4 Challenges Redefining Success of a Modern Distribution Center
By Eric Lamphier,
The modern distribution center is in the middle of its next big evolution where the complexities and challenges being addressed are a better definition of future success than the problems it’s already solved.
Does this sound familiar? You solve one DC fulfillment challenge and two more appear the next week. You stabilize labor and the next month there’s a shortage. Combine these with competing in the digital economy where same-day shipping has become the norm and it seems distributions centers are being asked to innovate as quickly as the orders come in.
So it’s fitting we shift the definition of a “modern distribution center” from what is being accomplished to the types of change required to deliver a fulfilling experience – across touch points and in locations around the world.
Let’s start at the top and look at 4 challenges we’ve observed with our customers and other top distribution executives operating modern distribution centers.
1. Complex multi-channel order fulfillment from a single DC
We see many distribution executives driving through retail store replenishment where inventory never leaves the enterprise. There's a lot of flexibility here in terms of shipping from a retail DC to stores in an effort to address new item introductions and replenishing commonly purchased items. These certainly help with flexibility, but always come with a set of challenges.
We see shipping on a wholesale basis downstream to retail customers who represent some of the biggest customers they have across the enterprise.
And now that many companies have jumped into the e-commerce arena, almost every brand manufacturer and owner of inventory has a way to ship inventory to end consumers in e-commerce fashion.
The challenges with shipping directly to homes grows even more complex. Often the orders are much smaller as compared to wholesale orders or large shipments to stores, and the method of transport is often a small parcel or package delivery if not courier or regional carrier.
These hurdles represent a very complex set of requirements to fulfill from a single distribution center.
2. Multi-source fulfillment where sites and formats are varied
We've seen our customers and prospects operate multiple distribution centers focused on retail store replenishment, some that are focused on e-commerce or wholesale. The most modern paradigm is those distribution centers have been optimized to handle retail store replenishment, wholesale and e-commerce all under one roof in order to leverage inventory, real estate and personnel.
Of course it gets more complex than that. We've seen our customers leveraging store inventory and store labor to make sure they can get products quickly to their end consumers because their stores are quite likely closer to the consumer. We've seen sophisticated partnerships between brand owners and retailers leveraging upstream vendors and suppliers and manufacturers to drop-ship product on their behalf.
Sometimes products are just too rare, too expensive, or too large to always handle inside of your DC or your stores, and on an e-commerce basis, that upstream partner and supplier can sometimes drop ship on your behalf.
As our customers and the Marketplace navigate all of these complexities they often reach out to third-party logistics companies (3PL) to fill a portion of products on their behalf.
This certainly paints a picture of a very complex fulfillment arrangement as you think about all the variables in an omni-channel environment.
3. Pressures of a rapidly changing workforce
We see our customers and prospects reacting to a rapidly changing workforce. It's been well publicized, certainly in North America, where there is an overall personnel shortage and an aging workforce nearing retirement.
Additionally, it’s no secret the industry is facing some challenges around workers that aren’t willing to work in supply chain or work in a distribution center.
How do we, as solution providers and practitioners, mitigate that? How do we make the distribution center a more attractive place to work? How do we use new management techniques and change the work so it is more attractive to younger generations and people that are hungry for jobs?
4. Preparing for a demanding peak and holiday season
Our industry is pressured and stressed every year during the holiday season, and frankly, for the weeks and months running up to holidays to make sure that we're all ready.
As we know, the first step is usually to load up distribution centers with new inventory to ensure the most popular items for the season are available and that the supply chains are filled at the front end.
On the back end, there's a four-to-six week period where there's a lot of distribution occurring from DCs to the store and DCs to e-commerce customers in order to deliver those packages to homes in time for the holidays. We've seen our customers be very creative in the way they process orders and handle the surge of temporary labor during the holiday season.
All of this requires a tremendous amount of scaling and flexibility.
Reframing success of a modern distribution center
You may see the complexities of a modern distribution center as painting a grim picture. We see these challenges, and their resolution, as a sign of future success. Solving for e-commerce orders, multi-source fulfillment, changes in workforce and peak seasons will help to build a strategic foundation for your DC to quickly adapt to the next set of challenges our always-on world will bring.