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17 July 2014

We deliver … or we make sure someone else does

If you thought home delivery was tough, try adding click and collect, and then factor in drop-shipping as well. When it comes to fulfilment, things are seldom quite what they seem to the home shopper, but fortunately itâs gradually getting easier to make them appear to be, says Peter Rowlands

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It looks so simple. You add a product to your virtual shopping basket and check out, and (with luck) the item arrives within a day or two at your front door. Job done.

But where did it come from? Was it from the retailer’s shop, or from a fulfilment warehouse? And where was it delivered? To your home, or for collection from a branch in the retailer’s store network? And what if the retailer didn’t deliver it at all, but instead it was despatched direct by the manufacturer or importer?

"Home shopping fulfilment is vastly more complicated than it’s ever been before." That’s the judgement of Nick McLean, director of products and marketing at eCommera, an order management specialist. "To make it work, retailers need to be able to see all inventory at the same time, whether it’s in a warehouse, in store, or still at the manufacturer’s."

This kind of complexity is not going away. According to the latest Multichannel retail delivery report by software group Micros, approaching half of mainstream retailers (44 per cent) are now offering click and collect as a delivery option. The indications are that this figure will soon pass the 50 per cent mark.

It’s harder to chart the proportion of home deliveries that are drop-shipped (delivered direct by manufacturers to consumers at the retailer’s request), since this function is not regularly declared by retailers, and may not be evident at the delivery point; but there’s little doubt that it’s on the increase.

Gavin Masters, head of e-commerce consultancy at Maginus Software Solutions, points out: "Some retailers don’t want to admit to using drop shipping. They’d rather appear to be handling the whole sale and fulfilment process themselves."

Whether acknowledged or not, drop shipping seems likely to gain in popularity as retailers attempt to broaden the range of items that they sell. The larger the number of stock-keeping units, the less manageable it becomes for the retailer to hold everything in-house.

The challenge of meeting rising consumer expectations, yet at the same time dealing with this increasing complexity, is putting immense strain on fulfilment systems. Not suprisingly, the leading suppliers of supply-chain management software (companies like Manhattan Associates and MACS) nowadays tend to specify drop shipping and click and collect among the functions that they can support; but just how easy is it to provide for these things? That’s another matter.

According to Gavin Masters of Maginus: "If the software company supplies both the enterprise resource management system that drives the retailer’s operations, and the point-of-sale software in stores, then it’s relatively straightforward to maintain a single view of stock in all locations. It the two functions are not handled by the same supplier, it’s still possible, but it’s much more difficult."

Nick McLean of eCommera agrees that it’s necessary to monitor stock in stores, warehouses and other locations, but argues that a single view can be achieved with a middleware layer that pulls all the other data together. "The key is to put the right business rules in place," he says.

"For instance, if the retailer has stores in London and Edinburgh, the rules might divide the pick and despatch work load on the basis of cost-effectiveness, cheapness or fastest delivery time. The best systems will make these judgements automatically and fire off each order to the right place."

Whatever approach you take, having accurate and up-to-date information is vital. Gavin Masters says Maginus has recently enhanced the granularity of information that its systems can provide. "Where in the past the system might have shown a product as either in stock or not, now it can show whether it’s in stock, out of stock, on back order and so on."

Not all this information will necessarily be given by retailers to consumers, though the more detail is provided to the end user, the greater the confidence engendered by the web site. "Being honest encourages the sale."

One way to even out the fulfilment task across the retail estate is to use stock from high-street stores to fulfil online orders; but it’s an approach that has shifted in and out of fashion as multi-channel shopping has evolved. In the early days of internet retailing it was seen as the obvious way to handle fulfilment, and grocery retailers still use the technique extensively. Elsewhere, however, retail thinking tended to shift in the direction of fulfilling from dedicated warehouses.

However, lately there has been something of a revival of the idea of fulfilling from shops, and some software companies are pushing the concept quite hard. One is eBay Enterprise, which used to be known in the UK as GSI Commerce. It has a software suite known as Ship-From-Store, and as it says on the tin, this helps retailers work their in-store inventory harder.

