As retailers continue to adapt to the post-Covid world, Phil Houghton, Business Development Director for KNAPP UK, examines the future shape of the supply chain and the role automation will play.

Phil Houghton, Business Development Director for KNAPP UK.

E-commerce, which had been rising steadily as a proportion of total retail sales for a number of years, was given a growth spurt by the lockdowns resulting from Covid-19. Once bricks-and-mortar stores reopened, many consumers had been converted to the convenience and safety of online shopping. For example, John Lewis – which relies on KNAPP automation at its Magna Park distribution campus – reported in August this year that its online sales have grown from 40% to over 60% of total sales since the start of the pandemic.

Realigning omnichannel

For omnichannel retailers, whose distribution operations for their various sales channels are merged into one, the growth in online sales has made some realignment of their logistics capacity necessary. Naturally, working out how best to achieve this involves guesswork (supported by market research, of course!) as to where the equilibrium of online versus offline sales will settle. Even if this were clear, omnichannel logistics operations present considerable challenges. With a common pool of stock, the need for order consolidation can prove tricky, compounded by the fact that various items in a customer order may have different needs, such as gift wrapping or requiring delivery by a 2-person team.

The DOM challenge

As more and more consumers appreciate omnichannel services such as virtual consultation, home delivery, click-and-collect and contactless payment, linking online and offline operations seamlessly requires an intelligent supply chain network. The Holy Grail in omnichannel is the concept of Distributed Order Management (DOM), whereby goods can be ordered from anywhere, fulfilled from anywhere and returned to anywhere. While the idea of consumers being able to order from anywhere is easy to understand, fulfilment from anywhere is a newer concept. It is beginning to be realised though – for example Very.co.uk, another KNAPP customer, recently launched a stockless fulfilment model with Adidas and Reebok, shipping some products directly from these suppliers to Very customers. However, the final piece in the DOM puzzle – the ability to return goods to anywhere – is logistically difficult, not to mention costly. That’s not to say that it can’t be done though.

The race to automate

Although different approaches to fulfilment can be used in omnichannel retail, automation is seen by many as the only way to both minimize costs and maximize service levels. As well as increasing efficiency, accuracy and speed, automation can help with order consolidation and with ensuring that returns are available for resale as soon as possible. Combined with the rising cost of warehouse staff, the benefits of automating warehouses have created a surge in demand for logistics automation, which has only been heightened by the growth in e-commerce, where operations are more labour-intensive.

Central or local fulfilment?

But where should retailers’ logistics capability be placed – should fulfilment be central or local? A central fulfilment centre (CFC) can supply a large geographic area and can reduce costs, but central fulfilment can lack the agility required for same-day delivery or click-and-collect orders within 30 minutes. For these needs, a micro fulfilment centre (MFC) is the optimal solution. Miniature automated warehouses located in stores, MFCs can help omnichannel retailers to mitigate the fixed costs that result from having a store network, such as rent and business rates. Of course, it’s a matter of mixing these two approaches in the right way.

Having implemented a number of MFCs for grocery retail chains worldwide, KNAPP is also helping non-food retailers to tailor their omnichannel networks to their customers’ needs. This is the objective of our Project RetailCX initiative: an in-store system comprising an automated, theft-proof mini-warehouse with robots and a fully integrated digitalization solution. This makes store space savings of 40-70 per cent possible, while enabling customers to use touch screens or mobile apps to browse products, select items, pay at an automated terminal and leave with their goods. In the UK we are working with our customer, Boots, to develop this technology to suit the needs of future stores.

Pocket sortation technology makes returns immediately available for resale.

Sustainability

Another factor to consider in predicting the equilibrium of High Street shopping and online retail is sustainability, especially if consumers become more aware of the relative carbon footprints of different sales channels. E-commerce obviously means more packaging, more delivery miles and more returns. In the fashion sector, 30% returns are not uncommon. These need to be unpacked, checked, repacked and shipped out. Not forgetting, of course, that 30% of these reshipped goods will come back as returns… and 30% of those.

The sustainability of various sales channels for FMCG goods – in terms of transport, storage, delivery and packaging – was studied recently by researchers from Radboud University in the Netherlands. They found that the emissions per item purchased from bricks-and-mortar retailers tended to be higher than those from bricks-and-clicks retailers (with online ordering and home delivery from a physical store) but lower than those from pure play retailers.

Tailored supply chains

The future retail landscape is unclear. What is clear, however, is that these challenging times mean that retailers must adapt to survive. Closing High Street stores will cut costs but these store networks may be the key to survival through the adoption of a micro fulfilment strategy. Also clear is that retailers need an automation partner with experience in both central and hyper-local fulfilment to help them develop a tailored supply chain.

 

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