John Seidl, Partner at GreyOrange

PCR July/August issue Retail Analysis: Automation in fulfilment – what’s the fuss?

John Seidl, Retail Consulting Partner at GreyOrange looks at the impact the pandemic has had on the ecommerce supply chain and ways to handle the surge in online shopping.

Retail fulfilment networks weren’t prepared for the chaos generated by the pandemic. They had all sorts of inventory stuck inside bricks-and-mortar distribution centres and physical stores while consumer behaviours shifted entirely online.

This unplanned surge in eCommerce activity, an onslaught of returns and increasing customer demands has pushed global retail fulfilment networks to near breaking point. Retailers are battling to meet consumer expectations across multiple channels while also trying to control costs and support positive working conditions for warehouse employees.

Retailers now are asking themselves how they can manage near-term consumer expectations and deliver products fast and free while still generating revenue. Businesses are scrambling to update their supply chains by modifying the way warehouses operate and by making inventory visible and accessible across multiple channels so that fulfilment paths can be based on consumer choice in real-time rather than pre-set retailer decisions. A major transformation in fulfilment and store operations is long overdue so that retailers are ready for anything.

Speed and convenience. These are the primary demands from today’s consumer and these desires are driving continued digital shopping habits and next-day delivery expectations. Nearly half of UK consumers expect their deliveries to arrive within 2 days or less and 49% of shoppers state shipping options are factors they consider when choosing which retailer to buy online from.

Fulfilment centres are moving closer to the customer to support high-velocity product delivery. Core to this move is the use of micro-fulfilment centres and stores. Retail store replenishment warehouses also are being modified to support eCommerce fulfilment as part of this initiative. Warehouse space is at a premium globally and along with widespread labour shortages and increasingly high customer expectations is meaningfully impacting how fulfilment centres are designed, automated, and operated.

Consumers are not only expecting faster deliveries but also policies that enable better and quicker returns. Unfortunately, for most retailers returns processing is a costly and time-consuming affair. With returns fluctuating over the course of the year, spiking at 40% or more during holiday periods, retailers need to identify methods to speed up the end-to-end process according to annual peaks.

The current state of returns processing means many retailers can’t always offer free returns to digital customers. However, almost all (90%) of customers highly value free returns and 69% of shoppers won’t buy if charged return fees. Brands who request returns payment from customers risk losing out to competitors who are offering free returns and are building a consumer loyalty based on that offering.

The final step of effective returns processing is item turnaround. Once a return has been made and the item has arrived back in the fulfilment centre, retailers must process it to get that item back on the physical or digital store shelf ready for the next customer to purchase. A lengthy returns policy will impact all aspects of a retailer’s offering from experience and loyalty to employee engagement and cost.

Artificial Intelligence (AI) driven software combined with fulfillment robots will improve and accelerate processes within the warehouse to enhance the overall customer experience. From faster deliveries to better returns processing and increased productivity, the possibilities of automation in the warehouse are endless.

Static storage will hold brands back and delay the time it takes to reach, pick and pack certain orders. With AI-driven robots, brands can keep their inventory moving at any given time in sync with customer orders and returns.

Integrating automation in fulfilment operations keeps retailers a step or more ahead of the competition, market changes, and of future uncertainty. Customer retention also will increase as shoppers form loyal bonds with retailers best able to meet their expectations.

What’s more, AI-driven robots assisting with distribution centre operations help to overcome the labour gap in fulfilment while also improving the employee experience by reducing heavy lifting, removing miles of walking and multiplying productivity by up to four times. By limiting the need for more space and labour, organisations will inevitably cut the costs of their fulfilment operation.

Automation in the fulfilment centre is not a one-size-fits-all solution. The optimal configuration depends on a variety of factors, including types and sizes of inventory, order volumes, the complexity of delivery options offered to customers, distribution models and fulfilment network design. Choices need to be assessed from a customer-centric perspective to understand the payoffs of different automation investments. However, all retailers will benefit from modernising outdated fulfilment systems to take advantage of automation technologies designed to handle changing demands on retail operations today and in the future.

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