The future of “free shipping”

When it comes to their orders, customers want them fast and they want them free.

But these two forces are often in direct conflict inside the supply chain, where planning and production typically take place months in advance, and inventory is widely distributed among a geographically diverse set of stores and warehouses, logistics providers, and factories. The question for many retailers becomes, “How much margin am I willing to sacrifice to satisfy my customer?”

Retail powerhouses like Amazon and Walmart have conditioned customers to expect their orders in days, if not hours. And a growing number of consumers have become comfortable using options like click-and-collect to secure an item online and pick it up shortly thereafter in a store, or rely on third-parties like Instacart to do their shopping for them.

But what happens when a retailer doesn’t have available-to-promise inventory, or if a customer visits a store only to find an empty shelf? It’s an easy answer for most customers: there’s no shortage of other places to shop. And it’s one more lost sale – or lost customer –
for the retailer.

Retailers will go to great lengths to save the sale, but it often comes at a high cost. Higher packaging and shipping costs, higher overtime wages, and diminished sales associate productivity reduce margins—all in the name of satisfying the customer. Maintaining the balance between happy customers and sustainable profits is no easy task.

Distributed order management (DOM) systems are a step toward meeting the flexible fulfilment challenge. They help orchestrate fulfilment across complex supply networks by providing a single view of inventory, and take a rules-based approach to shipping orders through the most efficient means possible … all while still meeting customer expectations. But many of today’s DOM systems are cumbersome to implement, lack modern architecture, and can’t support new technologies like machine learning to meet the ever-increasing demand.

Many retailers have functional silos between stores and warehouses, and also lack a single view of inventory. Moreover, retail supply chains are often geared toward moving product to stores or fulfilling orders from a distribution centre. Both are important pieces of the puzzle, but seldom present a full picture of the fulfilment challenge.

By taking a networked approach, order management becomes an even more powerful tool for meeting customer requirements. Here’s how:

Global supply chain visibility is the key to flexible fulfilment

The ability to fulfil any order at any time is only as good as your ability to see and access the inventory in the supply network. For many retailers, that view of inventory is still somewhat limited to what’s in stores and what’s in warehouses – it doesn’t always extend to inventory
in transit or the inventory that’s being produced farther upstream.

By extending visibility into the extended supply network, retailers are better positioned to assess their available-to-promise inventory on a global scale. A networked order management system helps retailers make the right choices on fulfilment, whether it’s shipped from a warehouse, shipped from a store, or even drop shipped directly from a factory. Fulfilment this flexible requires a platform on which all suppliers and trading partners are connected, and where order processing staff has access to real-time information on production, inventory, and product location. Only with all these pieces in place can a retailer truly fulfil orders by the most efficient means possible and set clear expectations for customers along the way.

Machine learning boosts efficiency

By taking a networked approach to order management, retailers benefit from the scalable, hyper-computing power of the cloud. Furthermore, retailers who apply machine learning to data from the entire supply chain network are empowered to take the optimisation
capabilities within their order management system to the next level.

In addition to optimising order fulfilment, machine learning brings enhanced capabilities that account for different factors to optimise inventory replenishment, including: weather patterns, promotions, transportation management data, and demand forecasts. That means retailers no longer need to guess where to place inventory or how much product to order. A networked order management system means constant assessment of inventory levels and location—ultimately reducing the need for unnecessary markdowns or costly shipping when a product needs to be shipped from a far-off location.

Success on the power of your network

Nine out of 10 consumers say free shipping is the top incentive to shop online more often, according to Walker Sands’ Future of Retail report. In a competitive retail environment where two-day shipping seems like an eternity, it’s hard to argue that these expectations will ever change…and customers expect delivery times to keep decreasing.

But anyone in retail can attest that free shipping is never actually free. The challenge comes down to limiting cost and fulfilling orders in the most streamlined, efficient means possible while meeting (or exceeding) promised delivery times. By taking a networked approach to order management, extending visibility and execution across the end-to-end supply chain, and leveraging machine learning, retailers are better positioned to meet the free shipping challenge.

 

Jarrod Kinchington is Infor ANZ managing director. He has more than 20 years’ experience working closely with Business and IT stakeholders in a number of industries including telecoms, utilities, financial services and public sector. 

This article was first published by Power Retail

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