E-Commerce Fulfillment & Delivery in a Hyper-Local World TRACK 3: SESSION 6

E-Commerce Fulfillment & Delivery in a Hyper-Local World TRACK 3: SESSION 6

Craig Morris DHL VP Product Management and Strategy Email: Craig.Morris@dhl.com Phone: 954-258-7681 Website: www.dpdhl.com Linkedin: https://www.linkedin.com/in/craigmorris/ Saman Saiy DHL Director Solutions Design Email: Saman.Saiy@dhl.com Phone: 416-839-7262 Website: www.dpdhl.com Linkedin: https://www.linkedin.com/in/samansaiy/ 2

Agenda 1 Going Local Rise of the Metro Supply Chain 2 A New Ecommerce Fulfillment Network 3 Key Takeaways 4 Questions 3

U.S. E-commerce Market: Key Developments With e-commerce sales surpassing $350 billion in 2016, it is imperative to take notice of the major developments in the market 4

Consumer Needs The needs of today s consumers are changing 5

Consumer Needs Fast The needs of today s consumers are changing 6

Consumer Needs Fast The needs of today s consumers are changing Free 7

Consumer Needs Convenient Fast The needs of today s consumers are changing Free 8

Consumer Needs Convenient Fast The needs of today s consumers are changing Free Transparent 9

Amazon s Effect Amazon is pushing for a regionalized distribution model for e-commerce, altering the present landscape significantly 10

Last Mile Delivery Landscape The shift to more same-day and nextday deliveries means more metro hubs, rather than larger regional or national DCs 11

Market Trend Regionalization and localization trends expected to continue in the foreseeable future 12

New Digital Fulfillment Strategies in Play Today Alternative fulfillment and delivery methods resulting in higher service levels and potentially lower costs 13

Where Things are Going Logistics in metros will have to get much smarter, faster, and dynamic 14

Optimal Network to Enable Fast Regional & Metro Deliveries The optimal network depends on various factors such as: Number of deliveries (size of business) Penetration across various market segments & regions (eg, active wear more popular in certain markets than others) Inventory turns and carrying costs SKU count & order profile (ie, high SKU DCs much more costly to replicate perhaps only top SKUs would be deployed in more nodes, but that might result in split shipments) In order to evaluate the trade-off of service vs cost as the number of DCs being added, the following methodology was employed: US population (Census) data was used to simulate e-commerce demand across the country Ground parcel delivery was used to identify transit days (ie, upgrading shipments would result in better service levels, but not reflected in this analysis) 1-5 DCs modelled across 6 candidate nodes 15

Optimal Network to Enable Fast Regional & Metro Deliveries To be competitive in service, majority of retailers aim to be at 2 days transit or less As each node is added, the percentage of population within 1 and 2 day(s) increases significantly However, diminishing returns is seen as the 4th and 5th nodes are added; the % of orders within 2 days doesn t change significantly; although orders within 1 day does increase 16

Agenda 1 Going Local Rise of the Metro Supply Chain 2 A New Ecommerce Fulfillment Network 3 Key Takeaways 4 Questions 17

Fulfillment - Design Considerations Service level is comprised of two components: Fulfillment (picking and packing) Transit Days (covered in previous slides) In order to minimize the order cycle time, there are many design factors to consider: When to batch pick How to batch pick (Order commonality, By zone) Picking singles separate Waving strategies Systems capabilities Mechanization/automation All active model (ie, minimizing replenishment) 18

Fulfillment Pick Method Dilemma Choosing the optimal pick method depends on the following factors: Order profile (units/line, lines/order) Number of SKUs System capabilities The three most common each picking methods is summarized below: Method Discrete Cluster Batch Orders / Assignment One Multiple Multiple (up to wave size) Lines / Pick One across cluster across wave Pickers / Order One One Multiple Picker Blocking Potential Highest Medium Lowest Additional Factors Sort while Pick Sort after Pick Discrete picking is typically not considered for picking e-commerce orders, as it results in very low productivity due to low number of units/line and lines/order To overcome the issue above, either cluster or batch picking methods are considered, which increase the number of units and lines picked per assignment (trip) Cluster picking is typically used for applications where the number of SKUs is low, thus overall travel is possible with one trip Batch picking is typically used with profile with high SKU count, which is very inefficient to pick an entire order in one trip. Instead orders are completed with various pickers and consolidated at the put-wall 19

Fulfillment Innovation to Improve Service Level Additional ways to improve the order cycle time through innovations and/or system solutions (next slide) 20

Fulfillment Innovation to Improve Service Level The legacy warehouse management system (WMS) has grown to be a powerful tool allowing inventory, management and supporting daily sequential task assignments However, complex mechanized/automated systems often run off their own processing logic (often called a WCS) As picking logic and demand for rapid execution of increasingly complicated orders goes beyond typical WMS functionality A further evolution in this space is the advent of warehouse execution systems (WES), which seek to continuously optimize the generation of each task based on real time information This technology is being used by the major e-fulfillment providers in the US and supporting concepts such as waveless picking Department Service Levels Customer Service Levels Fulfillment Progress MHE Status & Accumulation MHE Constraints & Targets Building Constraints & Targets Labor Constraints & Targets 21

Agenda 1 Going Local Rise of the Metro Supply Chain 2 A New Ecommerce Fulfillment Network 3 Key Takeaways 4 Questions 22

Key Takeaways Network strategy to support more regional and metro delivery solutions OMS that allows for flexible fulfillment strategies Flexible delivery solution to manage highly fragmented last mile providers for same day deliveries Fulfillment strategy to consider service levels and minimize order cycle time including innovations Don t get overly sunk in your fulfillment strategy, minimize capital and remain as nimble as possible 23

Agenda 1 Going Local Rise of the Metro Supply Chain 2 A New Ecommerce Fulfillment Network 3 Key Takeaways 4 Questions 24

Conference Cloud Additional Resources DHL Trends Report DHL Website DHL ecommerce Blog

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