Fast Fulfillment Will Determine the Winners and Losers in the Retail Industry
By Sanchoy Das
In upcoming holiday seasons, millions of shoppers will encounter higher prices and a widespread shortage of goods due to global supply chain issues. At the same time, U.S. consumer spending is continuing to rise, and strong consumer demand will be a persistent force. For many retailers, this combination of supply chain disruptions and frenzied consumer demand marks an unprecedented inflection point.
To survive in a post-pandemic market, businesses will have to satisfy rising consumer expectations around speed and convenience. To do so, retailers must successfully build supply chain resilience, implement fast delivery fulfillment, and optimize distribution networks over the next few months. If businesses fail to fulfill their delivery promise or fail to keep up with the delivery speed of competitors like Amazon, they will not survive.
The Amazon effect and the COVID-19 pandemic have become responsible for a massive shift to e-commerce. With a few simple clicks, Amazon customers can easily browse, select, and purchase a product online. Once customers click the “Order Now” button, the product is delivered to their doorsteps in two days or less – sometimes even within a few hours. For millions of online shoppers, this seamless sequence of click-to-delivery has made Amazon synonymous with fast and reliable deliveries.
By mastering fast fulfillment and optimizing distribution, Amazon set the gold standard for the online shopping experience. For the rest of the retail industry, however, this means that millions of online shoppers now have come to expect fast, and often free, delivery.
In addition to the Amazon effect, the COVID-19 pandemic drastically changed consumer behaviors and further accelerated the rise of e-commerce. Quarantines, stay-at-home orders, and travel bans increased the need for online shopping and forced brick-and-mortar stores to pivot to digital marketplaces. Now, the overwhelming majority of consumers cite convenience (77%) and free shipping (72%) as their top reasons to shop online.
Amid this new reality of consumer behaviors, unprecedented supply chain disruptions have emerged and exposed the fragility of our business ecosystem. Yet despite current supply chain challenges, retailers should not expect leniency from customers. For now, they should assume that consumers’ bad habits are locked in: around 49% of US online shoppers have abandoned a purchase because of high extra costs such as shipping, and 19% have abandoned a purchase because delivery was too slow. Thanks to these factors, businesses have no choice but to race to meet consumers where they are.
In the long term, retailers will have to expand their distribution networks, invest in sophisticated automation technology, and accordingly hire workers who understand how to apply these business practices and technology. To maximize these investments, retailers must also increase their supply chain resilience. Fast fulfillment requires far more manual touch points than brick-and-mortar retail, and as a result requires more warehouse workers. If labor supply is unable to keep up with demand, companies will have to deal with yet another supply chain problem. Fast fulfillment, optimized distribution, and supply chain resilience are future-proof investments for the retail industry.
In the short-term, there are few upgrades that can be made in time for this holiday season. Retailers should start reviewing their process of how customer orders are received, packed, and shipped. If not already implemented, there should be multiple delivery options for shoppers, such as buy online, pick up in-store, and curbside pickup. To create a frictionless online shopping experience, businesses must implement inventory and delivery updates in real time. They should ensure website catalogs are updated with the appropriate inventory levels and have an “available to ship” label. Above all, it’s absolutely critical to prevent the dreaded post-order “delayed shipment” or “out of stock” messages.
Companies with limited capital to put toward these changes may have to rely on Amazon or Shopify’s fulfillment services. Ultimately, Amazon’s speedy delivery times are possible because of the company’s huge network of distribution centers and advanced technology designed for speed. When taking delivery logistics into account – like the fact that the e-commerce giant controls one-fifth of the delivery of the market – it absolutely makes sense for smaller companies to utilize Amazon’s fulfillment and logistics capabilities.
The Amazon effect, COVID-19, and ongoing supply chain disruptions have forever changed the way all businesses operate. However, only a few retailers will successfully survive in this rapidly-changing and hyper-competitive space. To meet rising consumer expectations around speed and convenience in a post-pandemic world, businesses must start investing in their fulfillment and distribution practices now.
Sanchoy Das is a professor at the New Jersey Institute of Technology, where he specializes in supply-chain and logistics engineering.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.