As COVID Lingers, E-Commerce is Here to Stay
It may have been spurred by COVID, the Millennials, or even perhaps Gen Z, but e-commerce has now reached a solid quarter percentage of retail sales. In 2Q22, the U.S. market saw its highest quarter ever in Q422, that rate spurred to a resounding $1.09 trillion, according to Comscore’s State of Digital Commerce report. While sales remained strong, e-commerce grew at a rate of 10.8 percent from the previous year in Q322.
Granted, this growth isn’t as much as during the pandemic, but it’s the steady growth that retailers embrace. According to Digital Commerce 360, the typical pre-pandemic growth was 3.5 percent. Yes, we’re even double that rate now, but is this enough to justify a change in fulfillment strategies?
According to McKinsey, more than 90 percent of online shoppers expect free two- to three-day shipping. With speed making a difference in purchasing decisions, order fulfillment is clearly a differentiator. Couple speed with the cost of fulfillment, then that’s an entire strategic recipe that calls for a deep dive into retail fulfillment operations and a closer look at perhaps automating fulfillment. It used to be 80 percent of the automated material handling processes were reserved for quick store replenishment, and 20 percent was left for e-commerce orders. Now, with online orders moving into a solid quarter of sales, it only makes sense to rethink those processes. If 25 percent of orders go to manual processes, you’re asking for a severe bottleneck.
Labor scarcity continues to rise, but orders never stop
As labor wages continue to increase and workers are scarce, e-commerce orders continue to gain traction. While manually handling online orders when the percentage of sales was hovering around 10 percent was doable, that is no longer the case. As more orders are shifting to digital, retailers need to think about a permanent omnichannel fulfillment strategy that lowers overall fulfillment costs and provides various avenues for consumer fulfillment—mostly direct-to-consumer (DTC). However, there are other methods, like ship-to-store, pick-up lockers, etc.
As orders climb, picking accuracy also comes into play. Manual picking can see upwards of 30 percent in errors, according to GS1. That’s thirty percent of customers that either make a return or never shop with you again. It costs in other ways too. The average cost of a returned item is anywhere from $50 to $300, which comes at a huge loss. With automated fulfillment, error rates virtually disappear. There is also the benefit of keeping customers happy and providing value add marketing material or samples to help keep customers coming back.
Automated warehouse fulfillment also enables faster delivery, which keeps customers happy. According to the Wall Street Journal, customers who must wait more than five days for an item will shop elsewhere. Most online retail businesses are now offering one- or two-day delivery options. This gets harder to do if everything is manually picked. Warehouse automation allows for faster order processing and packing so that items can ship as soon as possible.
Even if budgets don’t allow for a completely new greenfield facility, processes can be modified to bring in semi-automation or perhaps full automation in a current distribution center, depending on products and processes. A retrofit may buy some time until a business can scale, or it completely makes sense from a financial standpoint. Sometimes the best thing you can do is to get an engineering study performed to learn what options are best and develop a solid plan for a fulfillment center that works for your business.
To learn more about automation and retrofits, or to get started on an engineering study, contact an SSI SCHAEFER expert today.