As the line between web and traditional retail store fulfillment blurs, brands need to assess their fulfillment capabilities and those of their 3PL multi-channel distribution partners.
Consumers prefer to be channel agnostic. They want to complete a purchase and receive/return the product to and from any channel they choose. And they want the brands they buy from to align their businesses to make that happen.
Are brands there yet? Let’s say they’re evolving.
Truly efficient multi-channel distribution requires major changes to warehouse distribution networks, facility design, and how order and inventory data is managed. These major changes require time to plan and implement – particularly at large CPG companies whose revenue mix is shifting from retail channels to D2C channels.
Unfortunately, they don’t have the luxury of time to figure it all out. The right 3PL can speed the process, for sure. Here are 10 tips to maximize efficiency in a multi-channel distribution environment.
1.Co-locate inventory for B2B and B2C channels
This may seem obvious, but some companies continue to segregate inventory by channel. By replenishing pallet, case-pick and each-pick areas from a single inventory pool, you keep your fulfillment costs, and your inventory, as low as possible. Maintaining your inventory on one system facilitates buy online pickup in store (BOPIS) – a large sales growth opportunity for retailers and brands.
Obviously, the warehouse design for pallet-heavy retail replenishment is drastically different from B2C fulfillment. A bulk warehouse needs lot of racking, forklift trucks, and big spaces to receive and stage inbound and outbound freight. In contrast, pick and pack operations need lots of storage locations for individual SKUs that need to be picked and placed into totes, along with pack lines to check order accuracy and prepare orders for parcel shipment.
At a multi-channel distribution center, these two distinct areas coexist. In some cases, there’s a literal separation in the warehouse, but it’s more efficient to have a central replenishment area for most of the inventory that feeds both the B2C and B2B operations. Managing it in any other way can lead to increased safety stock and higher inventory and storage costs.
2. Maintain visibility to all the inventory in one place
Knowing where your stuff is – obviously that's a critical requirement for omni-channel distribution. You need real-time visibility to all your products – whether they sit in a warehouse or at a store – to make decisions on where to place inventory and the best location to fulfill specific orders. If you plan to use a 3PL, test out the provider’s visibility tool to see how easy it is to use. And make sure they have the IT solutions required to share data seamlessly.
Having to check multiple systems to get an accurate picture of your inventory for multi-channel distribution will create problems. You need a single source of truth for how much total inventory you have and where. If you don’t, your locations will likely carry more inventory than needed, driving up your costs.
Case Study: Nutrabolt
Nutrabolt markets sports nutrition supplements to fitness enthusiasts worldwide. The fast-growing company needed to process orders faster and more efficiently and chose KANE to manage the two distribution centers in its newly configured network. Nutrabolt consolidated its US distribution network from 5 warehouses to 2 strategically located DCs in Atlanta and Salt Lake City. From these sites, Nutrabolt distributes to retail chains, distributors and consumers. KANE designed the facilities to efficiently handle pallet, case-pick and each-pick requirements, replenishing products for all channels from the same inventory pool. A more streamlined, multi-channel distribution process helped Nutrabolt to:
- Reduce order-to-ship time from 3 days to 24 hours.
- Reduce labor costs through process improvements and automation.
- Improve accuracy, which led to sharp reduction in customer complaints and inventory errors.
3. Make sure your 3PL’s WMS enables optimal picking processes
Particularly for labor intensive pick and pack operations, you want to minimize warehouse labor costs. That requires an advanced warehouse management system (WMS) – and not all fulfillment companies have made this investment. Systems like KANE’s Manhattan WMS are able to:
- Analyze and combine similar orders on the same pick cart to reduce travel time. Direct labor costs are about 35–40% of total operational expense in a warehouse, so excellent picker productivity is a real profit driver.
- Automatically choose the right carton size to minimize shipping costs. This saves time and minimizes dim weight charges from carriers that kick in when shipping box sizes are larger than needed.
- Scan products as they are picked to reduce costs and improve accuracy. Make sure your fulfillment partners have this capability or you’ll pay the price in higher error rates and increased costs to fix picking errors.
- Integrate with material handling automation equipment. As order volumes increase for direct-to-consumer fufillment, you can’t afford to continually address the challenge with more labor, particularly in this difficult labor market for warehouse workers. You need to introduce automated processes that increase throughput with fewer people.
4. Automate when it makes sense
In large, high-volume B2C operations, the most dramatic labor savings will come from automated picking technology, such as pick-to-light and voice-directed systems. This is largely a financial decision. How much can the new technology cut labor costs and will this meet your company’s ROI requirements for capital equipment. In an outsourced environment, your 3PL should be proactively reviewing automation options with you as volumes rise. One factor that may hasten the automation decision is the shortage of suitable labor. It’s really tough right now to find and keep warehouse workers. Robots and conveyors don’t call out sick, they don’t ask for a raise, and they don’t quit to join a competitor for 50 cents more per hour.
But an investment in warehouse robots and automated picking and packing needs to make economic sense. Our article – Warehouse Automation and Robotics: A Practical Perspective – offers these and more tips to evaluate whether investing in warehouse robots makes sense:
- Is the process repeatable? Unlike humans, the same robot can’t go from case picking to full-pallet movement to unloading a truck. You need a steady repetition of the same activity.
- Does the order volume warrant the investment? There are costs involved in programming and integrating robots into a distribution center. To account for these costs, you need to deploy at least 5 pieces of automation for the investment to make sense.
- Is your current process people-intensive? Robots are more expensive than people but, unlike robots, people can’t work two shifts. If the activity at your facility is enough to keep a robot busy over multiple shifts, you can avoid hiring two new people to handle the same work.
