Fulfillment Re-Imagined - Part 1

Previously in the Future of Retail series, we looked at the precursors for retail automation.? We looked at the impending shift from manual purchasing to AI buying.? In this first of two installments, we will explore the consequences and impact to fulfillment.??

Why would buying automation impact fulfillment?

This is a natural question given that fulfillment is generally thought of as a distinctly separate activity.? However, therein lies the first mindset change:? the entire retail journey is connected.? Humans have simply compartmentalized the activities necessary to complete an ecommerce order to simplify and execute.? These separations are rooted in (1) legacy thinking and services shaped over hundreds of years with minimal modernization, (2) traditional business modeling which has kept supply chain segmented and (3) human reliance on buffering to accomplish the inherent complexity of distributed fulfillment.

As retail shifts towards full automation, these buffers will become impediments and targets for disruption.? With the availability of technology to broker services, orchestrate fulfillment and automate execution, we will see these separations rapidly erode. In fact they already are.??

However, we are getting ahead of ourselves. Let’s take a quick look at current business models that drive fulfillment today.? By looking at the business drivers such as technology and operations, we can predict the impact full automation will drive.

Retail Fulfillment Today:? A Quick Refresher

Since the inception of ecommerce, several typical retail models have emerged for retailers. In Retail Technology Models (LINK ), we discussed the basic stacks for solutions.? Here we will focus on the business models and retailers that leverage them.

1 - Enterprise eCommerce Retailer

Large retailers have built end-to-end solutions that manage all aspects of their stack:? core services (such as catalog), fulfillment, inbound, outbound and transportation.? Retail giants like Amazon, Walmart and Target, have invested in solutions that connect and manage all aspects of their supply chain.

Tech:? Enterprise retailers fall into one of two categories:

• Owned - wholly owned technology powering their business.??
• Partnered - all or some of their technology stack is provided by a third party or?

parties.??

Operations: Enterprises typically consider operations part of their core company:

• Own - All or most of the operations are handled by the enterprise. May be some additional third party services which are completely decoupled from the organization such as delivery.
• Partnered - Primary operations are owned by enterprise.? Additionally, partners are used to augment core retail operations, operate some facilities, and perform some services.

2 - Individual eCommerce Retailer

In the early days of ecommerce, retail was plagued by the “I’ve got a website” model where every retailer introduced their own site and bespoke solutions.? This has evolved with access to modern tools and solutions (such as Shopify) which amplified the power of one.? This has allowed single sellers to continue to be viable assuming they have some hook:? distinct selection, pricing, consumer access, etc.??

Tech: This is a very large, diverse segment that spans a single sku seller through a regional or national retailer.? As a result the technology footprint is diverse:

• Owned - bespoke solutions in this space tend to be limited to new retailers with aspirations of being something else (a technology company or a modern solution).? In most cases, this was an intentional decision but there are successful players with a legacy solution that simply hasn’t been modernized.?
• Partnered - like Enterprise, many retailers use partner solutions to build out their fulfillment services.? This spans enterprise supply chain solutions to leveraging 3P aggregators that can connect a plethora of services to spell fulfillment.
• Powered ?- over the last five years, low-tech investment solutions have emerged allowing small sellers to ‘connect’ to services versus own and manage them.

Operations: There are a wide range of retailers that fill out the individual ecommerce seller category.? Hence the variation across operations is vast but at a high level:

• Own - Like enterprises, these retailers own their own operations but may use service providers for specific services.? Generally, these are regional players or those achieving scale through a combination of owned /shared warehouse and/or store network for fulfillment.
• Partnered - Core operations are augmented by service providers.? This model applies to companies with some aspect of fulfillment in-house but requiring third parties for specific fulfillment services or an expanded network to support reach / cost.??
• Powered - In this mode, one or more third parties provides all operations.? For smaller retailers leveraging 3PLs and service providers, their primary operational controls are contractual and they may not have an operations culture at all.

3 - eCommerce Marketplace Seller

As the age of “I’ve got a website” transitioned to “I’ve got no traffic”, marketplaces emerged.? These allow multiple retailers to surface offers to marketplace customers.? In many cases, these demand sellers to become ‘wholesalers’ or accept / adapt to a business model they neither own nor control (such as Fulfillment By Amazon).

Tech:? Marketplaces have specific? requirements a retailer must meet to participate.? From a technology perspective, this will include order interfaces (i.e. catalog / offer details) and fulfillment requirements.? On the fulfillment side, it generally resembles an inbound process to move inventory according to technical requirements to the marketplace.

Operations: this is another category that is very diverse.? There are sellers with their own presence expanding sales through marketplaces.? Conversely there are sellers which may be exclusively focused on selling through marketplaces and have no other sales outlet.

