Last March, when the COVID-19 pandemic prompted shelter-in-place orders across the U.S., Americans didn’t stop shopping. They just shopped online a whole lot more than ever before — to the tune of $212 billion in the second quarter of 2020, according to the Census Bureau of the U.S. Department of Commerce.
That number represented a 31.9% increase over the first quarter of 2020, when shoppers spent $160 billion online. It also marked a 44.5% increase over e-commerce spending in second quarter 2019, and 16.1% of total retail sales for second quarter 2020, per the Census Bureau’s most recent report. Further, Digital Commerce 360 says that 21.3% of all retail sales in 2020 occurred online, with customers spending $861.12 billion in the U.S. That figure represents a 44.0% increase year-over-year, the highest growth in more than 20 years.
The upshot for retail warehouses, distribution centers, and fulfillment operations that were mostly shipping products on pallets to replenish brick-and-mortar stores, is order profiles changed dramatically. At the beginning of March, for example, a hypothetical facility may have been shipping 100,000 units to fill 2,000 orders. By the end of that month, however, the e-commerce boom required that same operation to ship 100,000 units across 12,000 orders, a huge change in outbound order type.
Compounding the significant uptick in volume were staffing challenges, as absenteeism rose due to illness, fear of contracting coronavirus, or the need to care for ailing family members or children suddenly attending school from home. Further, to keep remaining employees safe, operations instituted a variety of policies — such as social distancing and staggered shifts — to minimize the potential for cross-contamination by limiting the number of staffers in the building at one time. With fewer hands available, keeping up with the influx of orders became even harder.
Yet, the e-commerce tsunami kept coming, and continues to rage on.
For help, companies coping with this dramatic shift from traditional to e-commerce distribution should consider engaging an independent, objective third-party consultant who can develop a two-prong strategy that addresses these challenges.
A consultant can conduct a very targeted operational assessment, evaluating current processes and existing infrastructure. The review concludes with a report outlining a strategic action plan that addresses both the immediate challenges and the anticipated future state of the operation.
For operations that are struggling to get orders filled and out the door in alignment with customer expectations and service level agreements (SLAs), it’s critical to quickly implement solutions that alleviate that strain. While an investment in additional material handling equipment to boost capacity and throughput might be advisable, the reality is that the majority of systems had a 6- to 9-month lead time prior to the pandemic. With so many operations in a similar situation — and seeking to acquire similar equipment — that lead time has increased significantly for certain solutions.
Therefore, immediate relief might instead be found by strategically reallocating inventory and creating more square footage by leasing additional warehousing space and locating e-commerce fulfillment in that building. Alternately, engaging a third-party logistics (3PL) service provider to handle some (or all) e-commerce orders might be an optimal short- or long-term solution. The consultant can assess inventory and order profiles as well as identify current operational costs, to perform a cost/benefit analysis that will help with determining the best near-term solution.
As for a strategy that addresses the longer-term operational challenges, the future may be uncertain, but the likelihood is that the increase in e-commerce shopping will persist. Analysts at McKinsey concluded that the massive shift in consumer behavior compressed 10 years of anticipated e-commerce adoption into three months. Forbes noted that — as shoppers have embraced the convenience and flexibility of buying online — this trend is likely to continue. It’s a reality that operations filling e-commerce orders must accept and plan for strategically.
That’s where a consultant can help, outlining a strategic plan that accommodates future needs by adjusting the operation’s current processes and incorporating equipment and technologies that can boost throughput and productivity without adding more labor. The consultant can make recommendations about investments in semi-automated or automated technologies, mobile robotics, and software, as well as help determine which solution (or combination of solutions) will create the most flexibility to support ongoing changes in inventory and/or order profiles.
This evaluation typically includes a sensitivity analysis, or calculations that determine how changes in different variables might impact a given solution. For example, if an automated goods-to-person storage and retrieval system is under consideration, its ability to adapt to changes in stock keeping unit (SKU) or order profiles may be adequate for a 5% variance, but not a 30% variance. These types of evaluations can be performed statistically with a spreadsheet for less complex investments. More complex systems should be evaluated through simulation software, which enables a variety of operational and equipment scenarios to be assessed. It also enables the chosen system’s tolerance for variability to be validated prior to making the investment.
Need more help handling the e-commerce curveball COVID-19 has thrown at your operation? To learn more about working with DCS, connect with us.
Mark Kidwell, Director of Supply Chain Consulting, email@example.com
With over 35 years in the material handling industry, Mark Kidwell provides valuable solutions for our clients regarding operations and process improvement, labor efficiency, DC design, and inventory management consultation.