As you well know from both a personal and business standpoint, COVID-19 is wreaking havoc on both global and regional supply chains. If you are one of the retailers managing through this extremely difficult time, we’re rooting for your success as many people (including myself) are relying on you. Some immediate examples of the supply chain disruption from this pandemic include:
- Production cuts of many goods manufactured in China are causing shortages while at the same time demand for some of those products is increasing. This bullwhip effect will push a large volume of backlogged demand inventory through the supply chain at rapid pace, stressing already burdened supply chains. Those distributors and retailers not ready for this influx will feel the most pain.
- Ecommerce growth was already exponential for most retailers. Now it’s unprecedented. Major spikes in demand will stress distribution facilities, cause delayed shipments and stress systems.
- Buy online, pick-up in store options have seen rapid growth over the past few years, but this model is likely to shift to buy online, deliver from store (if the store is open). If not, the order will shuttle back to the stressed ecommerce channel.
- Labor shortages in distribution facilities are already major areas of pain and concern for many retailers. As demand increases for some retailers, they will need to onboard, train and staff at a peak season rate. This could be somewhat offset by service industry employees who find themselves out of work with store closures, but the administrative burden of onboarding and training new employees for distribution center work will be a challenge.
Supply Chain Disruptions: Permanent or Temporary?
The key supply chain question to ask during this unprecedented period of national shutdown is: Is this a supply chain anomaly or will it permanently change customer expectations? I believe as the national shutdown persists, customers who are already accustomed to purchasing online will increase their online spending even further and customers who have traditionally spent little to nothing online will be forced to increase or start. Grocers have already suspended or significantly delayed (by numerous days) order pick-up due the exponential spike in demand. Companies like COSTCO just announced home delivery to help during this time. I think this will establish new “normal” buying patterns after the pandemic subsides. While the post-pandemic patterns will not mirror those seen during this pandemic, they will undoubtably change permanently.
While the rates of online shopping will undoubtably spike during the pandemic, I believe they will stabilize at far higher levels than prior to the pandemic. I believe this pandemic will forge new customer buying patterns, further solidifying the need to support an omnichannel strategy that supports: retail, ecommerce, buy online pickup-in-store (BOPIS), and home delivery. Customers will become further accustomed to online shopping, home delivery and BOPIS, thus driving up the need to support all these channels at rapid pace.
It’s important to understand customer buying behavior for these channels prior to the pandemic. If we know what customers expected prior, we can assume these will increase after the pandemic subsides as customers become even more accustomed to multiple purchasing channels with a higher reliance on ecommerce and at-home delivery. Here are some excerpts of customer expectations for the various buying channels.
- E-commerce: When it comes to ecommerce, customers expect:
- Free or low-cost shipping.
- “Fifty-four percent of shoppers abandoned their carts due to expensive shipping, while 39% abandoned their carts due to no free shipping. And 26% abandoned their carts due to slow shipping.”
- Fast receipt of product. Next day or two-day shipping means order fulfillment needs to happen same day or next upon order placement.
- Free, easy returns. Customers expect products to arrive with either:
- Pre-printed, pre-paid return labels
- The ability to easily print off a pre-paid return label
- Easy / quick access to a return center
- Buy Online Pick-Up In-Store (BOPIS): If customers don’t want to pay for shipping or wait for product, they want the ability buy online and pick-up in-store QUICKLY. Most customers want to pick-up their product same day, or many times within an hour(s). This means you need to have product in-stock and the ability to quickly allocate and access it. The following statistics tell the story:
- “68% of US consumers [have] made multiple click-and-collect purchases”
- “50% of shoppers said that they've decided where to buy online based on whether they could pick their orders up in-store.”
- “The most popular reason shoppers gave for using BOPIS was saving on shipping costs, with 48% citing it. Beyond shipping savings, speed (39%) and convenience (28%) were the two most cited reasons for using BOPIS”.
- “85% of shoppers say that they've made an additional in-store purchase while picking up an online order, and 15% say that they do so “somewhat frequently.”
- Traditional in-store sales: Customers expect stores to have product in-stock and at the same price as online competitors. We all know customers will look at product in-store and buy online if the price is lower and free shipping is guaranteed. Most people have done it or at least considered it. I have. This means you need to have inventory in-stock or available next day or within two days, shipped direct to your customer at no additional cost. Some interesting statistics on customer buying behavior related to traditional in-store shopping:
- “63% of consumers use their phone for research in stores”
- “79% of consumers want personalized service from an associate”
- “56% of consumers want a shared cart across channels”…“such as putting something in your cart on desktop and having it show up on your phone”
- “Eighty percent of consumers do not feel they are provided with a personalized shopping experience both in-store and online.”
- “The majority of consumers (53 percent) felt negative emotions the last time they visited a store; only 39 percent feel confident in retail stores today.”
So, what does this mean for your business in the long-term after the pandemic subsides? Your business will need to:
- Continue fulfilling normal store replenishment for in-store purchases and BOPIS with the expectation that BOPIS orders will increase
- Support a significant increase in ecommerce orders as buying behavior further adapts. In addition, you’ll need to fulfill these orders quickly and profitably
- Allow customers free and easy return options.
To meet these requirements, you may need to consider an omnichannel and localized micro-fulfillment strategy. This strategy consists of:
- Building or retrofitting distribution centers to manage a combination of processes including:
- Full case-picking, full pallet picking and cross-docking for store replenishment
- Individual (each) order picks for ecommerce orders
- Returns processing
- Utilizing local stores for micro-fulfillment of ecommerce orders and BOPIS. One Micro-Fulfillment Center (MFC) can serve several stores in the surrounding area. The goal of creating an MFC is to:
- Reduce final mile delivery cost
- Fulfill orders faster
- Minimize real estate costs – utilize existing store space
- Assemble multiple orders
- Fulfill ecommerce orders (profitably)
- Store up to 15,000 SKUs – More SKUs and / or higher quantity of each
- Minimize reliance on third-party on-demand shopping providers
- Fulfill orders in minutes
To execute this strategy, you will need to consider automation. It will be very difficult to manage your omnichannel demand with increased ecommerce orders and labor shortages without some type of automation. Automation will allow retailers to more efficiently deal with supply chain disruptions, bull-whip effects and permanent changes to higher volumes of each pick orders. Some things to consider:
- Goods-to-Person (GTP) technologies continue to increase in popularity as they have become a viable solution for many retailers who need to ship a diverse SKU base to many customers same-day or next-day. These solutions vary in cost and complexity depending on business factors
- A Warehouse Execution System (WES) that can manage various subsets of automation within a facility including GTP, conveyance, robotics and sortation
- Various micro-fulfillment automation technologies are coming to market and offer the ability for stores to serve the last mile & online orders more effectively.
We wish you the best during this tumultuous time and look forward to seeing how Bastian Solutions can support your organization through the inevitable omnichannel changes that will come as a result of this pandemic.
Joris Van der Smissen says:
3/19/2020 04:00 PM
Great insight Alex. Absolute correct on the current and upcoming challenges. Thanks Joris
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