Guest Column | February 20, 2014

The E-Commerce Fulfillment Challenge For Growing Retailers: Automation For The Other 90 Percent

Beth Ann Ferner, OPEX Material Handling

By Beth Ann Ferner, OPEX Material Handling

A problem that almost all e-commerce retailers are grappling with these days is how to adapt fulfillment requirements to meet the exponential growth of online ordering.  Online purchasing in the United States is growing by more than 17 percent annually, according to the U.S. Department of Commerce, with $193 billion in retail sales for the first three quarters of 2013.  E-commerce orders accounted for 7 percent of total U.S. retail sales in 2012.  By 2017, continued double-digit annual e-commerce growth is expected to reach 10 percent of total retail sales in the U.S., according to market analysts, Forrester Research.  Interestingly, 80 percent of this revenue is coming from only about 10 percent of all e-commerce players.  Amazon alone chalked up $49 billion in sales during the first three quarters of 2013 – 25 percent of all e-commerce sales in the U.S. during this period – followed by other big online players like Walmart, Apple and Dell.  For e-commerce retailers, the challenge of handling their Internet fulfillment lies with predicting what their order volume will be in three, five or even ten years out. 

Unfortunately, the real conundrum is that this e-commerce growth is entirely unpredictable.  Some Internet fulfillment companies are reaching their five-year or ten-year goals in two years, and have completely outgrown their warehouse space, forcing them to rely on leased facilities or using 3PLs.  This unpredictability is compounded by fulfillment challenges that virtually all e-commerce retailers are attempting to deal with, such as:  a) large SKU counts; b) small number of pieces or lines per order; c) extreme peak season volumes; d) unpredictable changes in market demand; e) customer expectation of fast 24 – 48 hour delivery; and f) high volume of returns from consumers.

Because unpredictability is a constant factor in e-commerce, flexibility and scalability in fulfillment operations is absolutely critical.  As an e-commerce company’s needs increase or decrease, its pick, pack and ship model should be able to accommodate these fluctuations. For bigger online retailers, the solution for improved flexibility and scalability has been to automate their fulfillment operations, by implementing the right automated systems that can support the fluidity that e-commerce demands. 

Quite different from large Internet retailers, however, the vast majority of small- and mid-sized e-commerce companies, which accounts for about 90 percent of all retail Internet suppliers, are not highly automated.  Typically, they utilize a conventional person-to-goods model for picking and packing, many operating on a manual paper-based system to compile orders.  In such an order fulfillment model, inventory is stored in racking or on the floor, and the most efficient pick paths determined by utilizing routing logic, with picking sometimes assisted by voice-activated picking or pick-to-light.  This person-to-goods order picking paradigm has been used for decades by brick-and-mortar distribution centers with an established level of success.  But for e-commerce fulfillment, as the quantity of SKUs has escalated, and the demand for 24-hour shipping has accelerated, small-quantity, multiple-SKU orders are becoming increasingly difficult to handle with conventional manual pick systems, putting the traditional person-to-goods fulfillment model under serious challenge. 

Where it was once considered acceptable for a picker to spend 60 percent of the time traveling and 40 percent of the time picking, as is typical in a person-to-goods model, e-commerce executives are looking for more efficient solutions to minimize the amount of wasted time between picks, and increase the number of orders processed per person. 

From the moment the online order is placed to when it is picked, packed and shipped, every step in the process must be handled efficiently, consistently and cost-effectively to maintain a positive customer experience, and ensure the fulfillment center remains profitable.  In most e-commerce centers, picking is the most labor-intensive function, and usually can provide the most cost-savings when automated. 

Because e-commerce fulfillment deals almost exclusively with each- or piece-picked orders, reducing the number of times the picker handles the product is critical to improving efficiency.  Therefore, the right automated solution should facilitate the minimization of touch points, which will result in more accurate orders, improved ergonomics, lower labor costs, reduced worker travel time and fewer returns.

The automation that is best suited to fulfill e-commerce requirements is automated goods-to-person fulfillment technology.  For dynamic e-commerce picking, highly automated goods-to-person systems provide accurate and rapid goods-to-person solutions.  These systems can achieve performance levels of many hundreds of order lines per hour with precision accuracy. 

In the goods-to-person concept, incoming goods are placed into totes, which are stored in high-density automated storage and retrieval systems.  As orders are required to be fulfilled, SKUs are automatically retrieved from storage and brought to the picker at a pick/pack station.  Since the picker does not have to walk, the focus at the pick/pack stations is on ergonomics, and high productivity, eliminating the significant walk element inherent in traditional person-to-goods picking operations.  Because goods-to-person systems present operators with only the goods needed for orders, when combined with technologies like pick-to-light and screen-direct picking, these systems cut down on the likelihood that workers will pick the wrong items, improving accuracy and productivity.

For small- and mid-sized e-commerce retailers, however, it can be quite a challenge to justify the capital equipment ROI of automated systems.  But upgrading to automation does not necessarily mean having to outfit the operation with extensive sortation and conveying equipment.  Recent automation options exist that can significantly lower capitalization costs, and can exert a sizable positive impact on a small- and mid-sized e-commerce fulfillment center’s throughput efficiency, while reducing operating costs.  Such automation can provide an ideal solution to streamline throughput cost-effectively, while realizing a short-term ROI.

E-commerce retailers, and particularly smaller operations, should evaluate the selection of picking automation anchored on four criteria: 1) the technology needs to generate results in productivity, accuracy and waste reduction; 2) it needs to be flexible and scalable; 3) it needs to be an affordable capital investment, while achieving a solid short-term return on investment; and 4) the technology needs to become operational quickly, with minimal disruption to operations.

For smaller e-commerce fulfillment centers that are striving to make their operations more streamlined and profitable, goods-to-person systems embodying smart robotics technology can provide a realistic solution to not only improvement in order throughput and better order accuracy, but also reduced labor costs and optimized facility space requirements.

Such online retailers are now, for the first time, in a position to acquire the technology to process orders rapidly and accurately based on their current needs, rather than projected estimates of where their throughput will be in five or ten years.  This allows the flexibility for the goods-to-person system to grow, incrementally, at the actual rate that their e-commerce business is growing.

About The Author

Beth Ann Ferner directs the marketing efforts for OPEX Material Handling, a division of OPEX® Corporation, a recognized global technology leader in document imaging and high-speed mailroom automation.  For forty years, OPEX systems have provided performance enhancing workflow solutions and cost-effective results to thousands of organizations worldwide. OPEX innovative equipment and technology has been efficiently and reliably handling everything from individual, single-piece items ranging in size from envelopes, documents and checks all the way through 60-pound payloads using the Perfect Pick® system. Today, OPEX systems are installed in financial services, healthcare, government, non-profit, utility, service bureau, insurance, telecommunications, and university/educational marketplaces around the world. For more information, visit www.opex.com