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Omni-Channel Presents Logistics Opportunities in Serving the Online Shopping Frenzy

In this article, Mark Millar discusses how the rapid growth of e-commerce is fuelling Omni-Channel retail and how this impacts the supply chain

Exponential e-commerce growth fuels Omni-Channel Retail

Few if any consumer-oriented businesses have escaped the explosive growth of e-commerce - the web-based technology platforms that embrace and harness the transformative power of size and connectivity to empower smartphone equipped digital natives to shop online to their heart’s content.

Today’s digital consumers can now browse through the cloud and choose from a previously undreamed-of massive range of products and services to buy what they want, when they want, how they want, from wherever they happen to be!

During recent years, e-commerce has emerged as one of the key driving forces and a critical element of what has become known as the Omni-Channel. This phenomenon brings together the entire spectrum of consumer shopping channels available - from the offline bricks-and-mortar retail outlets that include convenience stores, mini markets, supermarkets, hypermarkets and shopping malls; through the relatively unemotional and inert home shopping conduits such as TV, direct mail and catalogues; and now embracing the dynamic, exciting online world with internet access available 24-7 through desktop computers, laptops, tablets, smart phones and other mobile devices.

Spawning global giants such as Amazon and Alibaba, the digital revolution of e-commerce is transforming the way in which consumers shop - and changing their expectations of service, choice and value.  This e-commerce frenzy has been driven by near-universal access to the internet, the availability of affordable smart phones, iPads and similar devices – and not least by the burgeoning young populations in developing economies engendering a new generation of digital-native consumers who are determined to ‘shop online till they drop offline’. 

According to eMarketer, the global Business to Consumer (B2C) e-commerce market grew 20% year on year to exceed USD 1.5 trillion in 2014 and every forecast confirms it will continue to expand. Significantly, the market and potential for further growth lies in the developing markets across the Asia region, much more so than in the developed economies of the western world. The Asia-Pacific market already accounts for more than one third of the global e-commerce market and is forecast to reach USD 1 trillion by 2017, with the Chinese online market on its own, forecast to hit USD 1 trillion by year 2020.

In turn the new Omni-Channel retail model impacts every aspect of a supply chain ecosystem - products, inventory, warehouses, fulfilment, picking, packing, shipping, transport, distribution and the all-important information flows.

This e-commerce-enabled upsurge in online shopping is transforming B2C trade at every level, presenting logistics practitioners and supply chain ecosystems with a vast number of challenges and opportunities that have fundamental implications for every aspect of a company’s business model, their profitability - and even their future.  

How Omni-Channel impacts the supply chain and logistics

The online revolution tests almost every aspect of the long-established pattern of retail supply chain processes - including warehouse operations, pick, pack and despatch, order fulfilment and delivery, as well as introducing new dilemmas such as free shipping, last mile delivery, product returns and cross-border transactions.

Most warehouse operations serving consumer oriented businesses have traditionally focused on carton (or pallet) picking for bulk orders, shipped to retail outlets, often as full truck load (FTL) shipments, which include hundreds of products from numerous suppliers all destined for one store or supermarket.

However, the e-commerce model of online web store to consumer, typically involves logistics management of shipping multiple individual orders, the majority of them comprising just one or two pieces, to hundreds of individual delivery points – typically residential addresses.

To serve this expanding B2C sector of online shopping, warehouse operations can no longer rely purely on bulk storage of pallets and cartons, handled using fork lift trucks in a distribution centre; they now need capabilities to manage single unit order fulfilment, involving piece-pickers, shelving storage, tote boxes and individual packing stations.

Many traditional third party logistics (3PL) service providers are challenged in adapting to this new business model. This represents new opportunities for non-traditional distribution companies to establish e-commerce fulfilment centres – physically configured specifically to process large-volume small-order demand generated through online shopping. Unencumbered by legacy systems and operational practices, new entrants can start with a green-field solution and capitalise on the logistics opportunities to serve single-unit order fulfilment with efficient pick and pack business solutions.

Adopting technologies such as Pick-to-Light and Pick-to-Voice - not yet pervasive across traditional warehouse operations - can enable the all-important operational efficiencies that are critical for economically successful e-fulfilment centres.

Online giant e-commerce Amazon embraced technology and automation to the extent that back in March 2012, they acquired robotics company Kiva Systems for USD 775 million and now deploy over ten thousand Kiva robots across their massive fulfilment centres – many of them over one million square feet – across the USA.

As relatively new entrants into the market, the pure-play online retailers – Amazon, Alibaba, and their numerous peers – are unburdened by high-street bricks and mortar infrastructure with its related fixed overheads and therefore have much lower operating costs. These e-tailers set the stage by offering consumers free delivery to their home or office, leaving the established retailers with no option other than to offer the same service - which brings a whole new set of logistics obstacles to overcome, quite apart from the higher cost of individual deliveries to residential locations.

Tune in next week for part 2 where Mark Millar discusses the challenges of ‘the last mile’. 

You can read more about the ecommerce revolution and other critical supply chain challenges in Mark Millar’s new book, Global Supply Chain Ecosystems