In this age of Amazon’s free two-day shipping (or even one-day shipping), your business needs a competitive edge. That edge helps you keep up with other e-commerce companies, but also helps you exceed your customers’ expectations. One way to do that is through omnichannel fulfillment.
If you’re only performing order fulfillment through your own warehouse or a 3PL provider in a single location, you may be missing out on sales opportunities as well as failing to meet customer expectations.
Leveraging the physical store has become an important advantage for retailers who have them. With rising levels of online shopping, especially in the COVID-19 era, stores can be a fulfillment advantage. The physical store is playing a role in instant gratification, with buy online pickup in store (BOPIS) and curbside pickup options as well, giving customers more opportunities to choose how they want to receive their goods, and possibly return them to the store if needed after shipment.
What is omnichannel fulfillment?
Omnichannel fulfillment is an order fulfillment method using multiple fulfillment channels. The fulfillment options might include a warehouse, distribution center, physical store, or drop shipping. The retailer might deliver the package via traditional or other carrier, in-store pickup or curb-side pickup from a retail store, depending on the customer expectation. An omnichannel fulfillment solution makes the logistics and supply chain more complex, but if your fulfillment strategy is set up to handle order automation and inventory visibility, it’s much less difficult.
Omnichannel order fulfillment differs from traditional retail fulfillment. Typically, inventory goes from the manufacturer to a distributor, and then to the retailer’s warehouse or distribution center for the fulfillment service. The customer’s online order is routed through the order management system to the warehouse, where staff completes the fulfillment process. The inventory from the online order is sent by carrier to the customer at their residence or business location.
With omnichannel ecommerce fulfillment, the inventory may be filled from a variety of places. Some inventory might be sent from the retailer’s warehouse, and some from the physical store. Each retailer will have their own omni channel fulfillment strategy. For an order with multiple items, omnichannel fulfillment might happen from several stores and warehouses, depending on the following:
- Which stores or warehouses are closest to the customer
- Which locations have the items in stock
- Which suppliers are eager to ship due to pending expiration dates or product age
- How quickly the customer expects the items
While complex for the retailer, the consumer won’t always notice how it’s fulfilled or where it’s fulfilled from (if it’s shipped), unless packages arrive at separate times and from different addresses. If done well, the customer experience should be seamless. On the inventory management side, the fulfillment solution ensures that the product is located, allocated, and sent to this customer.
How the omnichannel strategy is working for some retailers
Target made a big push to do omnichannel distribution in the last few years. In spite of early doubters, their store fulfillment model is working well for them. They were able to ramp up during the COVID-19 pandemic as a result, shipping to customers, offering curbside pickup or in-store pickup as a result.
Their second quarter same-day pickup services grew 273%, and they attracted 10 million new customers to their website. Consumer demand grew by 4x for same-day fulfillment options during January to June 2020. The company plans to have their stores fulfill 90% or more of their digital orders from store inventory.
For stores selling consumables like food and household items, the pandemic fueled omnichannel retailing for customer satisfaction and customer loyalty. It wasn’t just Target that went with this option. It was Costco, Walmart and BJ’s, as well as many smaller retailers. Consumer demand for this fulfillment service soared. Even department stores and other physical stores were able to use omnichannel distribution options and they pivoted faster than they might in other situations.
4 reasons why your company needs an omnichannel fulfillment strategy
There are many benefits to using omnichannel retail fulfillment.
- Customer service: The ordered items can potentially arrive more quickly if shipped from a closer location. If you offer options like BOPIS or curbside pick-up, this increases customer satisfaction. This also helps your company image, in that customers know you are sensitive to their needs. Offering to send (and receive returns) in a manner easy for the customer makes a big difference.
- KPIs: If you are using key performance indicators like on-time shipping, order cycle time, orders shipped complete, order accuracy rate, and order fill rate, you have a better chance of meeting them using an omnichannel fulfillment strategy.
- Cost: It may be cheaper to ship via omnichannel fulfillment as well, which is especially important if you are offering free or discounted shipping. Retailers don’t have to wait until the omnichannel order is all in one location before shipping. Items can be sent at the same time from multiple locations. That may increase some shipping costs, but there are savings factored in as well. You won’t be shipping twice – once to the distribution center to gather all inventory for the shipment, and again for the actual customer shipment.
