Multitasking DCs deliver the goods for omnichannel retailers
Three-quarters of retailers fulfill orders from multiple channels at a single distribution center, according to an annual omnichannel fulfillment survey.
Once upon a time, the retail industry was a safe, predictable way to make a living. Businesses simply had to take delivery of inventory, stock the shelves, and greet eager customers at the door.
Sign on for a retail job in 2016, however, and you'd better buckle up for a wild ride. This industry is one of the fastest-changing sectors of the U.S. economy, with companies hustling to adapt to trends like drone delivery, virtual reality, and mobile commerce. One change looms over all the others, however: the rush to join the omnichannel revolution.
To get a better understanding of how companies are meeting the challenges of omnichannel commerce, Supply Chain Quarterly's sister publication, DC Velocity, and the research firm ARC Advisory Group teamed up to conduct a fourth annual survey on retail fulfillment practices. Respondents answered 37 questions on their approach to meeting current challenges in omnichannel commerce and their plans for the future.
The results showed that in spite of an array of new logistics strategies and processes, most retailers have simply bolted their new omnichannel operations onto existing infrastructure, fulfilling multiple order streams in the same distribution centers (DCs) where they handle traditional store fulfillment. The survey statistics that follow tell the story of why, how, and where businesses are performing omnichannel fulfillment.
Preserving market share
When it comes to why companies embark on the omnichannel journey, the answer seems to be all about preserving their slice of the market. Asked for the top three reasons they were participating in omnichannel commerce or intended to do so, respondents said they wanted to boost sales, increase market share, and improve customer loyalty. Those responses finished far above cost-focused alternatives such as increasing margins, improving ability to rebalance inventory, decreasing markdowns, or reducing capital expenditures associated with building a new e-fulfillment warehouse.
We asked respondents which omnichannel capabilities they currently support, and they ranked the five options as follows:
Order at store, fulfill from warehouse (67 percent)
Return to store, even when goods are ordered online (65 percent)
Inventory rebalancing, shipping excess inventory from one store to another (54 percent)
Order at store, fulfill from another store (42 percent)
Parcel return, even when goods were bought in a store (32 percent)
As for how respondents fulfill online orders, the answers were all over the map: 75 percent said orders were fulfilled through a traditional DC that also handles e-commerce, 44 percent said orders were filled from a store, 38 percent said items were shipped directly from a manufacturer or supplier, and 32 percent use an e-commerce (Web-only) DC. Respondents were allowed to select more than one response, and as the percentages indicate, a number of those companies are using multiple methods. (See Figure 1.)
With three-quarters of retailers fulfilling orders from multiple channels in a single facility, that approach is clearly a foundation of omnichannel practice. Seventy-seven percent of respondents to this year's survey said they handled e-commerce fulfillment and traditional fulfillment at the same facility, an increase from the 69 percent who answered the same way in last year's survey.
Retailers are taking orders from a diverse range of sources. In fact, when it comes to ringing up sales, it appears all doors are open: 86 percent said they took orders online (including mobile), 77 percent said from brick-and-mortar stores, and 42 percent said from call centers and catalogs. (Totals came to more than 100 percent because most businesses support multiple channels.)
Although many retailers are fulfilling orders from multiple channels in a single building, the survey also revealed that there is plenty of room for them to merge those operations more completely. When asked whether their e-fulfillment operations were segregated from traditional fulfillment, 59 percent of respondents said yes. Those that do so indicated that they use various methods to segregate inventory, including physical location within the building, managing inventory availability, and labor management.
TOOLS OF THE TRADE
Within the warehouse, retailers are using a range of sophisticated software tools to manage their operations. Respondents were asked what technologies they used to support their omnichannel initiatives; the top five answers were: warehouse management systems (WMS), demand management software, distributed order management (DOM) systems (which offer a common view of systemwide inventory), total-landed-cost analytics software, and inventory optimization software. (See Figure 2.)
Retailers are investing in those tools because they expect e-commerce revenues will continue to rise. As for where that fulfillment will take place, the situation appears to be in flux. Asked how they see e-commerce fulfillment locations changing over the next five years, 32 percent of respondents said they expected to see a rise in e-commerce orders fulfilled in traditional DCs, compared with 28 percent who expect to see more fulfillment taking place in stores and 19 percent who said Web-only DCs.
DELIVERING THE GOODS
How does all this merchandise reach consumers' doorsteps? The omnichannel approach offers a dazzling array of options, from delivery drones to the do-it-yourself alternative: pick up in store.
The survey asked how retailers handled "last mile" deliveries and found that in practice, most have stuck with tried-and-true methods. The most common answer was courier delivery service at 43 percent, followed by a third-party logistics (3PL) partner at 23 percent, and arranging for items to be drop-shipped by partners at 20 percent. (See Figure 3.)
Some retailers are also experimenting with more creative alternatives, including deliveries made by store staff at 5 percent, drones at 2 percent, and crowdsourced delivery services at 1 percent. And the future may hold even greater change. When asked which delivery methods they do not currently use but plan to use in the future, respondents' top three replies were crowdsourced delivery service with 8 percent, drop-shipped by partners also with 8 percent, and 3PL delivery partner at 7 percent.
