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The actual cost of e-commerce fulfillment errors: Lost customers

For years, brick-and-mortar retailers have carved out their niche by providing excellent in-store customer service. But for those now entering the e-commerce fulfillment arena - and providing customers with the option to buy online and pick up in stores (BOPIS) - the challenge of preserving their hard-earned reputation just got bigger.

To say that online customers are demanding is an understatement. One order error is often all it takes for online shoppers to permanently take their business elsewhere. Retailers risk not only losing their online customers, but also eroding the loyalty of their existing clientele. 

There's no question that e-tail giants have raised the bar for e-commerce fulfillment. Today's consumers expect nothing less than 100 percent order and inventory accuracy. According to a 2015 study by IDC, multichannel shoppers are 30 percent more profitable over the lifetime of the customer than traditional shoppers, making the potential impact of getting orders wrong even greater. Here are a few online customer characteristics to keep in mind when considering their importance to your business:

  • They are less loyal than traditional customers
  • They expect fast delivery time, and will jump to a competitor if the predicted delivery time is too long
  • They are very price-conscious and can perform price comparisons quickly at no cost
  • They expect a flawless customer experience at every touch point, or they will choose another retailer

Atoning for order mistakes can also cut into retailer profitability. Let's examine an order pickup scenario that is more common than it should be. An online customer shopping for a tool set confirms that the item he's looking for is available at a local home improvement store and will be ready in 2 hours. Once at the store, the shopper discovers that the order was 'shorted' the tool set, as there is a disconnect between what the online system thinks is on the shelf and what is actually on the shelf. To make up for the inventory mix-up, the store manager grants the shopper a discount on a larger tool set - making it even cheaper than the original item and reducing or eliminating the profit on the item.

Let's add up the full costs of this botched transaction: the time the store associate searched for the item; the discounted price of the more premium tool set; and the loss of confidence by a customer who has many other retailer options.

So how can retailers fix this problem? By combining a voice-based task engine with labor management software, retailers can gain visibility to inventories on hand and add efficiency to all in-store fulfillment processes. By checking the SKUs for each item picked or put away as item movement occurs, there is greater synchronization between the online inventory and the physical inventory, in real time.

Honeywell Intelligrated's Store Solutions is designed to do just that. With Store Solutions, retailers can validate the activity of each SKU with every transaction - whether that's stocking, picking or returns - resulting in a view of actual items in inventory that can drive order accuracy levels to as high as 99 percent. The benefits of meeting online customer expectations are gaining their all-important loyalty and securing their repeat business. And with the efficient management of labor, retailers can add predictability to all in-store order fulfillment processes. 

To learn how Honeywell Intelligrated combines voice and LMS to help retailers drive order fulfillment accuracies, please visit the Store Solutions section of our website.

Managing the demands BOPIS puts on store labor

The advent of "buy online, pick up in store" (BOPIS, a.k.a, "click and collect") shopping is giving many brick-and-mortar retailers a way to reclaim precious market share, while at the same time driving up store visits. As more consumers embrace the opportunity to pick up online orders at the nearest store, retailers that can efficiently provide this emerging in-store fulfillment option gain a clear strategic advantage. But making good on the promise to fulfill BOPIS orders quickly is easier said than done. Customers who choose this option typically want to retrieve their purchases within a few hours after placing their order. To meet this service level expectation, retailers must be prepared to execute a new set of demanding tasks that are typically performed by existing store associates. 

The increased challenge to the labor force stems from the nature of the in-store fulfillment process. In the traditional shopping paradigm, customers traverse a store and fill their shopping carts with the products of their choice, and then proceed to a check-out line. In the click-and-collect scenario, it's the store associates who must now retrieve these items scattered throughout the store - without adding hours to their shift or hikes in the store's budget by hiring additional labor. This underlying change and the need for increased order fulfillment efficiencies are the reasons why retailers are seeking ways to optimize BOPIS order processing and fulfillment.

