By David Beaudet
April 2020 | 8 min read
The measures put in place to slow down the progression of Covid-19 have brought many challenges for businesses of all size. Sometimes, however, the challenge is not the one you would have expected. While most companies struggle to stay afloat in a market that is now on respirator, some distribution and manufacturing companies have instead been handed an opportunity, a challenge to rise to the occasion.
Physical distancing measures have caused a shift in the purchasing habits of many consumers. The perceived danger in risking a trip to the grocery store has brought many previously reluctant consumers to consider e-commerce as a valid option for all their shopping habits. This has greatly accelerated the trend towards e-commerce and we now see many companies deploy efforts to secure their share of the online market.
An influx of customers is great news, but this kind of sudden surge is a serious challenge for most companies. It imposes substantial pressure on a retailer’s ability to meet customer demand and achieve adequate service levels.
Having a proper transactional platform, like Shopify or Magento, is a necessary first step but it will not be enough. It is one thing to take online orders, quite another to rapidly fulfill them to customers’ satisfaction. And that is the real challenge: to quickly develop e-commerce fulfillment capacity to satisfy the customers’ expectations and increase the probability of retaining a larger proportion of online demand once the crisis subsides.
Making that kind of supply chain transformation is no small task in normal times, let alone in a period of crisis. Many retailers are struggling to keep up with the rise in e-com orders. No matter how much more labour they assign to the task, their current setup and infrastructure cannot yield the required throughput levels. As a result, these retailers are at risk of missing out on a lucrative and possibly transformative business opportunity.
A Canadian Retailer Faces a Covid-19 Surge
One of our clients, a Canadian pet supply retailer, faced this challenge. Prior to Covid-19, they had hired LIDD to develop a distribution network roadmap based on their growth projections. Part of our mandate was to optimize the online fulfillment operation. We were midway through the project when the crisis shutdown the normal economy. Almost overnight, our client had to deal with a 400% upsurge in online orders, surging from 200 to 1,000 per day, and rising. LIDD’s team suddenly had to switch gears, from planning operational changes over the long-term, to designing and implementing efficient solutions in three days. The client’s original setup for online orders was rudimentary. Their online operation was a “dark store” located within their distribution center (DC), a facility that was primarily designed for servicing retail stores. Their typical order profile was 1 to 5 SKUs per order. All their picking was done with carts, which employees filled and brought to workstations for packing and shipping. The company did not have a Warehouse Management System (WMS). It instead relied on its ERP’s inventory management module to support all tasks.
E-Com Fulfillment: Back to the Basics
In order to assist the client in making the best of the situation, LIDD’s project team had to urgently come up with a set of process and layout changes that would be quick and easy to implement; we would have to stick to the basics.
LIDD’s team intervention unfolded in a two-prong approach.
On the one hand, we examined the company’s infrastructure, more specifically its DC’s slotting and pick lines. The goal was to create efficient, dedicated pick lines. With limited time to implement solutions, we concentrated our efforts on the following:
- Create fast and slow zones.
- Sometimes, going back to the basics of online fulfillment means remembering some basic rules, like Pareto’s law. In most distribution operations you can expect that 20% of the SKUs will generate 80% of the DC’s lines and/or units. These fast-moving items must be at the forefront of your pick line. Meanwhile, the slower moving SKUs should be located in an area that can easily be bypassed to reduce travel distance.
- Limit the variety of slot types and sizes.
- Typically, we recommend that case flow racks be assigned to fast SKUs, that shelving units be used for slower SKUs, and that pallet positions be reserved for ultra-fast movers and promos.
- Pick orders directly into shipping containers.
- While slightly less efficient than batch picking, it eliminates the need for sortation.
On the other hand, we analysed their operational processes and sought to organize labour more efficiently by creating intelligent picking assignments. Here, we focused on the following solutions:
- Isolate and group one-line orders.
- This is easy to implement and will have a significant impact on efficiency.
- Group multi-line orders that only contain fast SKUs.
- Pick-carts made entirely of fast SKUs allow employees to bypass the slow area. Sort orders by slot sequence.
It took three days to fully implement theses solutions. As a result, our client was rapidly in a position to meet the sudden rise in online orders without incurring excessive costs. By putting in place the means to successfully meet customer demand, the company now expects to retain a larger portion of their online shoppers once the crisis is over, hopefully even exceeding pre-Covid growth projections. Meanwhile, our LIDD team has resumed its work on the company’s roadmap to design operations for when they reach 2,000 online orders per day.
Scaling e-Com Fulfillment Beyond the Basics
Basic solutions like these will improve your operation’s efficiency and buy you a bit of time. However, if your operation deals with high-line orders – e.g. online groceries, where the norm tends to be more than 30 lines per order – solutions like these will not do. The equipment and software needed to support sophisticated processes and complex infrastructure constitute significant capital projects and need time to be implemented.
Obviously, different installations and different processes will call for different solutions. Maybe your operations need new WMS capabilities. Or maybe your company’s current volume of online orders calls for greater levels of mechanization or automation. Whatever the case, the proper optimization of your Direct-to-Consumer capability will require time and rigorous planning. A supply chain audit and gap assessment will be crucial in determining the roadmap to such changes.
Your capital is precious. Don’t let opportunities pass you by. Ask our LIDD experts how they can help you make better decisions when it comes to enabling DTC capability in your distribution operation.