Omnichannel fulfillment isn’t just complex. It can also be financially unsustainable, especially during peak season. During the pandemic, for example, many retailers upped their spend on additional temporary labor, warehouse space and automation to deal with the ecommerce surge. Some attempted to start filling wholesale, store and ecommerce orders from the same facility, as well as splitting order fulfillment across stores to meet demand.
Some of those strategies persist, and it’s costing retailers. But competitive pressures are making it difficult to pass on the high costs to the consumer. Instead, retailers need ways to make omnichannel fulfillment more flexible, cost-effective and agile.
There is a lot to consider when contemplating ways to transform fulfillment for future peak seasons, and cost is a big factor. But the calculation goes well beyond the initial price of a new solution. Taking a financial lens to every aspect of peak season fulfillment planning is critical to arrive at the right decision.
The economics of peak fulfillment
Square footage: Maintaining separate facilities per channel, each large enough to accommodate peak demand, has proven very costly. That’s especially the case for retailers seeking to offer next- or even same-day delivery by locating warehouses closer to customers, where real estate is more expensive. Offering omnichannel fulfillment from a 100,000-sq.-ft. facility near a major urban area instead of two 700,000-sq.-ft. sites in a far off, lower-cost location, while still meeting SKU and throughput requirements, can be a financial game-changer by lowering associated facility costs and satisfying elevated customer demand, a metric sometimes missing from warehouse decisions. A growing number of retailers are turning to advanced third-generation robotics solutions that enable high-density storage and throughput to achieve this goal.
Labor costs: Temporary labor use surges as peak season approaches. That incurs not just the cost of salaries — and during labor scarcity, signing bonuses — but also recruitment, onboarding, training and the lower productivity of less experienced workers that are not familiar with your operations. Falling short with labor also has a big impact: 64% of warehouse operators said they had to forgo business worth more than 25% of their revenue in 2022 because of staffing issues, according to the State of Warehouse Labor report. Costs also increase when actual labor needs do not align with the forecast.
When the same infrastructure can be used for both each- and case-picking, such as with next-generation robotics solutions, warehouses can not only hire far less additional labor for peak season, but also make more efficient use of it. For example, on a slow ecommerce day, the facility can execute wholesale order fulfillment, since those orders are planned much further in advance. Another labor-reduction feature is picking to shipping carton rather than to tote, a feature of some advanced robotics solutions.
When Western apparel company Ariat implemented Exotec’s Skypod® system, they needed a solution that could efficiently accommodate their large and ever-changing SKU count. With an automated robotics solution, the company was able to transition 80% of picking labor to more productive, value-added tasks while fulfilling tens of thousands of SKUs each day.
“Having the ability to quickly access a lot of SKUs, do all those combinations quickly, pick any type of order any day at any moment is setting us up well for success going forward,” said Matt Hardenberg, Vice President of Distribution at Ariat.
Robots also reduce the reliance on temporary workers that can be hard to hire due to a severe shortage in labor. When companies do hire temporary workers, robotics can still be beneficial in reducing onboarding time (and costs). Due to the intuitive interface and user experience, Exotec is able to onboard a new picker on their Skypod system in about 30 minutes. Additionally, order fulfillment accuracy increases because employees are presented with specific items and explicit instructions on how to fulfill the order. This is especially important when companies have an influx of new employees that may not be familiar with warehouse operations.
CapEx costs: Miles of fixed position conveyors and sorters and massive storage capacity are costly investments that must be planned with peak volume in mind. That means some portion of that infrastructure goes unused for much of the year. Those investments can be difficult to adapt as the business changes, such as adding new, non-conforming products, shifting the channel mix or rethinking inventory positioning. Flexibility is essential to avoid waste in CapEx investments.
Speeding throughput to the point where you can reduce days of inventory on hand further increases the benefit of investing in more flexible, omnichannel solutions. Next-generation solutions like robotics allow warehouses to have room for the throughput and/or storage that they need while also easily scaling to meet changing requirements without interrupting operations.
Service-level agreements: Customer experience has become a mission that is critical to retail success, and fulfillment performance is a crucial part of that. But when fulfillment operations fail to perform at peak, retailers are forced to cut back on things like speed of shipment. Accuracy can also suffer. Those failures lead to reduced loyalty, increased returns and excess inventory.
An alternate approach — filling those orders from stores — leads to high shipping costs, since peak orders are more likely to include multiple items that must be fulfilled from different stores plus the warehouse. While service levels may be met, margin is often consumed by those excess costs.
It’s important to consider the expectations of the customer — and how they’re likely to evolve — when calculating the payoff of a given fulfillment solution. The ability to meet stringent SLAs has significant monetary value.
Downstream costs: Improving key performance indicators such as throughput, productivity and efficient use of labor can maximize the peak season opportunity by unlocking new revenue and creating savings downstream of the fulfillment center.
For example, a flexible robotics solution can enable an ecommerce retailer to begin offering next-day delivery, or expand SKU variety in a given facility through high-density storage. The ability to replenish inventory at the item level instead of full cases helps avoid overfilling the store with backstock and unlocks the opportunity for a far wider selection of merchandise at the point of sale, which ultimately drives revenue.
In wholesale, the ability to take extra steps, such as sequencing an order according to a customer's stores’ plan-o-gram, department, merchandise category or aisle can unlock even more savings for the customers as they no longer have to spend additional time manually organizing inventory once it arrives.
Robotics solutions can also reduce transportation costs by offering the ability to fill trucks and vans in specific sequences that make unloading quicker and allows for intelligent route optimization for order deliveries. The sequencing functionality can even help utilize more of the storage capacity by better cubing out the truck. This not only decreases freight costs, but decreases in-store labor costs as well since employees don’t need to spend as much time emptying trucks and can focus on more-value added tasks.
Toward a flexible future
Forecasting an upcoming peak season is hard enough; predicting the fulfillment requirements of peak season several years from now is even harder. What is clear is that retailers need to invest in automation systems that can make peak omnichannel fulfillment much more cost-effective today, while easily adapting to as-yet-unknown future needs.
Choosing the right solution for the job requires looking far beyond the initial CapEx, taking the big picture into account. Third-generation, advanced robotics solutions are empowering retailers to substantially alter the economics of omnichannel delivery. According to Gartner, 86% of current robot users plan to expand their fleets, and 96% will expand to new use cases, a testimony to benefits, economic and otherwise, that robotics is making for their businesses.
