The Profitable Fulfillment Challenge
Profitable fulfillment is one of the biggest challenges and opportunitiesfor today’s businesses.
Dynamic, Diverse, Personalized Fulfillment Requirements Are the Norm
Manufacturers, wholesalers, and retailers alike are being challenged with diverse, continually changing channel fulfillment demands. Across industries, success (and even survival) depends on the ability to serve customers profitably in the way they expect to be served. This means doing everything from massive shipments to micro-fulfillment, from high velocity to slow movers, ship from anywhere, fulfillment innovation, tailoring for channel and potentially per customer, automated sourcing, dynamic inventory management, creative postponement strategies at each stage, last mile optimization, and more — and doing it all profitably.
In other words, successfully serving today’s consumer and business customers requires a supply chain that is personalized for each sector, channel, and customer’s unique needs and demands, but doing it economically, efficiently, and profitably. The variety and specificity of customer demands expand every day. This is not just about product personalization. It is about delivering products in the precise manner desired:
- at the desired time and place (such as just-in-time delivery to a busy urban construction site);
- in the desired packaging, prepared and packed in a specific way (such as floor-ready hanging merchandise, customer-specific purpose-built kits for use in an operating room or manufacturing plant, rainbow pallets for store delivery, and so forth);
- in the desired sequence of delivery (different components arriving as they are needed, in the sequence they are used);
- at the desired level of component/finished goods assembly (for optimal duty/tariff engineering and/or logistical optimization);
- with the desired documentation and precise customer- and location-specific labeling;
- using the right transportation carriers and routes;
- offering the desired installation services when and where needed;
The list of dimensions of fulfillment personalization goes on and on, and grows every day.
Network Orchestration Required
We see more and more third parties involved in these increasingly complex fulfillment scenarios. How can businesses meet these highly diverse, micro-segmented, personalized requirements with increasing numbers of fulfillment partners, with so many different handoffs and stages in the end-to-end delivery of products? Success requires a unified networked approach to the problem. This means integrating the end-to-end network of fulfillment partners — supplier-manufacturers, logistics providers, packaging firms, third party fulfillment, carriers, inspectors, distributors, retailers, delivery and installation companies — everyone who touches or manages the end-to-end fulfillment. It means having an operationally precise, network-wide view — a highly accurate and up-to-date shared single-version-of-the-truth, as a foundation for synchronizing each player across the network.
In this paper, we provide concrete examples and describe specific capabilities that leading companies are executing today.
Profitable Fulfillment Opportunities
The challenge of diverse fulfillment requirements is not just the fact that omni-channel presents more and more fulfillment locations and methods every year. It is also about variety in other dimensions: different product types (size, logistics handling requirements such as fragility or temperature control, installation or technical support requirements, etc.), range of category velocity (very fast to very slow movers), localization, range of item criticality (T-shirts vs. organ transplant), configuration complexity, logistical complexities, and more. Trying to satisfy customer demands across all these dimensions often increases costs and eats into sometimes already thin margins.
It is usually assumed that this is a fixed tradeoff between meeting increasingly varied customer demands vs. profitability. There is, in fact, enormous opportunity to move the efficient frontier to both satisfy customer-specific demands and achieve higher profit. The opportunities are substantial and diverse. Here are examples we cover in this paper:
- Automation & Integration of Mass Customization — Providers of mass customized products, from running shoes to mining trucks, are exploring new approaches to squeezing out more efficiencies, using the same highly-automated manufacturing line for their customized items that they use for their large-run build-to-stock items, and leveraging the bulk shipping whenever possible.
- Fulfillment Segmentation and Orchestration — Companies are using an increasing number of partners to fulfill demand, for increasingly varied scenarios. Doing that profitably requires a new level of multi-party automation, control, and visibility around that shared fulfillment process.
- Optimized Postponement with Outsourced Partners — When using a network of outsourced manufacturing and fulfillment partners, postponement or differed differentiation strategies are hard to do. These can be enabled by having precise visibility into the actual step-by-step execution across the network and the means to instantly disseminate precise instructions for each step to each partner.
- Multi-party Inventory Pooling — Multiple tiers of distribution can be integrated to pool inventory across the supply chain. Needs in one channel can be fulfilled with inventory from another channel if the visibility and relationships are in place. This goes beyond the single-enterprise scenario of a retailer fulfilling from all of their own locations (stores, DCs). It includes multi-party scenarios, such as in spare parts distribution.
Below we discuss each of these opportunities in more detail.
Automation & Integration of Mass Customization
Manufacturers have been striving to improve the efficiencies of mass customization in their plants for many years. In this quest, they have developed and refined techniques like single minute exchange of die and in-line sequencing.1 However, mass customization is increasingly being done by a series of outsourced partners in stages across a distributed supply chain. Since most of the cost is incurred outside of the OEM’s own four walls, it requires visibility and tight orchestration and control of these multi-stage, multi-entity processes: from forecasting and prepositioning of component inventory, to presenting and taking the order, the actual manufacturing and/or assembly of the products, labeling and packaging, various legs of transport, and final delivery/installation. Furthermore, to contain costs, brand owners and OEMs are enabling automation across the distributed set of partners performing all the various steps, as well as deploying algorithms that look for opportunities to optimize and reduce costs (such as lower cost transportation modes).
Those profit-maximizing capabilities are enabled by a network platform providing a single-version-of-the-truth, creating inherent real-time integration between all of the parties connected on the platform. Beyond that, some platforms are able to automate the functions within each of the partners in a synchronized way. For example, a brand owner has different compliance requirements from its different retailer customers, each retailer dictating many precise details from custom packaging, to labeling, routing requirements, bundling of shipments, sequence of packing and loading, documentation, and much more. Non-compliance results in costly chargebacks that can add up to 5% or more of revenue for some brand owners. A shared platform allows compliance rules to be centrally defined and input, then uses those rules to drive automated operations, distributed across the supply chain, so that each player in the chain performs their step in a way that creates a fully compliant end-to-end fulfillment process.
Network-wide Visibility Example
Another major sports shoe and apparel manufacturer uses a network platform to monitor forecasted demand and actual incoming orders, and raises an alert when it sees there will be a shortage for fulfilling expected future demand. In that case, the OEM’s planner has the ability to look at in-transit inventory, as well as finished goods inventory across suppliers. It can request specific suppliers to accelerate orders and/or drop ship to the retailer instead of to the OEM’s DC. The OEM can also request the supplier to reprioritize the work-in-progress in order to meet anticipated demand. The same system provides an order-specific packing plan, with the correct labeling, quantities, cartons, packing sequence, destination, and so forth for that specific retailer. The same system can be used by the supplier or 3PL to book transportation, ensuring that the correct retailer-approved carriers and routes are used. The reasons for the expediting/air freight are captured in the process, so that the supplier is not charged the expediting fees when it wasn’t their fault, and anyone viewing the transaction after-the-fact can understand why the decisions were made.
In Part Two of this series, we will look at three other strategies for achieving profitable fulfillment in multi-tier fulfillment networks: 1) Fulfillment Segmentation and Orchestration, 2) Optimized Postponement with Outsourced Partners, 3) Multi-Party Inventory Pooling.
1 In-line sequencing, also known as Just-in-Sequence, is commonly used in automotive. As each chassis travels down the line, feeder lines deliver the exact set of components and options for that specific vehicle (for a specific order) in the right precise sequence, just-in-time for assembly into the vehicle. — Return to article text above
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