5/01/13

Special Report: Special deliveries

How online merchants can turn delivery into a differentiator.

Internet Retailer

Whether it's warehouse automation, making inventory data widely available or adding a thank-you note to a parcel, there's plenty e-retailers can do to make their deliveries special.

Online shoppers demand more than ever before from web retailers' fulfillment operations. Their expectations have been raised as more retailers offer free shipping, same-day shipping, order tracking and other services. E-retailers that don't meet these rising expectations will lose business to those that do.

To satisfy consumers' heightened expectations for fulfillment and delivery, retailers need to examine each step of their fulfillment processes. They must make their picking and packing procedures as efficient as possible, ensure orders are accurate, get packages out the door to meet promised delivery dates and make returns as easy as possible.

Retailers need to pay attention to how they communicate to shoppers if a problem arises that may delay shipping an order or that might require shipping part of the order at a later date. They also have to make certain customers can track the status of their orders right up to the moment they arrive at their destination.

"Speed is no longer enough when it comes to order fulfillment, because consumer expectations for fulfillment of online orders are rivaling the seamless fulfillment experience they get when making in-store purchases," says Robert Toner, chief operating officer for global fulfillment solutions provider Innotrac.

Smart warehouses

When it comes to fulfillment, consumers expect online retailers to ship them their complete order, deliver the goods intact, provide an accurate invoice and deliver the package on the date promised, Toner says. "Retailers need to constantly evaluate their performance in order to meet consumers' expectations in these areas."

For most retailers, improving order fulfillment begins in the warehouse. That's where they can achieve the greatest efficiency gains via automation. Advanced order technologies, such as robotic shelves controlled by software that bring products to packing stations, can substantially reduce the time it takes to pick and pack an order by eliminating the need for a picker to locate each item and bring it to the packing station.

To make such a system work, a retailer must send information from its order management system to the software that controls the robotic shelves. The software, which knows where each piece of inventory in the warehouse is located, identifies an available packing station and then directs the shelves containing the items in the order to that station.

"The goal is to increase the amount of throughput in the warehouse for each dollar spent on labor," says Peter Blair, senior director of marketing of Kiva Systems LLC, a subsidiary of Amazon.com Inc. "Small orders can be just as time-consuming to pick and pack as large orders, depending on where the items are located in the warehouse. By bringing the items ordered directly to a picker, less time is spent gathering items, which increases operating efficiency and reduces labor costs."

Kiva's robotic drive units move goods to workers. As orders are electronically fed into the system, the robotic drive units navigate their way to mobile inventory shelves containing the desired product by following a grid of two-dimensional bar codes stickered to the floor. When the robotic drive unit reaches the shelf, it positions itself underneath, lifts it up and transports it to the workstation. Pick-to-light and put-to-light technology helps ensure the orders are accurate. A laser pointer illuminates the location on the shelf where the item to be picked sits, ensuring accurate and quick picking by a worker. A computer screen at the work station displays the quantity of each item to be picked and the item's bar code can be scanned to validate it belongs in the order. Put-to-light technology designates the case or tote where each item in the order is to be placed. The system allows multiple orders to be picked simultaneously.

Order batching

Another way to speed up the work flow is by order batching, the process of scanning orders as they arrive in the warehouse to identify popular items, then periodically picking those items at one time to avoid multiple trips to the same section of the warehouse.

For instance, a footwear retailer can program its order management system to batch orders each hour for a specific style, color and size, such as size 10 men's black loafers. Once an hour a picker gathers all the size-10 black loafers ordered during that time period and delivers them to a packing station. Packers then assign each item in the lot to the corresponding orders received from the order management system.

"Picking orders independently or utilizing a travel path for a single item is time-consuming, inefficient and costly," says Perry Belcastro, vice president of fulfillment services for Saddle Creek Logistics Services, a provider of warehousing, transportation, packaging and fulfillment services. "Order batching improves the work flow of the warehouse, because one person is filling multiple orders at once using the most efficient process."

To further speed up the process retailers can position inventory throughout the warehouse based on popularity. Best sellers and seasonal items, for example, can be placed closer to the packing stations to reduce the distance pickers have to walk to retrieve and deliver them to the packing stations, Belcastro says.

When retailers add channels to their existing warehousing infrastructure, such as a b2b channel, they should remain flexible.

Efficiency matters

"Multichannel distribution requires clear channel priority rules, but at the same time flexibility in changing the stock and channel allocation to address changing demand," says Uwe Bald, vice president of international business development for Hermes, a provider of integrated supply chain, sourcing, transport logistics, e-commerce, fulfillment and delivery services.