Despite the rapid rise of omnichannel commerce, e-commerce revenue has a long way to go before it passes sales from physical stores. When asked what percentage of their direct retail revenue currently came from each channel, respondents said 67 percent came from brick-and-mortar locations, 24 percent from online sites (including mobile), and 9 percent from call center and catalog sales.
Overall, the survey indicated that omnichannel fulfillment remains in a state of flux. As retailers scramble to adjust to a shifting marketplace, they continue to experiment with a wide variety of fulfillment practices and technologies.
About the study
This year's omnichannel study was conducted by ARC Advisory Group in conjunction with Supply Chain Quarterly's sister publication, DC Velocity. ARC analyst Chris Cunnane oversaw the research and compiled the results. The 2016 study builds on research done last year in this area.
The study explored the details of distribution center operations to support omnichannel initiatives as well as how companies are handling the last-mile dilemma. The findings reported here are based on 109 responses. Respondents included logistics professionals from a variety of industries, who submitted answers between May and August of 2016.
As for the demographic breakdown, the majority of respondents (63 percent) sold goods through a combination of direct and indirect sales channels. Another 27 percent sold merchandise through direct retail only, and the remaining 10 percent through indirect sales channels only.
A report containing a more detailed examination of the omnichannel survey results is available from ARC for a fee.
The launch is based on “Amazon Nova,” the company’s new generation of foundation models, the company said in a blog post. Data scientists use foundation models (FMs) to develop machine learning (ML) platforms more quickly than starting from scratch, allowing them to create artificial intelligence applications capable of performing a wide variety of general tasks, since they were trained on a broad spectrum of generalized data, Amazon says.
The new models are integrated with Amazon Bedrock, a managed service that makes FMs from AI companies and Amazon available for use through a single API. Using Amazon Bedrock, customers can experiment with and evaluate Amazon Nova models, as well as other FMs, to determine the best model for an application.
Calling the launch “the next step in our AI journey,” the company says Amazon Nova has the ability to process text, image, and video as prompts, so customers can use Amazon Nova-powered generative AI applications to understand videos, charts, and documents, or to generate videos and other multimedia content.
“Inside Amazon, we have about 1,000 Gen AI applications in motion, and we’ve had a bird’s-eye view of what application builders are still grappling with,” Rohit Prasad, SVP of Amazon Artificial General Intelligence, said in a release. “Our new Amazon Nova models are intended to help with these challenges for internal and external builders, and provide compelling intelligence and content generation while also delivering meaningful progress on latency, cost-effectiveness, customization, information grounding, and agentic capabilities.”
The new Amazon Nova models available in Amazon Bedrock include:
Amazon Nova Micro, a text-only model that delivers the lowest latency responses at very low cost.
Amazon Nova Lite, a very low-cost multimodal model that is lightning fast for processing image, video, and text inputs.
Amazon Nova Pro, a highly capable multimodal model with the best combination of accuracy, speed, and cost for a wide range of tasks.
Amazon Nova Premier, the most capable of Amazon’s multimodal models for complex reasoning tasks and for use as the best teacher for distilling custom models
Amazon Nova Canvas, a state-of-the-art image generation model.
Amazon Nova Reel, a state-of-the-art video generation model that can transform a single image input into a brief video with the prompt: dolly forward.
Economic activity in the logistics industry expanded in November, continuing a steady growth pattern that began earlier this year and signaling a return to seasonality after several years of fluctuating conditions, according to the latest Logistics Managers’ Index report (LMI), released today.
The November LMI registered 58.4, down slightly from October’s reading of 58.9, which was the highest level in two years. The LMI is a monthly gauge of business conditions across warehousing and logistics markets; a reading above 50 indicates growth and a reading below 50 indicates contraction.
“The overall index has been very consistent in the past three months, with readings of 58.6, 58.9, and 58.4,” LMI analyst Zac Rogers, associate professor of supply chain management at Colorado State University, wrote in the November LMI report. “This plateau is slightly higher than a similar plateau of consistency earlier in the year when May to August saw four readings between 55.3 and 56.4. Seasonally speaking, it is consistent that this later year run of readings would be the highest all year.”
Separately, Rogers said the end-of-year growth reflects the return to a healthy holiday peak, which started when inventory levels expanded in late summer and early fall as retailers began stocking up to meet consumer demand. Pandemic-driven shifts in consumer buying behavior, inflation, and economic uncertainty contributed to volatile peak season conditions over the past four years, with the LMI swinging from record-high growth in late 2020 and 2021 to slower growth in 2022 and contraction in 2023.
“The LMI contracted at this time a year ago, so basically [there was] no peak season,” Rogers said, citing inflation as a drag on demand. “To have a normal November … [really] for the first time in five years, justifies what we’ve seen all these companies doing—building up inventory in a sustainable, seasonal way.
