Everyone recognizes that retail is in the midst of a phenomenal transition, driven by always-on consumers who are molding the shopping experience to fit their lifestyles.
Today’s consumers expect speed, convenience, numerous product choices, and ease of use. They want to shop whenever, wherever and however they choose and demand fast delivery and no-hassle returns. Moreover, they want all of this delivered in a seamless, consistent brand experience.
On the demand side, this shift has happened very quickly, mirroring the explosion in digital and mobile devices, and this continues to accelerate. According to Morgan Stanley, U.S. e-commerce sales are forecast to reach 31% of retail sales by 2026, up from 23% in 2022. Yet as retailers invest millions in electronic storefronts and order management technology to capture digital customers, they also must continue to stock distribution centers and replenish their brick-and-mortar network.
A key problem is the traditional store-centered supply chain. This works well for larger orders and case picking, but it’s not well-equipped to handle the more complex picking, packing, and transportation requirements of direct to consumer (D2C) e-commerce.
This was a manageable problem when online sales were a relative novelty, as order volumes were small enough for brands to operate two separate supply chains with separate inventories—one for replenishment and one to fulfill digital orders.
But with direct-to-consumer sales now responsible for the majority of retail growth, brands are faced with the monumental task of revamping their supply chains and rethinking their fulfillment strategies around omnichannel sales.
A top fulfillment concern is how to enable these cross-channel shopping journeys, such as allowing a customer to buy an item online and return it to a store (BORIS). Along with the need to improve operational execution, the other issue is the inability to allocate inventory in one channel to fulfill an order from another channel.
This emphasizes the need for true visibility across a retailer’s entire inventory, as well as cross-channel integration of order and warehouse systems— changes that help retailers become as channel agnostic as their customers.
Getting to this point requires significant investments in technology, integration, and process improvement — and this can’t happen overnight. While laying the groundwork for this eventual omnichannel convergence, retailers need interim strategies that maximize sales and optimize the customer experience.
Nothing is more important to successful omnichannel fulfillment than a single view of inventory. Chuck Feldman, director of warehouse systems solutions at Ryder E-commerce by Whiplash, notes that retailers in the past have depended on two separate inventories to fulfill traditional and online channels:
“If a retailer had 100 blue shirts in inventory, it might allocate 75 to one channel and 25 to the other,” he says. “If this allocation proved to be wrong, it was impossible to move the inventory quickly enough to capture the sale.”
With a virtual warehouse, a retailer can let the market dictate how those 100 blue shirts are allocated. This doesn’t mean that companies don’t think about probable allocations, he says, “but if they are wrong, it only takes a stroke on the keyboard to move the inventory.”
Virtual inventory systems only work if the 360-degree view they provide is accurate, and accuracy requires a joint effort between the 3PL and the retailer.
“It’s important for retailers to have one systemic SKU for each product that is offered both online and in the store,” says Lou Riccitelli, vice president of East Coast operations at Ryder E-commerce by Whiplash. Retailers often have two or more SKUs for the same product—a holdover from the days of separate channel-specific supply chains. But with more and more products being offered online, it’s important to set this up correctly at the beginning.
Even the most accurate inventory data can be undermined by unintegrated order systems, however. This is where a lot of retailers, who had to quickly develop e-commerce front-end capabilities during the COVID-19 pandemic, run into problems. “Many retailers have built electronic storefronts themselves, or used one of the popular online store platforms,” says Greg Morello, president and chief commercial officer at Ryder E-commerce By Whiplash. “These storefronts typically operate as new, standalone demand points that may not be connected to the primary ERP or order management system.“
3PLs, on the other hand, are experts at connecting to a diverse set of demand generators, from sophisticated ERPs to legacy systems across many customers. “For a 3PL like Ryder E-commerce by Whiplash, a new web platform is simply a new demand point.” Says Morello. “Our systems are designed to take input from these disparate systems, create a standard pick order, check for product availability, and send accurate, real-time inventory information back to the customer.”
Once an order has been accepted and processed in a 3PL fulfillment center, the order fulfillment process begins—a critical process that must be optimized for speed and efficiency. 3PLs like Ryder E-commerce by Whiplash, who are already picking customized assortments for store replenishment, have a headstart on each picking required for online orders.