Retailers should also carefully consider what level of automation they need throughout the warehouse to meet their productivity goals. "A higher degree of automation does not always correlate with a higher degree of efficiency, especially when changing customer preferences lead to new processes that need flexibility," says Bald. "There is no one-size-fits-all solution."

Regardless of how efficiently its warehouse operates, a retailer still must pay heed to the details of order fulfillment. Consumers get frustrated when an item is missing from an order or they receive the wrong item. That's why order verification is an important piece of the fulfillment puzzle. To avoid errors, pickers should scan each item's bar code to be sure it is what the customer ordered, and packers should recheck each order as they assemble it.

"Each order must be validated before it leaves the warehouse," says Innotrac's Toner. "Retailers should also send inventory data from the warehouse to the web site to reflect items that are no longer in stock. If an item is listed as in stock on the web site, but is actually out of stock when the order gets to the warehouse, the customer must be contacted immediately to notify them of the situation and find out whether they want to wait for it on back order or remove it from the order."

In addition to providing integrated order processing and warehouse management technology, Innotrac operates eight fulfillment centers across the United States and one call center. The company's European division, Innotrac Europe GmbH, operates a network of fulfillment and contact centers, as well as returns processing facilities in 10 countries, including the United Kingdom and Germany.

Expectations rise

Keeping consumers informed about the status of their orders is increasingly important as consumers' expectations rise. Notifying a customer when an order has left the warehouse and providing a tracking number so he can follow its path reassures the customer that his order is on track to be delivered on the expected date.

"Consumers want to know when their order has been fulfilled and has left the warehouse because they expect responsive customer service with every purchase," says Saddle Creek's Belcastro.

Saddle Creek operates 36 locations across the United States that provide logistics, warehousing, transportation, contract packaging and fulfillment services. Saddle Creek's fulfillment services include configuration of distribution and contact centers, returns processing, order management systems and systems integration.

To avoid issues with out-of-stock inventory, Belcastro recommends that fulfillment operations align processes and procedures with the retailer's order management capabilities to effectively manage back orders. When items are out-of-stock, it is important to notify customers and let them know if their orders will arrive in multiple shipments or be shipped complete.

Giving pickers access to expected inventory delivery times and dates at their workstations can let them know if an out-of-stock item is due in that day and will be available to complete the order in time for the order to be shipped by the end of the day. If that's the case, the picker can fill the next order, placing the previous order on the back burner until the missing item arrives. In the meantime, the retailer is spared from having to unnecessarily contact the consumer about a delay.

"Having that kind of information can help pickers prioritize orders and work more efficiently," says Kiva's Blair. "If a missing item is not going to be available for several days, the system can be programmed to instruct the picker to proceed with gathering the available items and have a service agent immediately notify the customer when the missing item will be available."

Customer communications, however, require a deft touch because shoppers don't want to be bombarded with what they consider unnecessary information. To avoid that scenario, experts recommend that retailers let new customers opt in to receive updates about their order, select their preferred communications channel, such as e-mail, text message or updates through a mobile app, and indicate how often they want to receive such messages.

"Don't send customers information about an order they don't want," says Hermes' Bald. "It's better to let customers tell the retailer what kind of information they want once their order has been placed."

Bald says that for items that require installation, such as appliances or furniture, retailers should provide real-time tracking of the item in transit and choose a delivery company that also offers installation services so the customer doesn't have to coordinate the arrival of the item and the installers separately. Some U.S. retailers such as IKEA and Sam's Club partner with companies that do delivery and installation as part of a one-stop shopping approach. Hermes offers this service in Germany and central Europe.

"The last thing a customer wants is to take a day off work when it's clear the item won't arrive before evening," says Bald. "Real-time tracking provides the customer greater flexibility in preparing to receive the item in these instances."

Once an order ships, retailers must be ready for the package just shipped to be returned. Understanding consumer behavior can help retailers determine the percentage of orders likely to be returned, and help a retailer schedule staff to handle the anticipated workload. For instance, in Germany return rates can be as high as 60% for some items because consumers commonly order multiple sizes of the same item so they can determine the best fit once the product arrives, Bald says. "Retailers shipping internationally need to understand the impact different local customer behaviors can have on returns and prepare accordingly," he says.

Easy returns

Making returns as easy as possible can make the difference between a satisfied and dissatisfied customer. To simplify the returns process, retailers should include a return label, a package in which to return soft goods or instructions on how to reuse the box in which the item shipped. Web merchants should include step-by-step instructions in each order that detail how to return an item and provide customers with a link to an information page on the retailer's web page that explains return policies. A customer service phone number should also be included.