- Visibility: In order to run an omnichannel fulfillment operation, you need visibility into your inventory management and order management system. That allows you greater reporting and analysis abilities, which can help all aspects of your business.
Challenges of the omnichannel fulfillment strategy
While there are many benefits to omnichannel fulfillment there are also challenges. It’s not easy for all companies to move to this model, and changes and investments in infrastructure may be needed in order to do so.
As already mentioned, to successfully offer omnichannel fulfillment, you need inventory visibility and a good inventory management system. If your company doesn’t have that in place, it can take time and money to get that running. The warehouse management system should be tied into this as well, so that everyone is working from one set of data.
The customer experience should be consistent no matter which fulfillment method is used. That means standardizing processes across fulfillment locations and types. Packaging and shipping standards should be internally consistent.
In addition to shipping your items out, you will need a process for return logistics. With omnichannel retail, customers will expect to be able to return items in a variety of ways, whether to the store or shipped back.
Your company may need to add new carriers, whether regional or national, to make sure your shipping needs are met. Product distribution between facilities can also be a challenge, involving forecasting and inventory movement. And of course this involves new processes if changing your fulfillment process, like training the sales associate or store employees to fulfill and deliver to customers, or process returns from internet orders. If fulfillment is done from merchandise on the shelves, it can be difficult to avoid stock-outs for the in-person customers.
Cost can be a challenge as well, as you may be using more warehouses and fulfillment channels to do the job you did with one simple method before. The flip side is that if you have retail stores, they are already used as a sales channel, so fulfilling from in-store doesn’t cost more in rental space, and you may be able to decrease warehouse usage. Personnel usage may be different if hiring employees to fulfill in the store, versus using a 3PL to distribute in the warehouse.
Communication is key when working with omnichannel retail fulfillment, because there are more players to coordinate with.
How to implement omnichannel fulfillment
If you look at the benefits and challenges of omnichannel fulfillment, you’ll get an idea of what you need to do for implementation.
The foundational element of omnichannel fulfillment is using software that allows you to track orders and inventory in a real-time way. You will need warehouse management software (WMS), inventory management software, and order management software, though these may be in the same program suite.
The WMS system should integrate with your 3PL’s system, if you’re using a 3PL. Having this technical infrastructure in place allows you visibility into your inventory at all times and at all locations. It allows you to set standards for when you need to reorder certain items, and the analytics can help with distribution of inventory so the places inventory is needed most, never has a stock-out.
Your management will need to develop an ordering process and automated rules, so orders are fulfilled at the places that make sense for the business and the customer experience. New processes may be needed if you’re not already offering BOPIS or curb-side pick-up, and returns in multiple locations.
Communication should be clear to the customer as well as the employees. Customers should get tracking information so they know where their orders are at any given time, with carrier information as well. That will improve the customer experience and save employees’ time not having to answer customer questions. It can also help lower rates of order cancellations or returns. Employees should understand the fulfillment process and how they fit into the larger picture. They should understand the shipping rules, if it’s not automated shipping, and be ready to serve the customer in person if doing curbside pickup, BOPIS, or in-store returns. This training process is essential to customer satisfaction.
Optimizing 3PL shipping contracts
Using an omnichannel retail solution will likely involve working with a 3PL service as one of the fulfillment methods. Even though the fulfillment process will get more complex with an omnichannel approach, it’s still important to negotiate 3PL contracts to get the best terms possible for your business. Shipware can help you do that, after analyzing your shipping spend and the factors that influence the spend.
Shipware’s experts can help you structure a contract that includes the most important elements for your business. That may include using a distributed warehouse approach, using different storage methods, different shipment methods, or changing your service levels. We have benchmark data that is not available to individual shippers, and that can make the difference in getting the best contract terms.
Shipware can negotiate with your incumbent 3PL or with a new one, or provide guidance for you to negotiate yourself. Let us know how we can help you. Please contact us at (858) 879-2020 to learn more.