The Growth Of Fulfillment Networks And Demand Driven Operations

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The logistics landscape has changed drastically over the past few years with the growing of online sales or eCommerce. E-commerce itself is one of the most rapidly growing industries worldwide as it continues to grow around 15% year after year. In the year 2014 the industry surpassed all expectations blowing past 300 billion dollars worth of transactions online. There are three important aspects in the success of any eCommerce business: Product, Marketing and Logistics.   This article concentrates on logistics, and more specifically order fulfillment, because it is transforming the retail industry at an unprecedented pace. Historically the logistics and fulfillment world has been driven by a push environment where organizations would plan supply or manufacturing, allocate inventory and push out product when available.  Distribution Requirements Planning, allowed companies to plan orders and set certain inventory control parameters to calculate the time requirements for inventory and respond without any serious time constraints. Marketing plans were designed around availability of inventory and would push product into consumer through retail or other sales channels.

 

Before eCommerce, the catalog industry was already doing direct to consumer fulfillment, following business to consumer (B2C) models. Sales and Marketing forecasting guided production and the execution would only follow that plan. There was the concept of Just in Time logistics that would get products “just in time” for meeting delivery deadlines. With the entire inventory at hand, based on well orchestrated sales & marketing plans, a traditional operations and logistics environment allowed warehouses  to operate without the need of any real streamlined process.

 

This “push” environment has changed completely into a more “pull“ driven environment where demand now orchestrates everything by pulling products down the Supply Chain into distribution centers located very close to the consumer, typically at highly populated areas. Demand coordinates everybody around the actual consumption by the consumer. Sales & Marketing teams have changed forecasting based business plans for Return On Investment (ROI) based models. Where the investment in online advertising is only limited by the consumer response, instead of a traditional fixed budget based on forecasting.  This “Push” or Demand Driven Environment is the most effective commercialization tool ever created, because it is automated to rapidly respond to fluctuating demand, it avoids losses related to overstock of products and it improves the customer experience when the consumers is able to receive product quickly.  Market complexities get more complicated as different sales channels surface, from social marketing to marketplaces.  At the same time, consumer expectations force companies to respond in real-time. This has had a tremendous effect on Warehouse operations that now require software intelligence to centralize orders, automate supply chain and respond to the needs of the market to plan and execute simultaneously in ever changing environments. On one hand, the Supply Chain needs to be automated, on the other hand, the warehouse needs to receive and send out product as quickly as possible.  Shipedge was created to manage all aspects of a Pull or Demand Driven Environment of the new internet Retail era with a highly responsive Push philosophy at its core.

 

For the consumer things are changing for the better.  More and more people are going online to order things thanks in part to the growing movement that Amazon, and other large online marketplaces have started to lead in revolutionizing the way that online purchases take place. Before you were expected to wait a long amount of time before receiving your purchased product and may even have to pay high costs just to get it shipped in the first place and god forbid you may need it in the next couple days because you may have had to shell out as much, if not more than, as the product was worth just to get that next-day to two-day delivery window. Amazon changed that completely by introducing Amazon Prime, a logistics solution at its core. Other companies have started to follow suit by providing cheaper and quicker shipping servicers. The carriers and air mail are no longer able to keep up with Amazon Prime, just like traditional eCommerce was never able to compete with big box Retailers for delivery time. Amazon Prime changes this landscape completely and represents a real threat for traditional Chain Retail Store models.

 

You may wonder what magic Amazon must have had to be able to accomplish such a revolution in such a large industry but it all came down to simple logistics and planning. The closer your end product is stored to the end consumer the cheaper and faster it is to get the product to them. Introduce a large and vast network of fulfillment warehouses all interconnected across both the United States and the world and you have your very own solution to this same problem.  Amazon is just a good example of well orchestrated fulfillment network operations as they give Sellers forecasting tools they have used themselves to encourage Push of products to various distribution centers around the country.  Amazon uses very advanced short term forecasting technology for moving products between their distribution centers and from nearby suppliers.

 

Today the main drive behind this change can be summed up with three words, Growing Consumer Expectations. Today’s consumer expects to have their product at their doorstep quicker and cheaper than ever before and as their expectations grow so does the need for companies to meet those expectations or get left behind. Today’s consumers decide how they want their product, when they want their product and where they want their product and this is having a huge impact on distribution, transportation, fulfillment and logistics all around the world. For normal small businesses this is a very difficult thing to imagine especially when most early ecommerce businesses begin shipping out of their own home or office. Once they begin to grow though the need to become part of a larger fulfillment network becomes increasingly apparent and the positives soon outweigh the costs and there is only one option left, to join a fulfillment network. The capability to adapt to the new pull driven environment is a necessity and demand driven operations is the only supply chain strategy which can allow these organizations to respond to growing expectations.

 

Take into account the many different selling channels available to eCommerce owners and the answer to this problem becomes more and more complicated. Shipedge is here to empower companies by solving integration problems and creating a solution that allow business owners to operate Demand Driven Operations with a fulfillment network that works smarter to reduce costs and risks while offering faster delivery and better customer experience. Demand grows as the multi-channel complexities grow and that growth is the most extreme now than ever before.

 

Shipedge has implemented a solution for demand driven operations allowing organizations to have more flow and less inventory on hand. This allows there to be a more unified plan and operations with integrations between all the moving parts from transportation companies to warehouses, from suppliers to warehouses, pulling product as needed. All of this is managed by Shipedge’s advanced order management system that connects all of the selling channels to a single unified interface.   This is complimented with inventory forecasting algorithms allowing the future to be more predictable and less volatile which all in all improves execution. Demand-driven supply chains have been made possible by new business processes and advancing technologies allowing any company in any industry to gain a competitive advantage and increase cost savings across the board. The capability to combine demand and control the entire flow of distribution centers to replenish retail centers and for fulfillment centers to take care of e-commerce businesses is all orchestrated by Shipedge as a centralized software system, which communicates with all the different sections of the operation also known as nodes within the entire network, creating a true grid. The companies that capitalize on this growing change and that are able to embrace our technology will be the driving entities as the logistics industry moves into the future in which Smart Order Fulfillment is a beacon of technological advancement in todays society.

 

“Progress is impossible without change, and those who cannot change their mind cannot change anything.” – George Bernard Shaw.

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