Professor Andreas Norrman gives his view on successful strategies to help warehouses perform at their best in an omnichannel world. And even asked the question, “Is it your daughter that always sends goods back?”
Omnichannnel retailing offers huge opportunities for companies to sell more and varied goods through more diverse channels. But this is having a great impact on stock handling. With returns reaching 30% in some industries such as fashion, how do you optimise materials handling as more people use ever-more channels to purchase goods?
But first, what do we mean by omnichannel?
The word omnichannel is on everyone’s lips. But are we all talking about the same thing? Dr Norrman suggests the following definition:
Omnichannel is “the strategy to assemble various channels into a single, interchangeable distribution system, promoting seamless transfer of orders between channels” (Cao, 2014).
Omnichannels involve only one logistics interface where inventories and order fulfilment are conflated. Customers can place their orders in one channel, pick up or receive through another and return products in a third.
Recent studies performed by Dr. Norrman and his colleague Dr. Kembro financed by the Swedish Retail and Wholesale Council show that the omnichannel landscape is continuously changing and highly competitive, with difficulties of designing a distribution system that supports effective and efficient order fulfilment and returns handling. Warehouses are now increasingly regarded a strategic component for omnichannel success.
Managing multiple challenges
Norrman sees the major challenges facing warehouses and DCs as these:
- How do warehouse transform from handling separated channels, such as bulk deliveries to a specific outlet, to seamless management of the stock handling process?
- How do you handle the risk of a vast increase in capital tie-up as a result of omnichannel?
- What is the role of the retail store in picking, packing, dispatching and returns handling, i.e. as a material handling/logistics node?
More to store, more to dispatch
Dr Norrman sees a slowing down of centralising distribution networks while the range increases. This trend is set to increase during the next 5 years as the range of goods available on-line far outstrips what is possible to display in-store. He also identifies “leaders”, companies already adopting omnichannel strategies, and “laggers”, companies yet to implement them. Not surprisingly, he sees that the leaders are the ones as being best qualified to meet tomorrow’s challenges.
Are you a leader or a lagger?
High performers perceive themselves relatively better on receiving, layout for both web orders and mixed orders, all types of picking, packing & shipping, and WMS for all types of orders. Dr Norrman found that high performers separate receiving and quality control activities related to goods flows from suppliers and return flows to a higher degree, working both with separated zones and different personnel.
Picking a major success factor
Another issue is whether store replenishment orders and consumers’ web-orders should be integrated or separated. Most respondents seem to integrate orders both for bulk storage and picking storage, while some use separation.
The two most common picking methods are synchronized picking, and pick-by-sort. Many companies seem to prioritize picking and sorting of web-orders before store-replenishment orders. Another pattern is picking to packages and not to pallet. High performers have implemented many activities to a higher degree, for example sort-while-pick, picking to parcels, working with separate time windows for web and store orders, and more clearly prioritizing web-orders.
Improvements needed for consumer adaptations
Today, most respondents perceive that they perform warehousing activities related to store-replenishment better than competitors, but are less competitive for web-orders (to consumers). The weakest performance relates to picking and packing, especially gift-wrapping and other consumer adaptations.
Low performing areas include handling a mix of orders for e-commerce and store replenishment (e.g. related to packing & shipping), and having a Warehouse Management System (WMS) to better plan and control the warehouse activities.
Trend towards more automated picking
Picking automation is low, but there is a clear trend towards more automated processes, especially for sorting, picking, packing and put away.
His research showed that shipping and returns handling will be least automated, with high achievers having the highest increase of automation in five years. It’s not sure the tendency will be the same for packing, as many high performers will continue to pack manually.
Click-and-collect will accelerate the changing roles of physical stores, as will drop-shipments from suppliers to stores (to supply web-orders). But as today, many products for click-and-collect will be picked and packed at the DC – especially by high performers.
These trends imply that inventory management must be more coordinated between warehouses and other handling nodes (e.g. retail stores) for web orders.
Today, high performers are more integrating inventory management, while low performers struggle with the need of integrated ERP-systems and specific area needs.
What high-flyers see as coming trends
Norrman’s research pointed to several trends, which include:
- Other new technologies such as pick-to-light, augmented reality, etc are slow to be adopted, with the exception of RFID
- Functionality to connect orders and stock in more nodes will become critical
- Integrated warehouse control should reduce capital tie-up in a decentralized network
- There will be an increase of cloud-based solutions
- Implementation of different types of process support
- A need to update and synchronise information more frequently
- Greater openness in sharing available information about products, delivery places and delivery times
So what does the omnichannel future hold for logistics?
Norrman’s panel showed a strong trend towards an omnichannel strategy to cope with a large growth in sales, larger share of e-commerce, and increase in store networks, while online ranges will keep on increasing. The trend to centralization of warehousing will reduce while integrated inventory management remains strong. Warehouse professionals will place greater requirements on IT systems, especially functionality for synching orders/ stock/decision-making in many nodes.
As omnichannel transforms warehouse strategies it is clear that the winners in the next 5 years will be the high-flying companies that are open and quickly adapt, explore and analyse what is developed in practice and what works well in different contexts.
Professor Andreas Norrman works at the Department of Industrial Management and Logistics at Lund University. He has been recognised as an “Excellent Teaching Practitioner” by his peers.
Want to know more about the study? e-mail firstname.lastname@example.org and he will send you a survey. Once you answer the survey’s questions you receive the full report as a participating retailer.