Omnichannel Fulfillment Services: Key to Success

Industry buzzwords come and go, but one phrase that has stuck – and is pushing shippers to rethink their fulfillment strategies – is “omnichannel.” And while the term may have made Gartner’s list of overused marketing words as far back as 2014, omnichannel is holding its own in a world where customers expect to have a seamless experience across all sales channels through omnichannel fulfillment services.

Omnichannel fulfillment is largely being driven by the growth in both business-to-consumer (B2C) and business-to-business (B2B) eCommerce. Even with eCommerce growth falling to its lowest rate since 2009, Insider Intelligence projects that U.S. B2C eCommerce sales will cross the $1 trillion mark for the first time in 2022, while B2B eCommerce sales will reach $1.8 trillion.

“The eCommerce shift has taken the retail world by storm, and omnichannel is the brick-and-mortar sector’s response to that,” writes HighJump Software’s Guadalupe Pagalday in What Does Omnichannel Mean to Your Distribution Center Operations? Put simply, omnichannel fulfillment allows consumers to get what they want, however and whenever they want it.

For both retail and manufacturing brands, that means offering products through a variety of channels – Amazon and other online stores, direct-to-consumer (D2C) online channels, independent retailers, and mass retailers – while providing reliable and efficient fulfillment service across each channel.

What is omnichannel fulfillment and why is it so challenging?

A typical retail distribution cetner keeps central inventory from multiple suppliers, then palletizes and distributes bulk orders to stores on a regular schedule. A typical eCommerce fulfillment center processes hundreds of thousands – even millions – of individual consumer orders each month and ships them out via parcel carriers within strict delivery timelines.

These different functions have drastically different space, transportation, labor, and equipment requirements. Omnichannel fulfillment has one foot entrenched firmly in both worlds, providing a flexible fulfillment and distribution network for bulk distribution and pick/pack/ship.

Some retailers have historically chosen to keep their store and online fulfillment channels separate to some degree. For example:

• One retailer-owned distribution center holds all inventory meant for retail stores.
• A 3PL handles online orders with its own inventory.
• Separate inventory gets shipped off to Amazon’s FBA program, becoming untouchable for other sales channels.

While this method gets the job done, it also duplicates inventory storage costs each time the business needs to dedicate inventory to a particular channel. As a result, retailers have begun to prefer the omnichannel fulfillment model for its ability to break down silo walls and share inventory between a variety of channels, such as:

• Brick-and-mortar stores
• B2C eCommerce
• B2B eCommerce
• Distributors and wholesalers

With the right logistics technologies, visibility, and omnichannel capabilities, retailers can share inventory between channels and fulfill and distribute that inventory from shared facilities, ultimately avoiding redundant storage and labor costs, and unnecessary inventory glut. Instead of dividing inventory early on by channel, the shared inventory only gets divided once its ready to pack and ship. But unfortunately, many retailers haven’t reached that point yet.

Retailers are still evolving to serve online buyers

Retailers face particularly high barriers when it comes to efficient and effective omnichannel fulfillment services. According to Retail Systems Research (RSR), that’s because the traditional retail supply chain was designed for one thing: to fulfill to stores. But today’s consumers want to interact with brands seamlessly, whether online, in-store or a combination of both. They expect more, and retailers must respond.

Each sales channel comes with its own fulfillment requirements. eCommerce fulfillment demands highly efficient pick and pack services; retail distribution requires strict routing guide and labeling compliance to avoid chargebacks; direct sales fulfillment often involves complex kitting and meticulous final packaging; and, of course, Amazon has its own set of rules and requirements – for both inbound freight and outbound Prime deliveries.

Just because a fulfillment services provider is experienced with one channel does not mean it has the know-how to professionally handle full omnichannel fulfillment services. Case in point: the operational implications of shifting from retail replenishment to direct-to-consumer fulfillment are monumental.

It takes just one person to pick a pallet of vitamins off a shelf and load it onto a truck. But if you sell that same pallet volume of product as individual units to satisfy consumer online orders, that amounts to hundreds of orders that need to be picked, packed, and shipped by multiple people.

To manage that efficiently, you need:

• Process engineers to design the warehouse layout and picking strategies.
• Advanced systems to direct picking activities.
• Quality checks throughout the multi-step process to ensure accuracy.
• Savvy warehouse operators who can accurately plan the significant labor requirements of a busy eCommerce fulfillment warehouse.

This is a big shift from the pallet-in, pallet-out routine of a retail distribution warehouse.

Online sellers struggle as they expand into retail channels

The omnichannel fulfillment journey is difficult in both directions. We normally associate the transition to omnichannel fulfillment with growth in eCommerce sales. But growth-oriented eRetailers understand that exponential growth often requires bulk distribution through brick-and-mortar retailers. This shift brings bigger checks – but also bigger headaches.

For instance, the way you ship may differ based on the receiver. A retailer’s DC may need products to be palletized, configured, and labeled a certain way, whereas a store delivery might require a completely different approach to how you build outbound pallets.

When it comes to the larger retailers, each has its own set of shipping specifications documented in separate routing guides, including different requirements for labeling, packaging, and palletizing for each. You have to study each one to avoid problems – specifically, chargeback penalties that get deducted from the retailer’s invoice payments based on non-compliance with routing guide requirements. Late EDI transmissions and misplaced labels on boxes are examples of chargeback triggers. Some will cost you pennies, while others might run $200 per infraction.

Bottom line: you either need internal experts who ride herd on retail compliance, or you need a 3PL partner for omnichannel fulfillment services that understands retail distribution as well as they do eCommerce fulfillment. For example, fast-growing drinkware company, Corkcicle, partners with Staci Americas to handle distribution to all channels because of Staci Americas' expertise in numerous types of distribution and fulfillment.

