Fulfillment operations in uncertain times

On the surface, it may seem like e-commerce and store-level fulfillment are relatively straightforward.

However, sophisticated fulfillment operations enable retailers to quickly adapt to a litany of constantly evolving factors, including rapidly changing and often instantaneous throughput requirements to keep pace with promotion or holiday demands. And all of this comes while adding new SKUs and removing others — both of which require warehouse leaders to change how their teams and facilities handle millions of items simultaneously. This underlying complexity is why forecasting future needs is both a valuable science and mission-critical art.

When warehouses can effectively forecast and address changing needs, the nuanced workflows, advanced automation, and adaptation underlying retailers’ success are unnoticed. But when things go wrong and materials handling operations cannot adequately respond, the results can be dire, leading to late e-commerce deliveries, inaccurate online orders and in-store inventory mishaps.

These mistakes can impact the bottom line, not only because of lost sales and more returns, but also scarred customer relationships. Given the potential consequences, fulfillment leaders must always work intently to prepare for what lies ahead. Such efforts have traditionally focused on analyzing shopping preferences and macro-economic trends. But today, such foresight is insufficient.

Buying behaviors are changing

Today’s consumers behave differently in the face of sustained inflation and are not tightening their belts as they did historically when prices increased. McKinsey’s Sajal Kohli notes that some consumer buying behaviors are “diverging in paradoxical directions.”

More specifically, he says that “shoppers who splurge in some categories may seek value in others, which means companies must develop a detailed and nuanced understanding of trends and segments.” This, of course, makes it tougher than ever for retailers to forecast how to adapt their fulfillment operations.

The macro-economic landscape also offers little clarity. While The New Consumer’s Consumer Trends 2024: Mid-Year Report found that 40% of American consumers consider rising prices and inflation the most important problem in the nation right now, spending in many sectors remains on the rise. Revenues are up 26% in the restaurant industry and luxury brands continue to see gains, with the high-end apparel company On Running seeing its annual revenue increase by 21%.

Such gains demonstrate the paradoxical relationship between consumer sentiments and consumer behaviors. In light of them, it is increasingly difficult for retailers to know with certainty what shoppers’ buying habits will look like in even the short-term future. It is a reality that is further exacerbated by generational factors, with Gen Z for example relying far more on the internet when making purchasing decisions.

Retailers must navigate a paradoxical market

What then, can retail leaders do to ensure that their fulfillment operations are up to the task? While automation enables scaling while addressing endemic warehouse labor shortages, it is only part of the solution.

Additional steps should be considered:

• Give fulfillment operations a seat at the executive table: Fulfillment operations should be involved in executive-level discussions about expansion of the brand, growth into new markets and even marketing campaigns. It should also be in close communication with the marketing team to ensure that it is aware of any special offers or work with influencers that could make an item a fast mover.
• Extend seasons of peak demand: In recent years retailers moved to better manage the dramatic impact of the holiday shopping season on store operations and fulfillment teams by extending its duration. The same strategy can be used to flatten out the spikes associated with other peak times and annual sales, including those for back-to-school, for example. Such efforts are proven in many cases to increase sales while decreasing the order volume that must be processed on any given day.
• Think modular: Consider an alternative to the rip-and-replace approach that has for many years been associated with fulfillment operation upgrades and new construction. A modular approach that ensures that existing investments retain their value, and that they can be expanded on when needed, is a proven strategy. By determining what the brand’s minimum equipment and systems needs are today, and what will be required to achieve long-term goals, retailers gain the flexibility to add new capacity and throughput performance far more methodically.
• Look at temporary solutions: Automated Mobile Robots (AMRs) can augment existing fulfillment operations while automating labor-intensive tasks, particularly during times of peak demand. Increasingly, AMRs are also available as a service, enabling retailers to try them with little expense.

Creating the optimal retail fulfillment operations – one that is large enough and powerful enough to adapt to increasing needs but that keeps costs in check – will always include a healthy dose of prognostication. By keeping these points in mind, growing brands can forge ahead with the peace of mind that their warehouses and distribution centers will handle whatever comes their way.