The market is seeing that the consumer brands are increasingly pivoting to Direct to Consumer (DTC) model. This is seeing increasing demand for distribution centers (DC's) to support online fulfillment. These DC's require different perspective from operations, inbound, outbound, inventory management and logistics perspective than wholesale DC's. This article explores some of the practices in digital DC's supporting DTC growth.

Online and omni-channel were retail buzzwords for over a decade and consumer brands observed these trends closely but treaded slowly. Some brands, especially in the apparel and fashion business started developing their direct to consumer (DTC) channel almost a decade back.  COVID-19 pandemic has accelerated the Direct-to-Consumer business shift across all product categories.  Some trends that point to this are:

• E-commerce sales accounted for a record 16.1% of total U.S. retail sales in the second quarter on an adjusted basis, according to the Commerce Department. Online sales rose 31.8% from the first quarter, and jumped 44.5% year-over-year.¹
• To support the growth in ecommerce sales, the demand for big warehouses soared 51% in the first half of 2020 as the pandemic-driven surge in online sales sent companies scrambling for space to store and deliver goods to locked-down consumers.²

In DTC growth, there is focus on the front-end capabilities around content, personalization, improving customer experience, etc. but less attention on improving back-end fulfillment capabilities through distribution centers (DC), which is key to meeting the customer promise.  For consumer product companies, DCs serving wholesale channels cannot be effectively used to support online orders due to very different order profiles, volumes, etc. The following are key practices for digital DTC DCs supporting consumer demand:

• Distribution Operations: Digital DC’s are smaller in size compared to ones supporting wholesale operations.  DTC companies prefer a wider network of digital DC’s to reduce lead time by being closer to the customer and better leverage local delivery network.  Smaller DC size enables simpler layouts and processes and higher throughputs. We are also seeing higher level of automation in these DC’s leveraging technologies like automatic label printers, shipping sorters, robots for picking, RFID flatbed scanners and RFD tunnels for carton verification all enabling higher throughput, lower errors and lower cost of DC operations.
• Inventory Management: Digital DC’s carry long tail of products to support online channel. Products are rotated to support seasonal variations and out of season products are cleaned out regularly. The DC’s typically integrate with omni-channel inventory management where order flow is controlled based on DC inventory availability and routing and sometimes orders are routed to non-optimal DC’s, if the preferred DC is out of stock or cannot meet customer promise.
• Inbound process:  The digital DC’s frequently receive their products from their regional home DC’s, enabling them to limit time spent on inspection, measuring product dimensions and reducing processing times.
• Outbound process:  Customer orders profile typically contains unit level quantities. Waving of orders is aligned to carrier cutoff and delivery date to meet customer promise. These DC’s typically use smaller waves for processing capacity of 1-2 hours are common to enable reconciliation and better labor planning. Robots are used to pick orders and reduce idle times caused by human pickers, which leads to improved throughput and higher processing times. The outbound process also supports number of VAS processes like kitting, monogramming, gift wrapping, etc.
• Logistics Management: Routing process is typically automated so that orders get right carrier service level assigned, as they drop into the Warehouse system. Companies typically use parcel carriers FedEx and UPS. Regional carriers for customer shipments, are increasingly playing an important role in cutting dependency on one or two major carriers. This enables companies to get better rates, ability to handle increased volume due to product launches or holiday.  LTL carriers are also used to moved out of season product to home DC or to a retail store.

Wipro is actively working with number of leading brands supporting their DTC digital distribution operations globally. We enable companies with number of leading WMS products including Manhattan Associates, Blue Yonder, SAP eWM, etc. We are happy to assist you in your DTC digital distribution journey.

References

1. Demand for Big-Box Warehouses Soars Under E-Commerce Surge, Report Says - WSJ
2. Demand for Big-Box Warehouses Soars Under E-Commerce Surge, Report Says - WSJ