It's not enough to simply offer the option of click and collect; it must also be profitable for the retailer. Here are three tools that are proven to be effective in warehouse order fulfillment that will make in-store order fulfillment profitable by improving the efficiency and accuracy of existing labor resources:

  • Voice-based task engine - Voice solutions have a lot to offer stores moving to a BOPIS model. With very little time, new or temporary store associates can quickly be trained to use the system nearly as efficiently as an experienced associate. Voice direction allows eyes-up, hands-free operation, so staff can still provide in-store customer service as they fulfill BOPIS orders. Voice-directed task engines calculate the proper level of resources needed to fulfill existing orders, while capturing real-time transactional updates to ensure inventory accuracy by validating each item picked.
  • Optimized picking sequences / batching orders - With labor management software (LMS), optimal picking travel paths through the store are identified and used to direct store associates on the most efficient picking sequence. As orders come in, items can be batched to leverage economies of scale where appropriate. The result is greatly reduced foot-travel time and a more predictable order fulfillment process that ensures customer service level agreements are met. 
  • Labor planning - LMS also enables a more accurate planning process that evolves as your staff becomes more efficient. Retailers can precisely staff areas for optimized resource usage, deploying only the necessary workforce required to meet the demand. Ongoing labor performance data is captured and fed back into the system to improve forecasting and the predictability of the fulfillment process.

To learn more about how voice and LMS can combine to help retailers add BOPIS to their omnichannel fulfillment strategy, please visit the Store Solutions section of our website

Sorter Upgrade Keeps Fred's Products Moving

In the last 60 years, Fred’s order-fulfillment process has evolved from loading items onto pickup trucks by hand, to operating two 22-hour-per-day, 6-day-per-week distribution centers that stock more than 12,000 items for nearly 700 discount retail locations.

But, with progress comes growing pains, and an ever-increasing volume of product pushed Fred’s material handling systems to their limits. A recent audit of the aging sortation system in their Memphis DC revealed excessive wear and tear on the sorter. It was determined that a sorter upgrade was necessary in order to avoid downtime that would cause a major disruption to the Fred’s supply chain.

View the video below to see how Intelligrated’s sorter upgrade increased Fred’s material handling productivity in a minimal rebuild turnaround time.

“Without the sorter running, we would not be able to service our customers in our stores,” said Reggie Jacobs, executive vice president of distribution, transportation and corporate service at Fred’s. “It would be devastating to the operation … We need to have vendor partners who understand how critical material handling is to the success of our organization. That’s why we picked Intelligrated to assist us with the project.”

As a part of its Sorter Upgrade Program, Intelligrated engineers identified specific problem areas of the sorter, provided a full analysis of available options and gave Fred’s the flexibility to customize its solution. It was determined that upgrading the sorter from a tube to a slat carrying surface would boost capacity to meet the retailer’s expanded needs.

Upgrading the sorter required a complete mechanical rebuild and in order to minimize downtime, Intelligrated implemented the entire sorter rebuild in just four days. A team of ten field service technicians were dispatched to execute the project, which included tearing down and rebuilding the sorter, training the Fred’s team, ensuring availability of spare parts and fully testing the new system. After four days (including Saturday and Sunday), the DC was up and running without a hitch.

The sorter upgrade has yielded impressive results through peak throughput rates, handling a higher volume and larger variety of conveyable SKUs than before.

5 Tips for Dealing with Post-Holiday Returns

It's time to start prepping your operation to handle returns and exchanges. Dealing with returns is a costly necessity of doing business. The key is to make sure that the process is handled in a way that keeps customers coming back. Most retailers see an uptake in returns the week after Christmas through mid-February. While there may not be time to make major changes to your operation before the inbound starts to arrive, there is time to implement the following practices so that your distribution center greets returns and exchanges with increased efficiency and exceptional customer service.

Here are five tips for dealing with returns during the post-holiday season.

1) Prepare your team
Unhappy gift recipients will want to know how to return or exchange an item. Check your staffing levels to make sure you are ready to handle the influx of calls and emails that will be coming your way.

Returns coming back from stores require personnel to strip that product from returning trailers before they can be put back into service. Be prepared to add additional yard jockeys and personnel to the trailer "clean out" process. Failure to have the right staff may make the difference of having the right equipment to put at the door at the necessary time to load outbound shipments.

Unfortunately, people often think of returns as unwanted. Therefore, all too often, it becomes an area of temptation and theft. Situations where personnel find themselves caught up in this temptation is extremely heartbreaking but the problem can be overcome with a clear message and communication regarding the value of returned product to the profitability of the company.

2) Test your inbound procedures and software
Make sure you have a well-documented process for receiving returns. This will ensure that you can easily add labor to the returns area and produce efficient and accurate results.