5. Choose a fulfillment partner that can offer flexibility and scalability
Distribution to retailers has a certain predictability to it. There are seasonal volume swings, sure, but most of these you know about well in advance. As a result, warehouse labor is easier to plan. B2C shipment volume is more difficult to forecast. Because of that, your 3PL partner needs to manage unanticipated volume spikes without a disproportionate increase in labor costs. Some are better than others at doing this. Things to look for:
- A clear process for forecasting that includes gathering information from your team about upcoming promotions and other events that might lead to volume spikes. With online sales, you’re going to have more volume volatility, but you want to control what you can.
- Strategic partnerships with temporary staffing agencies. These relationships enable rapid onboarding of a large number of workers for short periods.
- A great training program. This allows an influx of new people into an operation with minimum impact on quality and productivity.
- A labor planning system that quickly translates demand into a schedule.
With a multi-channel distribution model, you need to be ready for anything, like an unexpected celebrity Twitter endorsement of your product. Discuss this key requirement with your 3PLs until you have a comfort level with their process and capabilities to efficiently handle large volume swings. When demand requires expansion beyond the current footprint, can your 3PL scale with you and offer additional locations? This has become more important as brands try to meet a two-day, one-day and even same-day shipping promise.
6. Button up returns processes
Returns can be a real profit suck if they are not managed well. Here’s a tale of two companies who manage returns quite differently.
- COMPANY A has little idea what products are coming back from retail partners or consumers. Its 3PL partner must sift through the returns, determine the products, the lot codes and possibly even look up the tracking number to determine the source of the return in order to process a credit. It’s a labor-intensive and expensive process.
- COMPANY B acknowledges returns by issuing a return merchandise authorization (RMA) to the retailer. The 3PL-operated returns center receives an advanced shipping notice (ASN) on exactly what is coming back. When returns arrive, they are processed immediately. The 3PL puts the RMA number in the ASN, so when the ASN is closed out, the manufacturer gets an EDI feed of what was received and can process the customer credit. It’s a fast, efficient process.
Efficient handling of returns is important for any brand, but it’s particularly important when you sell through multiple channels. According to Happy Returns, between 15% and 40% of online purchases are returned. Returns policies matter to online buyers. In fact, 67% say they check the returns page of an online marketplace before they make a purchase. So having a buttoned-up returns process is not just about efficiency on the back end; it's critical for attracting new customers and increasing the number of repeat buyers.
7. Pre-kit common orders involving multiple SKUs
In B2C fulfillment, often the same SKUs are ordered at the same time. A smart WMS system will flag these common orders, allowing you to pre-build most of the order in a very efficient manner. For instance, let’s say two products are always ordered together, along with another SKU. Rather than picking three items for every order, you can pre-pick and box the two popular SKUs so you are only doing one pick to complete the order. The pre-kitting process is done in volume, so you’re picking full pallets and pre-building the orders as your associates have the time.
8. Ensure routing guide compliance
When running a distribution center, satisfying a consumer’s desire for fast, accurate fulfillment is very different from keeping large retailer customers happy through 100% compliance with their routing guides. These two customer types require different operational models that, with a multi-channel distribution strategy, must exist within a single DC.
3PLs tend to be much better at one than the other. B2C-focused fulfillment 3PLs, in particular, can struggle with routing guide compliance, which involves hitting aggressive goals for on-time/in-full orders, accurate and timely advanced shipping notices, precise labelling requirements, and proper action in dealing with freight delays/changes, among other things.
You want to be very familiar with all elements of the routing guide, particularly the section that details penalties for non-compliance. Retailers levy chargeback fines to recoup costs the retailer incurs for shipments that don’t meet established guidelines. When chargebacks fines become onerous, an experienced 3PL can be the ticket to significant reductions. 3PLs, like KANE, that ship for multiple CPG manufacturers know retailers’ requirements and can police outbound shipments to ensure compliance.
9. Integrate packaging with upstream distribution operations
Establishing a multi-channel distribution center is about integration of all fulfillment activities under one roof with a single pool of inventory to maximize distribution efficiency. But how far can that integration extend to further simplify and streamline distribution operations? For the retail distribution side of the business, final packaging is a key aspect of the go-to-market strategy. Different retailers look for different packaging configurations (e.g., club packs, variety packs) and it’s not feasible to handle this as part of the manufacturing process. The further downstream you can handle this secondary packaging, the more agile and efficient you become. Integrating secondary packaging with distribution center operations can cut as much as 30% from combined warehousing/packaging/freight costs. Key benefits include:
Faster cash cycle. If you use an outside copacker, it’ll add about 7 days to the distribution cycle.
More agile supply chain. Postponing final product configuration makes you more responsive to retail customers’ packaging requests.
Lower freight costs. No more paying to move products between outside copackers and the warehouse.
More economical packaging solutions. When 3PLs get involved in secondary package design, downstream efficiencies occur because 3PLs suggest smart packaging options that allow for efficiently stacked pallets, maximum trailer utilization, and boxes right-sized for lower cost shipping.
Reduced damage. Shipping product to and from an outside copacker results in more touches and 3% more damage.
Sales growth. A nimble, vertically integrated supply chain creates happier retail customers.
10. Choose a partner that can SHOW YOU, not just tell you
Multi-channel distribution requires a flexible 3PL equally capable of managing bulk distribution and pick and pack operations for B2C fulfillment. The processes used for bulk versus direct-to-consumer are very different. Beware of 3PLs who lack the experience you need in B2C fulfillment. Seeing is believing. Visit a 3PL fulfillment warehouse that serves clients whose needs and volumes are similar to yours. That way you'll get a sense of how your account might be managed.
Are you looking for a 3PL partner that specializes in multi-channel distribution for high-volume CPG brands? At Kane Logistics, that’s our thing. Let’s start a discussion.