The company claims that recent customer analysis found that this approach could improve a typical retailer’s performance by around 20 per cent – which comes to an impressive-sounding £27,000 a day for a company turning over £50 million. This results partly from reducing mark-downs by channelling remaindered items where there is a demand, though there will also be front-line benefits in overall efficiency. Not all retailers would see such a radical benefit, but the attractions are clear. (More on eBay Enterprise: page xx.)

Paradoxically, though, a retail store can in some cases be the last place to look for stock that has been sold online. Most retailers tend to offer a much larger product portfolio on their web sites than at individual stores, so it would be simplistic to imagine that anything ordered online can simply be pulled from the stock of the retailer’s nearest physical branch. Things simply don’t work like that.

This stock mismatch has particular ramifications for click and collect operations. In many cases, if a retailer wants to offer click and collect, it may actually have to pick items from a warehouse send them to the relevant stores for collection.

A good example of this is provided by Asda, which uses the eCommera suite in its order management. "To the consumer," says Nick McLean, "its online offer looks like an extension of the in-store range, but under the hood it’s a completely separate operation – a parallel environment." He says such retailers might eventually merge these two strands of their business, "but in many cases not yet."

A classic case of despatching goods from warehouse to store for collection by shoppers is seen in the latest offer from John Lewis. The department store chain now offers click and collect of goods sold online not just from its own stores, but also through many of its separate Waitrose grocery retail locations.

Clearly these shops don’t hold John Lewis stock; product has to be sent to them, just as if they were a free-standing pickup network. The clever part is that in practice the goods stay within John Lewis control right up to the time of collection. It’s a unique opportunity enjoyed by no other department store chain, adding potentially hundreds of pickup points to the limited core click and collect network of the department store business.

Picking early enough to get the goods out to customers or collection points brings pressures of its own, of course. One solution for streamlining pick operations in the warehouse is to use a voice-directed system; and Darrel Williams, a regional director of Vocollect, says this can play a vital role in an operation like John Lewis’s.

"Voice-enabled technology is already enabling the industry to fulfil next-day and late-night pledges (a key element of click-and-collect)," he says, "bringing a 20 per cent lift in productivity and ensuring accuracy rates of 99.9 per cent whilst delivering vastly increased worker satisfaction."

Drop shipping remains the biggest unknown quantity in this arena. The indications are that it’s growing in popularity fast, yet it is the hardest kind of fulfilment operation for retailers to organise and control. For a start, the manufacturer or supplier may well not be using the same software as the retailer to manage despatch, and its software might not have the same ability to monitor the interaction with consumers.

It might well not be using the same carrier as its retail customers either. No wonder so many retail web sites are evasive when it comes to specifying which carrier will be used for despatch. "Royal Mail or another carrier," the help screen will often say, which could well indicate that the retailer simply doesn’t know.

Given this potential mismatch, how can the retailer offer the same sophistication in terms of consignment tracking that it provides when doing its own fulfilment? Much depends on what tracking resources the supplier’s carrier can offer, and how willing the supplier is to be helpful. In many cases there has been real progress in aligning systems, but this remains an area where the closed loop of home delivery tracking has conspicuously ragged edges.

Even a simple thing like indicating available stock can be fraught with difficulties. Assuming the manufacturer supplies more than one retailer, how should it report stock availability? Until the stock is explicitly called up by a given retailer, why should the maker allocate it to that retailer – possibly losing sales to another?

"Some suppliers are good at ring-fencing product for specific retailers," says Maginus’s Gavin Masters, "but not all will do this, especially when there could be ten or fifteen retailers hammering on the supplier’s door for stock.

"Providing good stock information requires a bit of honesty," he says, "and depends on relationships between supplier and retailer."

"Where appropriate," says eCommera’s McLean, "we can install client software in the supplier’s premises, so that it will feed stock and delivery information into the retailer’s system." However, this would depend on the willingness of the supplier to support its retail customers’ needs. It is easy to see that there would be some reluctance to install a variety of different systems to suit different retailers.

To consumers, of course, all this complexity is more or less hidden. They just click "Buy", and assume the fulfilment will happen automatically. The trick for retailers is to make it appear that this is the case. The good news is that they’re getting better at it, and with continued support from the software community, should get better still. 


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