Distribution: Does the future belong to multi-channel solutions?

Kommissionierung für EinzalhandelBy this time, most people interested in order picking and dispatch operations will have come across the term “multi-channel distribution”. Some suppliers are already promoting these solutions at intralogistics trade shows. If you would like to get more information on this topic and learn why multi-channel distribution isn’t a short-term trend at all, then you’ve come to the right place.

Those of you who’ve been around for more than two decades probably remember the time before the internet. Back then, people bought the vast majority of their consumer goods in local stores. Distribution channels were clear and straightforward: producers dispatched their goods to chain stores and specialized dealers, sometimes via wholesalers.

These stores only had a limited area from which they attracted customers, so that the demand of goods was quite stable. Market power was clearly on the side of the producers, wholesalers, department stores and supermarket chains. In this scenario, consumers were relatively powerless.

When the price of a product increased, they could drive to the next store or even to the next city, with considerable expenditure of time, and look for the product they wanted to buy. Direct marketing by phone, advertisement and mail order catalogues, although already established, never amounted to more than a small fraction of total consumption.

The internet as a game-changer

All of this changed when the internet took off. Consumers are now able to order virtually any non-food consumer good online. Price and quality are easier to compare online than in brick-and-mortar stores. This increases the power of the consumer and puts pressure on the profit margins. Local retailers were the first to notice it, but by now this trend has trickled down to the producers as well.

It’s interesting to see how some producers are reacting to this threat: they are selling their products directly through their website. The online prices are basically the same as in stores, but the profit margins are larger, because they are cutting out wholesalers and retailers.

Sounds like a perfect solution, but there’s a catch: the producers’ distribution centres are not designed to handle the kind of order structures prevalent in online retail. From a logistical perspective, E-Commerce and store deliveries are worlds apart.

Dispatching to stores results in a rather small number of orders, but with many (and mostly the same) articles for each order. Online shopping on the other hand leads to many orders, but most of them consist only of 1 or 2 items. If you take a look at the order picking process in the logistics centre, you’ll see where this causes problems.

For instance, in order to supply the stores of an apparel company with the items for the upcoming season, the goods could be piled on pallets by the carton and then loaded on trucks. The warehouse would have to accommodate only pallets, from which the deliveries would get picked. For E-Commerce however, this wouldn’t be efficient.

Online retailers order pick in a different way

Imagine a customer orders a jacket and a pair of pants from the fashion company over the internet. Then, someone would have to go into the pallet warehouse, find and open the right cartons, take out the individual items and pack them into a parcel for shipping. Obviously, if they would really do that, they would quickly lose track of the remaining number of items, which cartons are still complete, and so on. When returns enter the picture, it becomes even less economic.

Kommissionieren für Online-ShopperOnline retailers usually solve this problem by breaking up the pallets they receive into individual items. They then register each article into the computer, so that it can be order picked very easily. When customers return something, the product only needs to be scanned into the database and put back to a storage space. Keeping track is no problem at all, at least not for the computer.

So what can a company do, when it would like to deliver to a number of stores and at the same time sell directly over the website? It could maintain two separated warehouses, one for each distribution channel. But this would lead to higher costs and a lot of economic risk, especially when the company has no previous experience with E-Commerce.

Because it’s uncertain how the new sales channel will perform and what its share is going to be in relation to other channels, flexibility is king. A solution for multi-channel distribution is exactly what the company needs to play it safe. Such a facility is essentially a combination of several sales channels.

Of course, these multi-channel solutions are (to a certain extent) a compromise between the extremes. Engineers are looking for ways to comply with the requirements of different channels in a way that results in more than the least common denominator.

As I mentioned at the beginning, there are already systems available that were developed precisely for this purpose. No, it’s the turn of the customers of those intralogistics suppliers, to familiarise themselves with the concept. One thing can be said for sure, though: a number of companies will have little choice but to invest in a multi-channel solution. It’s therefore going to be interesting to see how engineers and logistics planners will approach this subject in the future.

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