Home shopping is the fastest area of growth in UK retail. Tesco sells almost four times as many groceries online now as it did five years ago, and it is predicted that online grocery sales in the UK will increase to at least £5bn by 2012. Still a small percentage of the forecast total sales of £156bn, but nevertheless a sizeable customer demand to be fulfilled – and that is just groceries. The total value of internet sales in 2008 exceeded 2007’s £40bn – an average of £1,600 for every one of the 25 million households in the UK. And that’s only the average – just imagine what some people are spending online. And all this ignores the enormous market for business-to-business sales. Is it any wonder that so many companies are trying to develop their e-fulfilment capability?

Given the complexity of the problem, many are struggling to get it right. The cost-service balance is probably even harder to manage with home deliveries than in any other sector of consumer goods distribution.

So what are the key areas to consider when thinking about e-fulfilment, and what are the pitfalls?

Think about customers
The first thing is not to assume that everyone wants next day delivery. Some might do, but most just want reliability.

The cost of failed deliveries can be very high. However, will the savings of not asking for signatures be greater than the inevitable loss of some goods?

You also need to think about how you can calculate the carrier and fulfilment centre costs/benefits of each option and then how much you will charge the customer for delivery. The most important thing is not to promise better than you can deliver. Set realistic expectations with the customer and then by all means exceed them, but never fall short.

“What’s happening to my order?” Customers now have increased expectations in tracking the progress of their order. So consider whether or not you will offer this service and, if so, how will you do it in conjunction with your chosen carrier.

Start small, think big, scale fast: choosing a carrier
Remember that the carriers’ drivers are often your only ‘customer facing’ representatives, so choose carefully.

Ensure that the chosen carriers can offer a range of options for charges that will accommodate your varying product range covering large items (perhaps requiring a two-person delivery) and small items.

You should also consider different charging options. For example, multiple packages to one address or consolidation of multi-part orders to allow you to optimise your fulfilment centre processes. Split deliveries can be a major source of irritation for some customers, so think about where and how consolidation can be managed.

Can you cope with peaks?
Peaks are a fact of life in the retail sector, and in recent years there has been a trend towards shorter and steeper peak trading. To a large extent, this can be attributed to the customer expectations that the internet has generated. Customers have no interest in how difficult it is to get the products to their door, so what is the problem with ordering on 23rd December and expecting delivery on 24th?

So think about how you ensure flexibility in your logistics operations, to be able to gear up to the peak demand without the high cost of expensive equipment standing idle for large parts of the year. Or, perish the thought, do you offer a reduced service level to your customers?

The way that you handle peak volumes can have a significant effect on operating costs and customer service so give it plenty of attention.

Increasing choice means changing products
Managing your range change is critical to service performance. The internet has opened up such a wide range of customer choice that the need continually to ‘refresh’ the offer has increased enormously – and not just in traditional ‘fashion’ markets. If there is a significant product churn, failure to run-down or clear the replaced lines quickly will result in significant extra pick-face or storage location requirements. This will result in major re-location of products within the fulfilment centre. So think about your strategy to deal with this.

A further problem is the change in physical sizes from season to season. For example, the effects of more bulky clothing items in the Autumn/Winter, or large volumes of garden furniture in the summer must be recognised when planning the operating processes and storage facilities. Fulfilment centre facilities need to be designed to offer flexibility in the use of space from one season to the next.

The best things come in small packages…

Managing your orders
The characteristics of e-fulfilment orders are the small quantities (typically one or two items per order) and the need for packing. Picking and packing are usually the most labour-intensive part of the fulfilment process, so think about how you might consolidate orders during picking to improve productivity. Whether you consolidate multiple-line orders for delivery in one parcel, or despatch each item separately, the efficiency of these areas can be improved by planning the optimum position for each product within the fulfilment centre.

Identifying ‘associated’ products (items that are frequently bought together) and wherever practicable, locating them close together in the fulfilment centre can improve picking efficiency and enable easier consolidation of multi-part orders. Also, the creation of pick zones and positioning products according to the frequency of demand, can significantly reduce travel distances and consequent order-fulfilment times.

Pack sizing can reduce costs
Wherever possible, demand that your suppliers adequately package products for individual item picks in order to minimise the despatch-packaging requirement and associated time and cost at the fulfilment centre. Your suppliers may not have considered the fact that products will not be distributed in the pack quantities that they might supply for retail outlets, especially if they are a new supplier to the home-shopping sector. It is in the interests of both supplier and retailer to ensure that adequate individual protective packaging is applied during manufacture in order to enable minimum additional handling in the packing area of the fulfilment centre.

Customers will send things back
Returns from customers are a major area of labour-cost and space-consumption. Returns in excess of 40 percent have been experienced for some product types. Of course it depends on your service offer and conditions of sale but the increasing customer expectation is for a ‘no questions asked’ returns policy, at least within a specified time period.
Poor returns management can lead to a considerable write-off of stock, substantial labour costs and space constraints in warehouse facilities.

High levels of returns will remain a fact of life for e-fulfilment businesses, and it is an area, which can generate high costs. So don’t treat this reverse logistics as secondary to the customer supply. They are both part and parcel of the overall fulfilment operation and should be given equal attention.

Software systems
And yes, finally, we get to the question of IT and software. Hated by many but we all need it. Of course this subject requires a paper of its own, but the importance of selecting the right software to drive your business cannot be overstated.

The software required to manage an e-fulfilment operation can be quite different to that required for other businesses, so to make the right choice you must fully understand your business requirements. This means analysing those requirements in detail and then preparing full and concise specifications, which can be interpreted as processes. The specifications will take into account all the issues we have addressed in this paper, and many more. If you get them wrong you will end up with high costs, poor service and a struggling e-fulfilment operation.

Go and get e-fulfilled
There is much, much more to a successful e-fulfilment operation. But if you are just starting down the road, the above points should help you think about the issues and perhaps help you to avoid some of the problems. If you are already involved in an e-fulfilment operation you will no doubt be aware of many of the points raised here. Perhaps you are still experiencing difficulties and, if so, we hope that this paper will give you food for thought. The pace and growth in this market is enormous and the potential for failure is huge. Standing still is not an option.

For more information, go to www.logistics.co.uk