We are living in a rare and significant time in human history. Anyone alive in 2020 will always remember COVID-19. When we speak of these days, we will remember the uncertainty, the “Stay at Home” orders, our cohorts in isolation, and what we lost as a result.
Many aspects of our life may be changed forever. Air travel shut down virtually overnight, with no indication on when we can fly to see friends and loved ones across the country. It’s not uncommon to see retail store shelves barren of the cleaning items we take for granted, leaving some to seek these necessities through less-traditional channels. Additionally, when shoppers do visit mega-stores, their carts are usually filled with groceries instead of household items, appliances and clothing.
Will isolation and social distancing cause a permanent change in shopping behavior? Will e-commerce become the new way Americans get their vital needs? A shift in consumer trends could have serious implications for retailers, their entire supply network and the overarching logistics strategies applied around the planet.
Why do companies need to pay attention to the spike in e-commerce orders?
With federal and state guidelines suggesting that everyone stay at home, online shopping increased in popularity. The online demand is so significant that Amazon is conditioning customers to not shop excessively on its platform. Meanwhile, e-tailers are overwhelmed with requests. We’re also seeing this trend among our customers as well. One customer – a chain of home improvement stores – recently asked for our help managing a skyrocketing e-commerce business that required an adjustment in their freight and parcel strategy.
The end consumer may see nothing wrong with this change. Online shopping is more convenient, requires less effort, and happens either over the phone or online. But for retailers and distributors, a growing e-commerce demand creates many issues on the back end.
While the growth of e-commerce has been the big story over the past decade, it still represents less than 20 percent of all retail sales overall. If that volume doubles, could your business sustainably make money?
Our research tells us that the largest companies are spending more time focusing on e-commerce profitability. Direct order fulfillment costs can easily exceed 25 percent of sales, which creates a precarious balance for companies offering direct-to-consumer service. Slim profit margins in brick-and-mortar retail add complexity. In the best situations, in-store sales only yields a profit margin of three percent.
If your e-commerce channels aren’t optimized for success, growing the channel is expensive at best, and unsustainable at its worst.
An inconvenient truth: environmental concerns from e-commerce
Another issue to consider is the environmental impact of online shopping. Fulfilling digital orders requires additional resources, including packing materials, corrugated boxes, additional fulfillment centers and waste handling. On top of that are emissions from trucks making last-mile deliveries and returns to homes across the United States.
All of the packaging and air pollutants have to go somewhere. While corrugated boxes and most packaging can be recycled, there’s never a full recovery of those materials. Although emissions can be reduced, we’re a long way from net-zero emissions globally.
These two challenges illustrate why the supply chain needs to change. We are no longer in a world where the supply network is one straight line from source to consumer. Instead, retailers and distributors need to work together to discover new ways to manage commerce through a supply web.
E-commerce as a catalyst to the supply web
As our world looks to e-commerce as a potentially permanent shopping solution, now is the time to start the transformation from a supply chain to a supply web. There are many different reasons why the supply web provides better solutions for both your company, distribution points and end consumers.
A supply chain suggests freight moves in one direction: from the source to the distribution center and then out to the retailer or customer. However, this model may create several unnecessary steps. For instance: if a customer makes an online order, the supply chain implies the product goes from its source point to the consumer. Under a supply web model, the order can go from the retailer or manufacturer to the closest distributor for fulfillment. The customer gets their order faster from the closest point, without the need for excessive shipping or re-packaging.
One of our clients in the construction industry recently transformed their supply chain into a web model. Instead of taking everything in at one center and re-distributing through smaller fulfillment centers, freight began moving from overseas into two different distribution centers that fed other centers in their network. This gain in shipping efficiency ensured customers could get orders in days instead of weeks.
Measuring the efficiency of the supply web is critical to success. Transportation Insight has tools which enable your e-commerce team to understand key performance indicators and drive success. Our margin management tool enables shippers to determine profitability by both dimension and SKU. It quickly identifies cost-killing areas of your e-commerce offering such as SKUs that drive split-package orders, excessive freight expense, high cube, high service expense or long zones.
The second key tool available through Transportation Insight is our supply chain and value stream mapping expertise. We develop a graphical representation of where your items, information and finances are coming from and going to. By mapping out your flows in this manner, we identify gaps and risks that can be mitigated through actionable plans and network optimization.
The significant profitability and sustainability challenges of e-commerce fulfillment are here to stay. By transitioning to a supply web model, your company can not only find better routes to profitability online, but also drive long-term, sustainable results. Download our newest workbook focused around the “Evolution of the Supply Web” to start asking questions about where your company is today, and what you need to do to determine if you are ready to move into a next-generation logistics network.
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