increasing number of tiny orders if you are stuck within an existing operation? Most businesses are initially forced to squeeze tiny orders through an existing operation, even if it is not very efficient. If you are constrained to an existing facility, the following are some considerations that can be combined with the solutions for dealing with the increase in number of SKUs. The right solution depends on your specific requirements, as well as current layout and equipment.
-- Batch pick using smart carts (voice and/or light technology) from the current pick/fulfillment area and use specifically assigned pack stations
-- Batch pick into totes using existing pick module and conveyor systems, diverting to specifically assigned pack stations
-- Batch pick and establish separate Put-Wall stations for fulfillment/packaging of orders
-- Establish a separate area/space (i.e. on a mezzanine) and use smart carts with a separate pack area
At some point (and, for some immediately), it might not be feasible to support the increase in SKUs and tiny orders within the same facility. It may be necessary to conduct a comprehensive logistics strategy, so consider various scenarios, such as:
-- Expanding your facility to include a separate processing area
-- Using a 3PL to set up a separate operation in the location that best services your Internet customers
-- Establishing your own separate facility in the location that best services your Internet customers
-- Fulfilling e-commerce orders using some of the strategically located retail stores
-- Setting up certain products to ship direct from suppliers
If e-commerce sales continue to grow at 15% per year and the multi-channel trend continues, the tiny order phenomenon will continue to be an operational challenge. In a highly competitive market, shippers that get their tiny order operations running efficiently are going to earn the larger market shares. There is not one answer for everyone, but many of the considerations outlined are being used by companies being forced (or are choosing) to ride the wave of change within the e-commerce/multi-channel space.
Norm Saenz is a Managing Director for St. Onge Company in Dallas, Texas. St. Onge Company is an independent supply chain consulting company founded in 1983 and is based in York, PA. Mr. Saenz has over 24 years of experience in planning, designing, and implementing distribution center and supply chain solutions. He has been involved in distribution center design, space & layout planning, labor productivity analysis, technology evaluations, material handling and storage solution development, logistics network optimizations, and software (WMS, Slotting, LMS, and TMS) solutions. Norm can be reached at 717.505.8111, or firstname.lastname@example.org. Visit St. Onge at www.stonge.com, or contact main line at 717.840.8181.