Retailers and consumer goods manufacturers are investing heavily in omni-channel in 2016. A just released study of CEO intentions by PwC on behalf of JDA Software found that CEOs plan to spend 26 percent of their capital investments this year on omni-channel capabilities. The most cited area of investment was for extending the range of omni-channel fulfillment options, closely followed by providing seamless customer shopping experiences and understanding social media. However, it is what they are generally not investing in — their workforces— that could hit them with a double-whammy.
While CEOs are investing in store logistics systems, order management systems and upgraded warehouse management and material handling systems to support the extended range of omni-channel fulfillment options, few are increasing labor budgets in distribution centers (DCs) or stores. Yet omni-channel fulfillment requires more labor and different skills in DCs and stores than traditional operations. Without investment in workforce management and training, the workforce will become a stumbling block to omni-channel success.
Omni-channel and the DC
Most retail and consumer goods warehouses and distribution centers were originally set up to ship bulk replenishments to stores. These facilities typically ship pallets and cases of goods either directly to stores or to smaller DCs and replenishment depots. These processes are less complicated, require less sophisticated material handling equipment, and are less labor intensive than fulfilling individual consumer orders.
To get around this problem, many companies initially either established dedicated ecommerce fulfillment centers or hired third-party logistics providers to handle this task for them. With the rapid increase in ecommerce orders, the rising carrying costs of maintaining dual sets of inventory, and the need to seamlessly support cross-channel fulfillment options such as buy online/pickup in-store, many companies are finding it less costly and a better service option to combine inventories and distribution processes under one roof.
Not only is picking individual items to complete consumer orders more labor-intensive than fulfilling replenishment orders, it also requires new skills and effort to combine picks into consumer packaging, manifest the resulting parcel shipments and arrange for parcel carrier pickups. This process can be further complicated for buy online/pickup in-store options when any items in the order are not part of that store’s normal assortment. This may require a combination of item picking and replenishment processes.
These new omni-channel fulfillment processes also require greater accuracy than replenishment orders. While shipping the wrong item for replenishment might lead to an over-stock or out-of-stock, shipping the wrong item to a consumer can cost you that customer. A JDA study of over 1,000 consumers found that 25 percent of those who experienced a problem with delivery of an online order would not shop with that retailer again.
Solving the efficiency and accuracy challenges of omni-channel fulfillment in DCs requires that companies invest in advanced labor management systems and warehouse management systems that direct all fulfillment tasks. These systems are often augmented with further automation such as pick-to-light or voice systems.
Omni-channel and the Store
For competitive reasons and to increase customer service levels, such as for same-day or next-day deliveries, many retailers are now offering omni-channel fulfillment options such as buy online/pickup in store (often called Click & Collect) and buy online/ship-from-store. This requires store associates to perform tasks previously done in DCs. Picking orders in-store is six times as expensive as picking orders in a DC, however. This is because store associates are generally not trained or equipped to handle these picking, packaging and shipment tasks. Nor are they prepared to handle the large volume of returns typical with e-commerce.
Not only are store associates not trained and equipped to handle order fulfillment and returns, seldom are stores allocated additional budget to cover the increased labor requirements. Yet, fulfilling orders in stores is more complicated than picking orders in DCs. Whereas DC workers will be directed by automated systems to specific racks or storage slots in sequence to pick each order, or may have the items delivered to them by a conveyor or robot, store associates seldom have automation.
Store associates have to decide on their own what pick path to follow and whether to pick each item from a store shelf, endcap, promotional display or backroom storage. This can get even more confusing if any of the items is out of stock or is not part of the normal store assortment. Store associates must also know where to stage orders for customer pickup or how to prepare and manifest orders for delivery. Store associates are seldom trained for these additional tasks, nor are they typically provided with automation to assist them.
To succeed at omni-channel fulfillment, store associates must be trained and equipped similarly to how DC workers are. This will require workforce management systems with the intelligence to schedule associates for fulfillment tasks intermixed with their customer-facing duties, task management and order picking systems to direct fulfillment tasks for efficiency and accuracy, and automation such as smartphones, tablets or voice systems to convey order picking, staging and manifesting instructions. These systems, along with capabilities for managing the associated store inventory, are often referred to as Store Logistics Systems.
There is one more important aspect of in-store fulfillment of omni-channel orders that is often overlooked. Many retailers are deploying order management systems (OMS) to decide from where to fulfill omni-channel orders based on inventory and transportation considerations. What most OMS are not capable of considering, however, is the availability of labor within each store to execute the fulfillment when promised. This can lead to disappointed customers. Therefore, the OMS must be integrated with the workforce management system so orders are not sent to stores for fulfillment when insufficient labor is available to complete the process when promised to the consumer.
Avoiding the Double-Whammy
Omni-channel fulfillment has significantly blurred the lines between what is done in DCs and what is done in stores. Therefore, to avoid having workforce issues trip up your omni-channel fulfillment strategies and disappoint customers, DCs have to manage the workforce more like stores, with improved planning, scheduling, and task management, while stores have to train and equip their associates more like DCs. This requires a new breed of advanced workforce management systems integrated with store logistics and order management systems. Since the workforce is typically the second largest non-facility expense in both DCs and stores, managing them effectively and productively will be a major factor in providing omni-channel fulfillment successfully and profitability.
For related commentary, watch the Talking Logistics episode “Are Your Labor Management Capabilities Aligned With Your Omni-Channel Strategy?“
In his role as Director, Thought Leadership at JDA Software, Jim LeTart is responsible for developing thought leading content to support JDA’s Plan to Deliver suite of integrated retail and supply chain plan and execution solutions. Jim came to JDA in 2013 through its merger with RedPrairie, where he spent over 13 years in various marketing leadership roles. Jim has over 35 years of sales and marketing experience in the computer technology industry, and is a frequent speaker, writer and blogger on how technology can improve business processes and outcomes. Jim has an MBA from the University of Michigan and a BSME from Marquette University.