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Adapt and Adopt: OEM Fulfillment Center and LSP Strategies for Capturing the Direct-to-Customer Market

By Matt Smith, Business Development Manager, Supply Chain Management Services, Tech Data Global Lifecycle Management

After decades of globalization and a migration to just-in-time (JIT) supply chain practices, everything changed — causing massive disruption to supply chain organizations. U.S. brick-and-mortar markets are projected to suffer a historic 14 percent decline this year. Meanwhile, e-commerce is set to surge by 18 percent overall, with speciality markets for household essentials — including food, beverages and personal care items — growing by as much as 58 percent[i]. Original equipment manufacturers (OEMs), fulfilment centres and logistics service providers (LSPs) around the world have felt the pressure to either adapt to these rapidly changing consumer demands and adopt new operational practices, or risk getting left behind.

Before 2020, supply chain industry organizations relied on bulk orders that fulfilled the high volumes required to stock brick-and-mortar stores. As consumer buying trends shifted to online, single-piece orders took over while many brick-and-mortar stores shuttered for periods of weeks or months. This nearly overnight shift in buying behaviour increased the load for pick-and-pack labourers while some service providers saw disproportionately altered product volumes through outbound shipment cycles. With strategies and operational practices centred on bulk throughput, fulfilment centres and LSPs experienced unprecedented challenges related to labour scheduling and optimization, pack station utilization and order-cycle-time KPIs.

Organizations have achieved varying degrees of success in this new market by relying on their existing investments in digital transformation. However, the shift has uncovered opportunities for improvement in agility and flexibility that must be addressed within the evolving “new normal,” as increased B2C demand becomes a standard mode of operation.

Contributing Factors and the Increasing Need for Agility

The move toward Industry 4.0 and Supply Chain 4.0 to address changing market demands for increased agility is not new. Organizations have embraced robotic pick-and-pack solutions, AI-driven predictive supply modelling, automated labour optimization, IoT-sensor-driven machinery and more. These changes have empowered organizations to address challenges related to maintaining favourable order-cycle-time indices, emerging environmental impact regulations, national trade disputes and changing tax and privacy regulations. These solutions drive new levels of efficiency into both B2B and B2C operational practices. It is important to note that the move toward automation doesn’t replace the need for the human workforce. Rather, automation allows the more routine activities to be optimized and enables staff to monitor and make informed strategic changes when the models need adjusting, perform maintenance on the system and keep the platform operational.

What many organizations did not anticipate was the sudden need for real-time adaptability. As segments of the global economy paused for portions of 2020, suppliers found themselves without access to their JIT supplies and warehouses. Without redundant supply networks in place, fulfilment centres and LSPs had to form new partnerships quickly to keep up with customer demands. Additionally, they had to come up with creative solutions for direct-to-consumer delivery, which, in many cases, broke their business models. Suppliers that had historically relied on their channel for point-of-sale operations found themselves needing to provide credit card and merchant record services to keep goods moving through shutdowns. OEMs had to work with new sources to procure parts to keep production moving. This abrupt requirement to pivot exposed underlying challenges to suppliers’ operational structures while also introducing many opportunities ripe for capture.

Rethinking the Supply Chain by Putting the Customer First

The largest challenges for the remainder of 2020 will continue to be space utilization within warehousing facilities, finding and retaining the right mix of labour to support the operation and continued execution of expected KPIs to drive customer satisfaction indices. LSP survey respondents rated “Shipped Complete per Customer Order,” “Order Picking Accuracy” and “Percent of Orders with On-Time Delivery” as three of the top four most important metrics for this year, all rising from 2019[ii]. These concerns demonstrate LSPs’ understanding of both the challenge and opportunity presented by the growing trend in B2C e-commerce fulfilment demand from their customers.

Supply chain efficiency has historically been measured based on scale and cost. For example, operating a JIT inventory model, choosing the lowest-cost/highest-density freight options and single-sourcing supply helps drive down expenses while enabling suppliers to offer bulk sales rates for B2B accounts. However, recent conditions and the sharp rise in B2C demand is redefining what a healthy and resilient supply chain looks like. Organizations that now focus on multi-sourcing raw materials, developing new strategic partnerships for warehousing and supply and reevaluating financing options to keep a healthy cash flow are coming out on top simply because the goal is to meet that demand for direct-to-customer fulfilment while avoiding an acute increase in operating costs. The most resilient supply chains will emerge from 2020 and beyond with a healthy mix of retained scale and optimized flexibility at a level that has never been required in the past.

For LSPs who have already invested in modernization, technologies like AI, machine learning and autonomous pickers (i.e., OPEX Perfect Pick) will continue to serve as driving factors for LSP efficiencies in the consumer-driven market. By optimizing on automation technology, LSPs can continue to refactor for cost, scale and agility while delivering higher levels of customer loyalty and business growth. Additionally, the data insights made available through modernization allow suppliers to pivot based on real-time demand, so they can be ready to seize whatever market opportunity comes next.

The Value of Partnership in a Fluctuating Market

The rate of change over the first half of 2020 has necessitated adaptation across the supply chain industry. The rate at which the demand curve continues to change means LSPs needs precise planning to evaluate, implement and measure the effectiveness of enhancements and operational changes as they’re put in place. New operating models might be a welcome idea in theory, but adoption rates ultimately define whether or not each change was a value-driven concept.

This year has repeatedly demonstrated how forces outside of a business’s control can quickly challenge assumptions and require swift and decisive action, which is directly at odds with traditional change trajectories. Through the partnership, OEMs, fulfilment centres and LSPs can strike a balance between reacting to customer trends and building resiliency and agility into their warehousing and supply chain practices. A global supply chain and warehousing partner can provide support for new practices while also helping maintain and manage existing customer accounts, orders and expectations. The operational support provided by a partner can help keep up with KPIs, improve customer satisfaction and increase productivity from end to end.

Enabling speed-to-market functionality through modernization, diversification and partnership can improve order cycle times and quote-to-cash cycle times, and ultimately lead to improved Customer Satisfaction Scores (CSAT) and Net Promoter Scores (NPS). In the end, enhanced agility and resiliency in the supply chain can help OEMs, fulfilment centres and LSPs adapt to future changes even as they continue to adopt new practices that capitalize on the growing direct-to-customer market.

About the author

Matt Smith serves as the Business Unit Specialist for the Supply Chain Management Services offering through Tech Data’s Global Lifecycle Management. Matt has 17+ years of experience in the contract transportation and logistics business fostering relationships and implementing programs that have solved a wide array of customer challenges. He is responsible for supply chain business development functions across APAC, EMEA and AMR to drive profitable revenue streams as well as solutions design supporting global technology OEMs.

[i] Lipsman, A., eMarketer, “US Ecommerce by Category 2020,” July 2020, https://www.emarketer.com/content/us-ecommerce-by-category-2020

[ii] WERC, “DC Measures Annual Survey and Report on Industry Metrics: 2020 Trends & Challenges,” 2020, https://werc.org/page/DCMeasures

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