Even so, some additional capabilities are needed for a full D2C operation, says Sarah Drazetic, chief people officer and vice president of engineering at Ryder E-commerce By Whiplash. “On our orders for retail and wholesale customers, we usually have two to three days from the time an order is dropped to when we have to get it out the door,” she says, “but that is shortened for D2C orders. These usually have to be picked, packed, and shipped within 24 to 48 hours.”
Additionally, wholesale or retail orders typically have more units per SKU and per order, Drazetic says. “A typical store order may consist of 36 units across three SKUs, whereas a typical D2C order may have the same three SKUs, but only one of each.” The problem, she notes, is that, unless picking modifications are made, “it takes us the same amount of time to pick the D2C order.”
“About 55% of the cost involved in picking is travel time—time spent moving around the warehouse from one pick location to another,” Drazetic says. “So what we try to do is set up our picking areas in a way that minimizes travel time.”
This means being smart about storage and picking locations, says Feldman. “Putting fast movers in front and slow movers in back and grouping items that often are ordered together are two methods that we use to reduce travel time. Understanding a client’s products and order patterns is critical to getting the right floor layout,” he says. “We spend a lot of time optimizing our slotting to minimize travel and that delivers a lot of efficiency.”
Picking efficiency also impacts the ability to meet very tight turnaround times on direct to consumer orders. “Two-day delivery used to be standard for e-commerce orders,” says Feldman. “Now consumers want to be able to place an online order before 4:00 in the afternoon—or even 7:00 p.m. in some cases — and still get the product delivered the next day.” To help meet this demand, Federal Express and UPS have extended their cutoff time for next-day delivery from 6:00 PM to 10:00 PM, Feldman notes. “This demand for speed will only increase, which means picking and packing have to be fast and flawless.”
This rule applies even to complex orders, where items physically reside in different fulfillment centers. Ryder E-commerce by Whiplash has developed an innovative process for merging goods from different warehouses into a single order that has to be processed in less than a day. “We designed a pull wall with lighted cubbies,” explains Drazetic. “Each part of the order is scanned as it comes in and directed to the cubby assigned to that order. The order is released to packing only when all items have arrived.” This system allows the fulfillment center to marry up split shipments very quickly—“in less than half the time it would take on a wholly manual basis,” she says.
Another area where 3PLs can add substantial value to D2C orders is in the packing process. “Many brands want to add special marketing messages, custom packaging, or gift wrapping to D2C orders,” says Feldman. Being able to do this well – and with a lot of flexibility – is important to e-commerce fulfillment operations. “A client may make a quick decision to put a coupon in every online order for the next month, and we can handle that,” he says. “We turn these programs around very quickly.”
Specialized or custom packaging often is part of a retailer’s strategy to give online shoppers a consistent brand experience and the same level of personalized service they would receive in-store, says Drazetic. “They may want to use special tissue paper or nicer cartons. A packer has to be able to see and understand these requirements and pack and wrap based on individual customer requests.” Ryder E-commerce by Whiplash not only provides special training to its packers, but also cross-trains employees “so we can pull people off other jobs and into packing when there is a heavy influx of orders.”
The ability to staff up for surges is an important advantage of 3PLs, says Feldman. “For holiday promotions, for example, we have access to a lot of staff and can scale up for increased demand in a relatively short period of time. It’s very hard for retailers to do that with their own warehouse.”
“It also is difficult for retailers to handle the high percentage of product returns that accompany online sales—a rate that can be many times the return rate at stores,” says Morello. “Particularly when buying apparel, shoppers are using their home as a dressing room, ordering multiple items to try on and returning those that fail to flatter or fit.”
This raises the stakes for returns processing, because retailers need to get these goods back into inventory as quickly as possible. “Handling returns used to involve just the receipt, sorting, and disposition of returned goods based on customer direction,” says Morello. “Now, retailers want merchandise inspected, repackaged, and returned to active inventory in first-quality condition as quickly as possible.” 3PLs like Ryder E-commerce by Whiplash have existing quality inspection and repackaging operations to serve this return channel, he notes. “Leveraging this expertise can help retailers ensure they have every opportunity to re-sell all returns as first quality merchandise.”
A robust returns process, infrastructure designed to handle the complex demands of D2C picking and packing, a cross-trained workforce that flexes with shifting demand, and proven competencies around value-added services and customization—these strengths provide a strong and reliable bridge ready to help retailers transition from a store-centered supply chain to omnichannel flexibility.