• Own - for many retailers with their own fulfillment facilities, operations supports marketplace operations.? This can span from outbound fulfillment, carrier management thru receipt of product.
• Partnered - there are some service providers that support marketplace fulfillment services including operations.? In some cases, the marketplace will provide the full solution (inclusive of operations) like Amazon’s FBA.
• Powered - for retailers that are exclusively built on 3PLs or shared networks, the operations powering marketplace fulfillment are a service through the service provider.

4 - Dropshipper

A close cousin to marketplaces was the emergence of dropshippers.? Dropshippers own securing products and delivery to customers.? A pure dropshipper requires a marketplace to connect with consumers.? Early in the evolution of ecommerce, many sellers retained some autonomy and ownership of inventory by listing offers on marketplaces.? However, this model has been constricted over time for commonly available skus.? Its still common for heavy items or lower turn rate items.? Marketplaces like Wayfair and Etsy are good examples where dropshipping is the primary model.

Tech & Operations: like marketplaces, dropship networks dictate terms for participants including technology and some operational requirements.? Dropshippers generally have to manage the fulfillment of an item based on a purchase signal from the selling platform and ensure it is completed within the terms of the order (i.e. delivery time, service level, etc).? The underlying tech a dropshipper uses can span:

• Owned - bespoke solutions in this space are generally tied to larger companies.? In some cases, its end-to-end manufacturers that are offering products to a plethora of outlets and devote additional effort to extend their stacks for target dropship networks.?
• Partnered - there are many retailers that utilize 3P solutions to connect to dropship networks.? There are solutions that target specific marketplaces and solutions that provide ecommerce fulfillment specifically.? This is the largest segment for midsize to large sellers.
• Powered? - there are solutions where the retailer can leverage a complete solution with limited technology partnership. ? However, this is generally bound to ‘how’ they fulfill.? For example, most 3PL networks such as Quiet Platforms, Radial, ShipBob, etc. have the ability to connect to most networks with limited additional software or integration work.??

Summary

Many of the business models today are simply the result of the last two decades of ecommerce development.? Some models are rooted in classic retail with origins as old as commerce such as dropshipping, while others such as international ecommerce, have been shaped by ecommerce continuing connection of distributed supply chains. Leading retailers such as Amazon, and manufacturers like Toyota, have driven the reshaped the retail industry through innovation and step changes in supply chain solutioning and operations.

Impending Retail Fulfillment Disruption

If we distill the current retail digital model into a simplified view, it will help understand the changes driven by AI and automation.??

A Simplified Look at eCommerce

Currently ecommerce can be thought of a set of connected activities which have distinct responsibilities:

Customer - traditional retail tends to focus on customer segments:? viewing an aggregation of consumer behavior to guide processes; forecasting and trending predicting customer demand, store return data to modify procurement decisions and shape disposition decisions, foot traffic to inform product placement, etc.? While ecommerce has digital equivalents for most traditional concepts, the power of individual consumers is magnified and can influence decisions and processes in near real time.?

The role of the customer is to shape? consumer demand, determine purchase and return decisions, and ultimately evaluate ecommerce? success (via reviews, disputes and future buying).?

Ordering -? the ability to confirm customer demand and drive purchasing is the role of ordering.? It includes everything from surfacing offers and promotions to the act of purchasing and paying.

Fulfillment - the ability to convert a digital purchase request into execution and completion of the transaction is the role of fulfillment.? It encapsulates everything from picking, packing and shipping through delivery of physical retail purchases.

Inventory - the role of managing the sellable product belongs to inventory.? It includes catalog, placement strategy,? rebalancing and ensuring the right stocking strategies versus customer demand and business process.

Finance - managing the fiscal health of the business belongs to Finance.? It includes the accounting, auditing, profitability and end-to-end integration of ecommerce financial activities with the company's financial management.

Procurement - the act of selecting, securing and acquiring product is the role of procurement.? It spans everything from vendor management to inbound management to shepherd product into the fulfillment network.

Successful eCommerce Today

When ecommerce works, it generally looks like the diagram below.? Successful supply chains have clear ownership, effective operations and the ability to clearly marshal the activities in/out for each area.?

When eCommerce Fails

Unfortunately, the reality is ecommerce currently frequently fails for a variety of reasons.? These failures can occur in various places and impact multiple areas of a retailer’s supply chain.? Those that have automated or created effective processes for responding to failures, are most likely to be able to sustain and succeed.

Up Next

In our second part of Fulfillment Automation, we will look at the revamped model of ecommerce.? With AI and automation, there will be a dramatic restatement of the equation for ecommerce.??