Key operational requirements for omnichannel fulfillment services

Ultimately, to make a profit in the omnichannel world, you need a unified approach to distribution for all your sales channels, with a focus on addressing the problem of the “three I’s” – inventory, infrastructure and information.

Inventory management

When you ship to stores, you track pallets or cases. When you ship to people, you might have to track hundreds or thousands of units of a single SKU and may also have to track serial numbers.

It’s a smart idea to develop a holistic fulfillment strategy that embraces inventory from all sales channels, even if B2C and B2B channels represent separate P&Ls managed by different executives. Efficiency is the name of the game in omnichannel fulfillment thanks to one master inventory that can be used to fulfill orders for all your channels. You can pull this off by using sales forecasts and historical data to figure out what products you’ll need for each channel, where you’ll need them and when.

Just as important, make sure you work with order fulfillment partners who are well-versed in best inventory management practices – including providing timely, accurate reports to keep your inventory and labor force at optimal levels.

Infrastructure

Separate warehouses for multiple channels typically lead to too much inventory, too much warehouse space, too many truck runs and redundant management structures. All of which results in too much expense.

The best 3PL partner for an omnichannel operation has facilities throughout the country, all managed on one system for network-wide visibility. A multi-DC network gives you the flexibility to meet aggressive delivery requirements for consumer orders, while keeping freight costs low.

It's best to fulfill B2B and B2C orders from the same carefully designed warehouses and from the same inventory pool – a concept we explored in our article, Do You Need a Separate eCommerce Warehouse?

We’ve discussed the shared inventory concept for omnichannel fulfillment. But how it actually work? First, divide this inventory in the warehouse into three physical regions, with most residing in a bulk replenishment area. Then, as forecasts determine future demand, and as actual orders come in, use a WMS to send product into the appropriate forward-pick area, one designed and equipped for bulk distribution and one designed for each-picking.

• For B2B, the facility should have large areas and docks for receiving and staging pallets.
• For B2C, you’ll need an area fully equipped to sort and pack orders for pickup by small package carriers.

This approach to omnichannel fulfillment services will result in considerably leaner operations, keeping just enough inventory to meet total demand through all your sales channels.

Information systems

If you ask a B2B-focused 3PL to fill eCommerce orders, they will struggle if they don’t have the right systems. The system must seamlessly receive orders from multiple sources (your own website and other commerce sites like Shopify and BigCommerce), consolidate these orders for optimal processing, determine the right picking method, and communicate pick requirements to the warehouse floor.

Not every WMS can do this efficiently. Whether you handle your own fulfillment or work with a partner, make sure you are using a warehouse management system that’s truly capable of managing inventory for all your channels. This will provide you with visibility into one, universal inventory pool and let you allocate product to any channel in advance and on the fly. Your WMS will also need to integrate seamlessly with other technologies, such as order management systems and EDI systems, to ensure optimal end-to-end visibility for your inventory from the moment it enters your custody to the moment it leaves.

If you can’t afford these systems, align yourself with a fulfillment 3PL that has already made these significant investments. This allows your business to spread omnichannel fulfillment technology costs over the length of your logistics partnership and share it with the 3PL’s other customers, rather than making the full investment in one lump sum up front.

The other business case for omnichannel fulfillment

The COVID-19 pandemic quickly brought the need for streamlined omnichannel fulfillment to the attention of retailers of all sizes. For example, consider how food supplies for restaurants spoiled in storage because nobody could figure out how to repackage and distribute them to consumers. A similar thing happened with toilet paper, as store shelves ran out and B2B warehouses overflowed with toilet paper meant for public buildings and commercial businesses.

While most of the supply chain bottlenecks caused by that pandemic have eased, the nature of a Black Swan event is that you never know when it will strike. However, when the unexpected happens, omnichannel retailers demonstrate better supply chain resiliency because they have effective and reliable systems in place to move inventory where it's most needed.

Don’t forget about the customer experience

Order fulfillment plays an essential role in the eCommerce customer experience. How an order gets packaged and delivered matters to buyers of online goods. However, that’s only one small portion of the customer experience. What if that consumer sees a pair of shoes online and wants to try them on in the store? What if they try them on in the store and want to wait for payday to order them online?

If they can find those shoes in one place but not the other, chances are good that the retailer will lose the sale. Furthermore, over time, these experiences will sour a customer on a retail brand. Today’s retail customers expect a seamless experience between physical and online stores.

For example, a customer may want to buy an item online and pick it up at the store. Or they might buy the item online but return it or exchange it in the store for a different size. The modern consumer just expects these things to be possible, and brands that can’t provide an integrated experience will lose out to competitors. With omnichannel fulfillment, sellers ensure that inventory reliably exists in all available places so customers can purchase items when, where, and how they want.

Need omnichannel fulfillment services?

Your buyers are channel-agnostic. They want to seamlessly interact with your brand across all channels, and they want to feel like you are managing your business to allow them to do that. If you’re not, one way to get there faster is to find a 3PL specialist in omnichannel fulfillment services.

Many 3PLs that claim omnichannel fulfillment expertise are actually strong in servicing only one channel and are evolving their omnichannel capabilities. Finding the top 3PL for your needs will take some legwork on your part. Get beyond the marketing claims and ask for tangible evidence of how the company has guided brands on their omnichannel journey.

If you’re struggling with this issue yourself, talk to an Staci Americas fulfillment specialist. We realize that most brands researching challenges like this aren’t looking to immediately outsource or switch providers. That’s fine. Feel free to leverage our 30+ years of fulfillment experience and use us as a sounding board. We’re happy to help. Let’s talk.