Returns have the potential to back-up receiving docks. The end of December is a good time to have your quality assurance team complete a review of your processes. Review and communicate guidelines for actions to take on returned items. If the merchandise is sellable, does it go back to inventory stock in a prime location to eliminate additional touches? Will a slower moving item be returned to reserve storage?

A multichannel fulfillment center has to deal directly with the returns from consumers as well as the returns coming from the retail channel. The direct-to-customer channel requires additional processes and quality assurance measures in place in order to provide the track ability of the returned package and the traceability of the product within. Have your tracking software, scanning equipment, and procedures in place and well tested so that you can easily account for all D2C returns. Give priority to D2C versus the retail channel. Customers are easily lost over a bad return experience.

3) Improve your product inspection process
The product inspection is often the most labor consuming portion of the return process. And often this need for labor comes at a time when operating budgets are the tightest. Deal with the returns in cascading levels of inspection so that damages and out-of-date products are identified immediately saving some of the more detailed inspection to be handled in a downstream process.

Closely identify and evaluate the cost added to each type of product as they go through the returns process in comparison to the value of the product. Use these evaluations to inform and make decisions that may lean more towards bulk buy-out or disposal opportunities.

4) Review vendor return guidelines
In addition to reviewing your own processes, it is important to make sure that supplier return guidelines are well established and documented. What is the cut-off date for returns? What does the quality of the merchandise need to be to qualify for a return?

When coming out of a large season, products no longer in your inventory are often returned. Since returning this merchandise to stock is not cost effective, preplan an agreed upon benchmark of the cost-to-value relationship when dealing with products that are not return to vendor or return for credit.

The space required to process and hold returns while awaiting return authorizations from vendors can tie a significant amount of valuable floor space and inventory locations. End of season returns to vendor (RTV) authorizations are often large quantities and sometimes take several weeks for approval. Work with your merchandising managers to get intermediate approvals at various major completion states.

5) Optimize use of equipment and space
Optimize facility layout by staging a quality inspection at the receiving dock to make restocking decisions and to return products back to inventory as quickly as possible.

Use outbound picking technologies for inbound logistics to get SKUs back to their location as quick as possible for resale. This can deliver a greater return on investment. For example, if sortation equipment is only used during the first and second shifts for normal outbound operations, the equipment can be used during the third shift (late-night shift) for returns. Utilize every free minute your equipment has.

The above article can also be viewed at MultichannelMerchant.com

August 2011 Executive InSight

In his latest quarterly Executive InSight blog post, Intelligrated CEO Chris Cole discusses some of the key trends impacting companies in the retail industry and how these issues effect their distribution operations. Click play below to view Chris’ video blog.

Read a summary of Chris Cole’s August 2011 Executive InSight video blog:

In his latest quarterly Executive InSight blog post, Intelligrated CEO Chris Cole discusses some of the key trends impacting retail distribution.

“The future of retail distribution will be defined by multi-channel purchasing requirements that are driven by the consumer – the so called “ubitquitous basket” that provides the shopper with a channel agnostic shopping experience. This is driven by the continued increase in e-commerce, m-commerce, even v-, or video commerce, which is on the horizon. But, however digital, mobile and social shopping behaviors become, at the end of the day the consumer needs to actually receive a physical product – which means distribution of that product.”

In his video message, Chris touches on a few of the business drivers that Intelligrated’s retail clients say are influencing change in their distribution operations:

  • A perfect order is not enough: The consumer demands on-time, accurate shipments, a positive shopping experience and quality product.
  • Challenging consumer behavior, such as
    • Private dressing rooms: Consumers are ordering multiple sizes and styles, then returning what doesn’t work.
    • First order delivered wins: Consumers are ordering from multiple merchants, and only keeping the first order to arrive. The rest are returned.
    • Buyer’s corrections: Consumers want the ability to easily change or cancel an order.

What does this mean for distribution operations? Chris discusses the following issues that distribution centers need to be able to handle:

  • More and more each- and split-case picking
  • Mass customization of value-added services to enhance the consumers experience and build brand loyalty
  • Effective management of increased returns

“Discovering efficient, labor-saving ways to meet the demand for smaller, higher velocity deliveries will be a key component of success, and will drive demand for more and more automation in order fulfillment both domestically and overseas,” Chris concludes.