E-Commerce Growth And How It Impacts Warehouse Operations
Published on 31 August 2020
When companies began to sell their products direct to consumers via the internet in the mid-1990s, little did they know that they were planting the seeds of a multi-billion dollar retail industry, driven solely by technology.
Granted, the adoption of online retail prior to the turn of the century was held back by several factors: restricted broadband width which made for a slow internet buying experience; insecure online payment systems, arguably the biggest issue with regard to the exposure of credit card information; fulfillment methodology that was geared for bulk delivery, rather than delivery of individual products.
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There are undoubtedly other factors, but these would have been the principal obstacles at the time. As technology quickly improved, so did the buying experience and security around electronic payments. Bandwidth increased exponentially, speeding up the entire online purchase process.
All of this, in turn, attracted more companies into the online retail world, and warehouse operations were forced to adapt to the rapidly increasing need for single-item fulfillment.
The trend to online retail increased in a major way with the introduction of the iPhone in the mid-2000s, which put a portable computer with internet access into the hands of consumers and, as a result, e-commerce began to accelerate as a percentage of overall retail. More and more consumers began to realize how easy it was to purchase whatever they wanted, from wherever they were, no matter the time of day or night. It was as if there was a virtual global mall that was open 24 hours a day, seven days a week.
Some argue that the rapid pace of online retail has severely impacted department store sales, and, by extension, large retail malls that are spread across America. They wouldn’t be wrong; as far back as 2014, Wired magazine wrote about online retail’s impact on bricks-and-mortar stores but opined that online buying was actually helping to enhance physical malls.
However, U.S. Department of Commerce statistics for 2016-2017 – just two years after the Wired article appeared – tell a story of rapid escalation in online retail: a 16% increase in online sales versus a 2% increase in bricks-and-mortar sales. Granted, in dollar terms, physical retail sales vastly outstripped online but, to coin an old stock-market phrase, “the trend is your friend” and the trend pointed to an ongoing rise in online sales.
The only question remaining was how quickly those sales would rise. What occurred in March 2020 provided the answer; that was the month when the World Health Organization declared that the outbreak of Covid-19 in China in early January had become a full-blown global pandemic. Businesses, schools, factories, and government offices closed; employees who weren’t furloughed or laid off began to work from home. Online retail sales soared 49% in April, alone, with grocery purchases leading the way.
So long as the pandemic continues, with no end in sight at the moment, this pattern in online consumption will continue to grow for a number of reasons: it’s safe, easy, and delivery is done in a timely fashion.
On-time delivery is where the rubber meets the road for warehouse and distribution center (DC) operators. The “last mile” is the final step in delivering a product to a retail consumer or business customer. The rapid rise in e-commerce, pre-pandemic, became a ballistic curve when the virus hit and has underscored several factors that directly impact how efficiently warehouse and DC operations are carried out. Here are several of the key challenges facing warehousing today.
The Right Number Of Warehouses In The Right Locations
At one time, a single warehouse of roughly 80,000 square feet would have been sufficient to meet ‘last mile’ requirements. However, that warehouse may not have been close to customers. Timely delivery is one of the demands of today’s customer; free delivery is another. To achieve both, warehouse and DC operators must ensure they have facilities close to the end-users of their products. According to CBRE, in the five years from 2012 to 2017, average warehouse size jumped 143% to nearly 185,000 square feet, primarily because of the growth of e-commerce.
The preferred location for today’s new warehouses is in urban centers, closer to customers, rather than in more remote locales.
From Bulk Orders To Single Item Orders
The reason warehouses were once located much further from customers was because their order fulfillment was done in bulk where, even though delivery still needed to be timely, it didn’t have to be as fast as 2-day delivery. That’s the norm today and, along with it, is the need to be able to fill single orders. The days of bulk consumer orders are dwindling; instead of shipping large truckloads of goods to department stores, for example, deliveries are more frequently single items dispatched to individual home and office locations, using specialized delivery companies with much smaller trucks and vans.
Fluctuations In Demand
If there is one thing that the pandemic has created, it’s fluctuating demand, sometimes wildly fluctuating demand. Sales of toilet paper and hand sanitizer sky-rocketed in the earliest days of the pandemic, putting enormous pressure on warehouses to keep up with orders. Inevitably, supplies ran short, grocery store shelves were empty and consumers rushed to find alternatives.
Such rapid and sharp changes in demand have left some warehouse operators scrambling and have emphasized the urgency of having the means to predict future demand trends and to respond proactively.
The Store That Never Closes
There was a time, many decades ago, when it was impossible to shop on Sundays. That seems as archaic to us today as the milkman who used to deliver milk every morning. We take seven-day-a-week shopping for granted. But in the online world of retail, it’s a 24/7 marketplace where next-day delivery is fast becoming the benchmark. Just as the online store never closes, so, too, the warehouse never closes, with employees fulfilling orders overnight to facilitate next-day delivery. Staffing has now become a 24-hour a day task for managers.
What It All Means
Warehouse and distribution center operations have reached the point where technology has to play – and is playing – a vital role. Managing warehouses in multiple locations, running 24 hours a day, year-round, staffing to meet a 24-hour need, fulfilling orders both large and small, expediting the goods to their final destination and being agile enough to shift operational requirements based on changes in demand cannot be done just by people, no matter how capable their management skills; it’s essential to bring in software technology solutions that can take over the repetitive jobs, track shipments in and out without error, predict changes in demand using artificial intelligence, and do it all seamlessly across any number of facilities, so that warehouse staff can perform at the peak of their abilities.
Generix Group North America has a suite of leading-edge software solutions that cover the entire supply chain universe, of which warehouse management is a critical component. Our solutions work, as any of our global clients will attest to. We invite you to contact us to learn more.