"Retailers want to be sure to communicate their return policy as clearly as possible so the customer knows what to expect," say Saddle Creek's Belcastro. "They should also provide consumers with the tools necessary to return an item with as little trouble on their part as possible. Retailers should also clearly state their return policy when a purchase is made to clarify upfront the conditions under which a returned item will be accepted. An unclear return policy can discourage purchases."

For multichannel retailers, Bald recommends allowing shoppers to return items purchased online to stores. Hermes accepts returns at 14,000 Hermes ParcelShops across Germany and 4,000 more in other countries, such as Austria, the United Kingdom and Russia. Besides being able to initiate returns through any of these facilities, a shopper can choose to have her package shipped to one of these locations to avoid multiple, unsuccessful delivery attempts.

Offering returns through the U.S. Postal Service, which will pick up an item designated for return at a consumer's home, can also make initiating returns more convenient for consumers, says Innotrac's Toner. "The easier it is for a consumer to return an item, the faster the retailer can get it back, process the return and get the item back on the shelf so it can be resold," he says.

Branding opportunities

Once retailers have conquered the basics of accurate and convenient delivery, they can go a step further and turn fulfillment into a marketing channel. While some retailers include a promotional flier about an upcoming sale or a coupon for a future purchase inside the package, some savvy marketers are discovering new ways to reinforce their brand and market to consumers when fulfilling orders.

For example, some merchants wrap items in tissue paper featuring their brand's logo, while others spray a fragrance in the package before it is sealed and shipped and include a branded shopping bag the customer can use to carry other items.

"The idea is to recreate the brand marketing strategies customers experience in a store," Toner says. "Retailers need to think about including their company's colors and branding on the interior of the packaging so customers can instantly identify with the retailer's brand when they open the container."

Other marketing tips include using branded packing slips with marketing and promotional messaging, he says.

An extra touch

While retailers can take advantage of these marketing opportunities all year long, the holiday shopping season represents a marketing jackpot for retailers looking to make an impression on their best customers. Placing items in holiday-themed packaging, adding a bow to the package, or gift wrapping the item free of charge go a long way to deepening brand loyalty, Blair says. Most holiday shoppers, many of whom are pressed for time, appreciate little touches that spare them from having to perform these tasks.

To make this happen, retailers need an order management system that identifies which customers qualify for such white-glove treatment and divert those orders to a packing station in the warehouse designated to provide special services. They should then provide packers with instructions on which special touches to add to each order.

"A retailer's best customers want to feel special and get the same kind of treatment and perks they would receive in a store," says Kiva's Blair. "Being able to offer these kinds of personal touches is what makes fulfillment such an important part of brand marketing."

And retailers need not confine this type of brand marketing to the holiday season. Establishing special service tiers for repeat customers, such as including in the parcel birthday cards or announcements about exclusive sales, can further engender brand loyalty, Blair says.

Making good on a promise

The final piece of the fulfillment puzzle is getting the order to the customer on the expected delivery date. Increasingly, consumers want a specific delivery date, rather than a range, such as delivery within five business days. And they expect retailers to make good on their promise.

In most cases, the best way to reduce delivery time is to locate warehouses at strategic points around the country and fill orders from the warehouse closest to the customer's delivery address. Working with a fulfillment company that operates multiple warehouses and has the resources to establish new warehouses regionally when needed can provide retailers with the flexibility to shorten delivery times.

"Reducing the amount of time an order spends in transit is key to hitting delivery dates, and the best way to do that is to position inventory closer to the consumer," says Saddle Creek's Belcastro.

Regardless of what steps retailers take to reduce delivery times, they always run the risk the consumer may not be home to accept the package when it arrives. In these instances the carrier will either attempt another delivery, provided a signature is required upon receipt, or leave the package at the door if a signature is not required, which exposes it to a theft risk.

Retailers can address these problems by offering different delivery options when the customer places his order. Carriers that make up to four delivery attempts achieve delivery rates of more than 99% in some markets, according to Bald. Having a package delivered to a parcel station or one of the retailer's nearby stores, or allowing delivery to a neighbor are other options.

"The more retailers can do to ensure delivery success the better, because unsuccessful delivery leads to a bad customer experience and lost revenue," says Hermes' Bald.

Retailers that are flexible and nimble when it comes to fulfillment can make each delivery not just satisfactory, but special, and build customer loyalty in the process.

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May 2013 Delivery Supplement

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