Retail fulfillment: It’s complicated

The world of retail is never dull, especially when it comes to fulfilling today’s customer demands. The evolution from strictly brick-and-mortar, to e-commerce, to omni-channel, and everything in between has been swift.

Along with it, so has the rise in expectations for having products in hand in very short order. Strategizing distribution networks, technology, materials handling equipment and more has never been more important.

But in the midst of finding faster and more efficient ways to make customers happy, retailers must also factor in sustainability, customization and continuous improvement—and do it all with an ever-shrinking labor pool. Not to mention, you have to keep the budget in check and the C-suite satisfied. There’s never been a tougher time to be in retail.

“I think having inventory in the right time and at the right place for consumers continues to be a challenge for retailers,” says Kim Baudry, market development director at Dematic. “As more retailers serve their customers across multiple channels—in-store, online and click-and-collect—keeping inventory accurate and available across multiple fulfillment nodes continues to place cost and SLA [service-level agreements] pressures on retailers.”

Meeting the moment means different things to different people, but one thing everyone can agree on: Retailers must continue to address a changing industry—or get left behind.

Automate or else?

With the labor shortage continuing—and potentially growing as national policies change—more companies feel the pressure to automate. “Getting product to customers faster continues to be the big trend following the pandemic,” says Shannon Curtis, product manager at The Raymond Corporation. “It’s a dynamic, changing story, but it’s going to require more technology and automation to meet consumer expectations.”

Baudry agrees with that assessment. “Many people who had never ordered online were forced to do so during the pandemic, and that behavior has persisted,” she says. “Customers who never used click-and-collect are now at ease using it regularly. This trend has continued,though not at the extreme levels seen during the pandemic, and it will not go away.”

Curtis says that while tech has long been a “nice to have” element in distribution, it’s now a “must have.” “Our customers are realizing that it’s a here-and-now of what’s needed to support goods to consumers,” she says.

TJ Franco, head of distribution, design and automation at FORTNA, says retail has largely led the charge when it comes to automation, when compared to other industries. He cites the goods-to-person approach, for instance, and loading/unloading automation, and adoption of robotics, both mobile and fixed.

“Retail has been looking at where these pieces make sense for some time now,” Franco says. “The labor shortage is only continuing to get worse and exacerbate the problem, so retailers are adopting more and more automation.”

But the idea of going from strictly manual to fully automated isn’t something most companies can afford—nor is it recommended—so many are settling into incremental steps to reach that point. “We spend a lot of time visiting customers, and some are still using a combination of paper and 30-year-old technology,” says Wes Coleman, industry principal/warehouse at Zebra Technologies. “So, we help them move the ball forward, however that looks.”

If a company is working with bar code scanning, for instance, Zebra might guide them to wearable technology, says Coleman. Or, maybe the solution is starting with RFID in one section of the warehouse, rather than across the board. The key, he says, is to remember that there isn’t one, single solution that can serve as a magic bullet. Instead, making continuous, incremental improvement is the best choice.

Ben Lee, vice president of sales at Swisslog, says that how a company engages with automation is one thing, but also important is the partners they select.

“We consult and engineer early on, because it’s harder to come in when the train has left the station,” Lee says. “If there’s already an idea of what the technology should look like, the companies might make assumptions and those may not be right. There’s a good deal of unproven automation out there, so early consultancy is key.”

What’s in the box

One area of the warehouse where automation seems well adopted already is picking, according to James Malley, co-founder and CEO at Paccurate. “Picking automation has proliferated,” he says. “There aren’t many levers left to pull there.”

What Malley is seeing, instead, is more focus on packaging automation. One reason is sustainability. But also, with improved sustainability in packaging comes an improved bottom line, Malley says. “You’ve got GenZ with an increasingly larger voice, and they’re going to complain about perceived waste in packaging,” he explains. “Many in the C-suite are starting to embrace that.”

Additional focus on packaging automation is also tied to GenZ trends, a big factor being the unboxing experience. As a result, says Malley, “Companies are looking for greener materials,” he says. “Less plastic and more recycling, and ensuring that you squeeze every inch of air out of shipments.”

Packaging software is more sophisticated than ever in that regard and will help with right-sizing all packages and using as little packaging material in those boxes as possible. There has also been an explosion in demand for the hardware that facilitates customization, says Malley.

“We’re seeing interesting developments in on-demand packaging,” Malley explains. “Now retailers can customize the graphics on a box for each customer. Technology is making it a no-brainer to make a box to order and include a personalized note in it.”

Reshaping networks

Running efficient retail distribution isn’t just about automation, however. It also involves the design of your distribution network. With increasing time demands for delivery, operating out of one, big national warehouse is difficult.

“Companies need to meet the Amazon effect, so they have to place their buildings where they can reach a certain percent of customers within one to two days,” says Franco.

The available labor pool and how much it costs is another consideration in distribution layout. The trick, says Franco, is finding a location with quick reach to population centers, but with reasonable real estate costs and affordable wages. The inland empire versus Los Angeles, as an example, or Indianapolis instead of Chicago.

Businesses are also experimenting with newer forms of fulfillment, such as back of store. Target believes in doing customer facing fulfillment from the back of its stores, for instance, says Franco. “Other organizations want their employees all in the store to sell. It’s a matter of economies of scale, and it’s going to look different for each organization.”

According to Coleman, it comes down to a basic math problem. “Companies attempt to solve the customer service issue with different approaches and will continue to work toward doing more with less,” he says. “But we’re definitely seeing less of national-level DCs serving the entire country; it’s just not viewed as a successful strategy now.”

Within those smaller DCs, the need for space utilization looms large. “There’s more need for taller racking, narrow aisles and overall storage density,” says Curtis. “That translates into lower costs.”

Lee says the company has “a ton” of customers who are redesigning their networks. “Their networks are incorrectly sized, and also not designed for automation,” he says. “But it can be challenging to find the land for multiple, smaller DCs.”

Of course, running a successful distribution network also means having robust supply chain management software in place. “It’s the foundational requirement to make the ecosystem work,” says Baudry. “From there, it depends on the needs of the different fulfillment nodes. If flexibility is key, then software-driven solutions like RF terminals in a store work.”

As operations grow and speed demands become critical, higher levels of automation should be considered, such as forms of automated storage and retrieval systems (AS/RS), Baudry says. “Your customer commitments and your entire network should be considered together when deciding which automation solutions make the most sense.”

Finally, the role of AI looms large in retail distribution, just like everywhere else. “We’re focusing our ability to leverage AI in ways where we can test and look at control strategies,” says Lee. “We’re spending a good deal of time and money on it, and I’m excited to see how our peers are using AI, as well.”

Right now, exactly how far and fast AI will change fulfillment practices is anyone’s guess. “I think the next big thing to watch for is how AI will play a role in shopping habits,” says Baudry. “For instance, if you shop at a specific retailer for your grocery and general merchandise needs through their app, the retailer will be able to predict your purchasing habits and start reminding you of what it’s time to buy an item like milk. The tighter the connection between consumer demand and order fulfillment, the more integrated operations across the supply chain will need to be.”

One thing is clear: retail fulfillment isn’t finished evolving, and automation is key to its continued success. “It’s fun to think about the value automation might bring going forward,” says Curtis. “It’s very real, and changing rapidly. We’ll continue to see it deliver value.”