Building A Smarter Supply Chain For Ecommerce
The explosion of ecommerce has impacted every part of the supply chain, from distribution centers to inventory and transportation. Manhattan’s podcast, Transportation Disruption, discussed these challenges with industry thought leaders and experts - you can listen to it here.
In this episode, the experts spoke in depth about the challenges digital commerce creates for supply chains and provided their insights and perspectives on the strategies supply chain managers can employ to adapt to new market demands. Brian Gibson, our featured guest speaker in this episode, provided valuable insights. Brian is executive director of the Center for Supply Chain Innovation at Auburn University's Harvard College of Business and vice-chair of the board of directors for the Council of Supply Chain Management Professionals.
Fundamentally, supply chains were built on the logistics principles of scale, consolidation and centralization. For decades, they delivered great efficiencies. Ecommerce, however, is the antithesis of those principles. Two-day, next-day and same-day delivery promises shifted transportation execution priorities. It ushered in a new set of objectives for speed, for flexibility and for delivery of smaller quantities of goods to exponentially more locations. As companies race to meet consumer expectations, the decision to offer all these different delivery and shipping methods has had a big impact on their bottom line. For example, in 2018 Amazon spent $27.7 billion on shipping. Many organizations contend with the increasing cost of meeting customer delivery expectations, but without Amazon’s deep pockets.
In short, satisfying new demands without evolving the supply chain is not sustainable. That’s why companies are taking steps to optimize their transportation networks, utilizing new technologies to meet customer expectations and leverage the advanced science of machine learning to reduce cost so as to compete more efficiently.
Moving closer to the customer
Companies realize that the shorter the distance an item has to travel, the easier and cheaper it is to get to the customer. As a result, an unprecedented amount of money is being invested in the construction of new distribution centers. “Expanding that network requires a level of commitment and a level of change on a scale that I've never seen before in my career,” said Gibson about the DC building boom.
A greater number of warehouses underscores the current labor shortage issue, especially when there is low overall unemployment. To fill the many job openings, leading organizations are becoming more employee friendly. Better hourly pay, improved benefits, flexible scheduling and various incentives are used to attract and retain employees. At the same time, a new array of automation technologies has emerged – everything from cobots to goods-to-person technology is being used to fill labor gaps, add efficiency and increase scalability in fulfilling digital orders.
In addition to DC construction, retailers are leveraging their stores as fulfillment centers. Today, the modern retail store has become a point of customer experience, part of a localized distribution and fulfillment model. This means that a network of 400 stores becomes a network of 400 potential locations closer to the customer from which to pull inventory. Options like buy online, pickup in-store and curbside pickup help cut transportation costs by bringing consumers directly to their orders. Companies are also reducing transportation costs by utilizing stores as consolidated return points. And, as stores consolidate their operations into experience touchpoints and localized fulfillment centers, the strategy both injects efficiency into the process and helps drive shoppers to brick-and-mortar locations.
Advanced technology for a digital world
Beyond physical changes, the adoption of advanced technology is also having an impact on how ecommerce orders are fulfilled. Twenty years ago, transportation was simply considered a necessary evil: a cost center with minimal strategic value. Then, the development of transportation management systems (TMS) proved that there were efficiencies and cost savings to be had. Today, the same holds true across the supply chain. Better TMS, better warehouse management systems and better order management systems have helped to optimize supply chain processes and decisions to fulfill the commitment to the customer in the most efficient way possible.
As companies build more DCs and leverage inventory in store locations, Gibson says the key is visibility and coordination across the entire network. “We have to have our order management system to be able to jump into that inventory and make the best decisions about fulfilling the order. Which then brings in the transportation management component so that we can move the orders through our network for the best pricing and service level and then provide that visibility through the delivery cycle to the customer as well. We've got to be more integrated than ever to manage omnichannel retailing very effectively.”
Making ecommerce profitable requires better planning, analysis and forecasting. And that means using artificial intelligence (AI) and machine learning (ML) to process and analyze large volumes of data. With an estimated 2.5 quintillion bytes of data created each day – about things like individual customers, local and regional demand patterns, intricate transportation networks and more – machine learning and AI have the capability to uncover the hidden information in the data to capitalize on opportunities for optimization.
Gibson sees this as a growing trend in the industry: “There's vast interest in artificial intelligence for a variety of reasons: to be able to look at bigger and bigger datasets very quickly, to automate repetitive tasks and to make better decisions automatically.” He believes it will be the role of analysts to interpret data and decide how to best use insights from AI and ML to improve supply chain performance.
Adapt and thrive
Ecommerce and its role in the overall economy is going to continue to increase in a steady upward trend, with no sign of slowing down. Global ecommerce retail sales are expected to grow 265% to $4.9 trillion by 2021. The companies that evolve their supply chains now – and make digital commerce profitable – are the ones that will have a distinct advantage. Manhattan Associates can help you on your journey. To learn more, visit manh.com/tms.
To listen to the podcast episode on this topic, click here.