As e-commerce competition heats up among major retailers, it’s the suppliers that are now caught in the crosshairs. Suppliers are being hit with tougher penalties and are being held accountable, more than ever before, for errors and late deliveries.
To keep up with Walmart and Amazon, last month Target instituted new rules that it hopes will lead to supply chain precision. According to a report from Reuters, the retailer announced it will tighten deadlines for deliveries to its warehouses, hike fines for late deliveries, and establish penalties of up to $10,000 for erroneous product data. Walmart and Amazon already had similar supply chain regulations in place.
It all comes down to the need to increase fulfillment velocity to keep up with e-commerce consumer demand. I first wrote about this issue in March when I stated that Target, like many other retailers, recognizes that all the channels it possesses to get products to consumers have to be fine-tuned and simplified.
The agility of suppliers is crucial as e-commerce consumer demand continues to increase. A recent study from UPS revealed that more than 51 percent of all purchases made by respondents were conducted online, up from 48 percent in 2015. According to Supply Chain Digest, internet order volumes are growing at a rate of about 15% annually, with many companies exceeding that.
In his report, The State of the Retail Supply Chain 2015, Auburn University professor Ben Gibson outlines supply chain trends retailers are currently dealing with such as margin for error. “Fulfillment missteps are very costly and highly publicized events that erode margins and consumer confidence,” Gibson writes, “Retailers must reduce complexity and expense of supply chain operations. To achieve these goals, companies must work through issues like fulfillment and delivery cost and low customer switching efforts.”
Under pressure from retailers, suppliers need to develop better ways to boost supply chain efficiency and get products out the door faster, cheaper, and undamaged. Here are some ways suppliers can improve fulfillment efficiencies:
Design for delivery: By taking advantage of new insights gained from systems that provide better information about current and future demand (and how this demand is fulfilled) companies are in a position to package properly the first time. Designing for delivery allows companies to create more efficient supply chains, reducing the need for overpacking, which drives packaging costs down.
Automation: Labor availability and the desire to reduce labor costs continue to drive companies to automate. Automation improves packaging consistency, ensuring the proper amount of packaging is used. Using less packaging materials contributes to lower overall packaging costs and improved customer experience.
Optimization: As operations become more complex with omnichannel fulfillment, companies need to look beyond individual process optimization. By reviewing workflows from dock to stock and from pick to ship, overall process optimization can yield far greater results, eliminating bottlenecks to drive fulfillment velocity and improved operations.
Analytics: With advances in sensors and analytics, companies are able to better monitor the results of process improvements. This allows the refinement of these processes, driving greater efficiencies. Companies that pursue operational excellence best practices, for example, can more easily validate that the results of their efforts are worth the effort.
It's expected that more leading retailers will demand tighter delivery deadlines for suppliers, which could result in fines or the loss of valuable shelf space if not met. That’s why investing now in the right level of automation, logistics improvements, and packaging practices that reduce labor time and increase fulfillment speed can mean staying ahead of future retailer demands.