“Based on what we’re seeing, a lot of supply chains called it right and were ready for healthy holiday season, so far.”
The LMI has remained in the mid to high 50s range since January—with the exception of April, when the index dipped to 52.9—signaling strong and consistent demand for warehousing and transportation services.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
Specifically, 48% of respondents identified rising tariffs and trade barriers as their top concern, followed by supply chain disruptions at 45% and geopolitical instability at 41%. Moreover, tariffs and trade barriers ranked as the priority issue regardless of company size, as respondents at companies with less than 250 employees, 251-500, 501-1,000, 1,001-50,000 and 50,000+ employees all cited it as the most significant issue they are currently facing.
“Evolving tariffs and trade policies are one of a number of complex issues requiring organizations to build more resilience into their supply chains through compliance, technology and strategic planning,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “With the potential for the incoming U.S. administration to impose new and additional tariffs on a wide variety of goods and countries of origin, U.S. importers may need to significantly re-engineer their sourcing strategies to mitigate potentially higher costs.”
Grocers and retailers are struggling to get their systems back online just before the winter holiday peak, following a software hack that hit the supply chain software provider Blue Yonder this week.
The ransomware attack is snarling inventory distribution patterns because of its impact on systems such as the employee scheduling system for coffee stalwart Starbucks, according to a published report. Scottsdale, Arizona-based Blue Yonder provides a wide range of supply chain software, including warehouse management system (WMS), transportation management system (TMS), order management and commerce, network and control tower, returns management, and others.
Blue Yonder today acknowledged the disruptions, saying they were the result of a ransomware incident affecting its managed services hosted environment. The company has established a dedicated cybersecurity incident update webpage to communicate its recovery progress, but it had not been updated for nearly two days as of Tuesday afternoon. “Since learning of the incident, the Blue Yonder team has been working diligently together with external cybersecurity firms to make progress in their recovery process. We have implemented several defensive and forensic protocols,” a Blue Yonder spokesperson said in an email.
The timing of the attack suggests that hackers may have targeted Blue Yonder in a calculated attack based on the upcoming Thanksgiving break, since many U.S. organizations downsize their security staffing on holidays and weekends, according to a statement from Dan Lattimer, VP of Semperis, a New Jersey-based computer and network security firm.
“While details on the specifics of the Blue Yonder attack are scant, it is yet another reminder how damaging supply chain disruptions become when suppliers are taken offline. Kudos to Blue Yonder for dealing with this cyberattack head on but we still don’t know how far reaching the business disruptions will be in the UK, U.S. and other countries,” Lattimer said. “Now is time for organizations to fight back against threat actors. Deciding whether or not to pay a ransom is a personal decision that each company has to make, but paying emboldens threat actors and throws more fuel onto an already burning inferno. Simply, it doesn’t pay-to-pay,” he said.
The incident closely followed an unrelated cybersecurity issue at the grocery giant Ahold Delhaize, which has been recovering from impacts to the Stop & Shop chain that it across the U.S. Northeast region. In a statement apologizing to customers for the inconvenience of the cybersecurity issue, Netherlands-based Ahold Delhaize said its top priority is the security of its customers, associates and partners, and that the company’s internal IT security staff was working with external cybersecurity experts and law enforcement to speed recovery. “Our teams are taking steps to assess and mitigate the issue. This includes taking some systems offline to help protect them. This issue and subsequent mitigating actions have affected certain Ahold Delhaize USA brands and services including a number of pharmacies and certain e-commerce operations,” the company said.
Editor's note:This article was revised on November 27 to indicate that the cybersecurity issue at Ahold Delhaize was unrelated to the Blue Yonder hack.
The new funding brings Amazon's total investment in Anthropic to $8 billion, while maintaining the e-commerce giant’s position as a minority investor, according to Anthropic. The partnership was launched in 2023, when Amazon invested its first $4 billion round in the firm.
Anthropic’s “Claude” family of AI assistant models is available on AWS’s Amazon Bedrock, which is a cloud-based managed service that lets companies build specialized generative AI applications by choosing from an array of foundation models (FMs) developed by AI providers like AI21 Labs, Anthropic, Cohere, Meta, Mistral AI, Stability AI, and Amazon itself.
According to Amazon, tens of thousands of customers, from startups to enterprises and government institutions, are currently running their generative AI workloads using Anthropic’s models in the AWS cloud. Those GenAI tools are powering tasks such as customer service chatbots, coding assistants, translation applications, drug discovery, engineering design, and complex business processes.
"The response from AWS customers who are developing generative AI applications powered by Anthropic in Amazon Bedrock has been remarkable," Matt Garman, AWS CEO, said in a release. "By continuing to deploy Anthropic models in Amazon Bedrock and collaborating with Anthropic on the development of our custom Trainium chips, we’ll keep pushing the boundaries of what customers can achieve with generative AI technologies. We’ve been impressed by Anthropic’s pace of innovation and commitment to responsible development of generative AI, and look forward to deepening our collaboration."