Think Fast: Fulfillment Center Planning Amid E-Commerce Chaos
Ecommerce was already eating away at brick and mortar retail sales. Since the onset of COVID 19 consumers have now greatly accelerated this shift. A large portion of this growth is from customers who are first time e-commerce shoppers with these brands. It is expected however, that a lot of these customers will be converts forever. Further fueling the constant trend in higher e-commerce volumes.
It is no surprise that this recent demand shock has stressed the fulfillment center operations of many retailers – evident by their increased shipping times (shown within the above graph). It has resulted in multiple days of backlogs throughout fulfillment center operations, now pushed to the max. Retailers were already trying to improve their fulfillment process speed by adding more FC’s and/or increasing automation within processes, etc. But these are strategic decisions, that take time and lots of capital investment in order to bear the fruit. In the meantime, the FC managers are being tasked with meeting these extraordinarily high and volatile consumer demands all while meeting the consistent expectation of high service standards and keeping labor costs low. The FC manager’s near-term decisions have significant implications on whether the retailer will be able to navigate this current shift in customer behavior and as they continue to respond to both unplanned and planned demand fluctuations next month, next year and beyond.
Finding the sweet spot between service and labor cost in a volatile demand environment is now a chronic question facing FC managers around the world. They currently lack the sophisticated capabilities to make data driven decisions that capture the complexity of their operations in a scalable manner. Even a simple question like – ‘What is the expected backlogs during a given week?’ requires them to account for the demand forecast, productivity differences across different worker types, and available human and machine capacity in order to project the cumulative backlogs at each inbound and outbound step every day of the week. On top of this, when they do anticipate a problem (say demand is expected to increase by 300%), they need to quickly come up with strategies to mitigate the backlogs. This requires evaluating operational adjustments such as:
- What if we stop returns processing during the high demand week?
- Can I reduce my temp labor needs, if we limit the 3-day service to the loyalty cardholders?
- If one of two FC’s is shut down due to Covid-19 infections and I have to rely entirely on my other FC, what is the best service levels I can achieve?
In short, FC Managers need a new set of capabilities to win in this constantly disruptive environment. These capabilities should empower them to understand the impact of their decisions on service and cost within the ecommerce supply chain. The winning combination will pair their own operational expertise with the power of algorithms to efficiently find optimal solutions amid challenging times. A relevant example of such an efficient pairing is Google Maps. It does an efficient job of crunching all the mapping and traffic data for all forms of transportation but gives us the ability to pick the option that satisfies our criteria for the situation we are in. It allows us to evaluate, how much more/less time it would take if we added/removed a stop (e.g. a coffee shop or a gas station). Like Google Maps, today’s FC manager needs a scalable data driven decision-making application focused on evaluating the trade-offs in the FC, so they can improve their service and cost KPIs.
If you are interested in seeing how LLamasoft’s innovations are bringing these capabilities to life for Fulfillment Center Managers read more about the Fulfillment Capacity Planner app here.