E-Commerce Changes Nature of Retail Goods Distribution
By Sarah Godfrey, Staff Reporter
This story appears in the July 16 print edition of Transport Topics.
The advent of point-and-click online shopping has pushed warehouses into the business of consumer direct sales, and e-commerce has rendered the typical warehousing model — which involves the use of one or two large warehouses to serve a vast area — virtually ineffectual.
“E-commerce has turned the warehouse into a subcontractor for retailers,” said Joel Anderson, president of the International Warehouse Logistics Association.
In years past, retail warehouses predominantly made scheduled shipments of similar items at regular intervals. A centrally located distribution center in Chicago or Los Angeles could count on sending out electronics to stores every Friday, for example. Consumers bought their items from those brick-and-mortar stores and, with the exception of an occasional special order, warehouses served their corporate clients and had little interaction with consumers.
The job of getting goods into the hands of customers as quickly as possible was the problem of store managers, and the tasks of fielding questions about shipment ar-rivals and handling returns were the exclusive province of the men and women who staffed customer service counters.
Maintaining one, two or three massive warehouses, as has been standard in the industry, is an efficient way to store and ship goods if stock is being distributed to 30, 40 or even more different locations.
Moving product from one building to hundreds, or even thousands, of discrete home addresses every day is a more complicated process — especially considering that individual consumers don’t order pallets of paper towels every Monday and place their orders weeks in advance. They order disparate items, and they want them to arrive the next day — or even the same day, in some cases.
As a result, a new warehousing model has emerged — multiple regional warehouses are replacing the monoliths of the past. “It was previously thought that it was great to have all inventory in one warehouse,” said John Wisser, director of warehousing for A. Duie Pyle, “but it’s trending toward [regionalization].”
The idea behind regionalization is that having many warehouses sprinkled throughout the country makes it easier for warehouses to meet the consumer de-mand for near-instant delivery.
“The customer doesn’t want to wait,” said Russ Marzen, executive vice president of logistics and warehousing for 3PD, Marietta, Ga. “If you have a hub in Dallas and have to ship to Chicago, it takes three to five days, minimum. If a customer wants something online, they want it no later than three days — and maybe next day. A lot of people are creating regional facilities,” Marzen said.
“There’s even the option of same-day delivery now,” he said. “You can’t have one or even three large central facilities and accommodate that need,” Marzen said. “People have PDAs [personal digital assistants], cellphones . . . they can purchase something from their phone and they expect it the next day.”
Anderson said the Internet definitely is a factor but added that global trade is a major force behind the trend, as well. “If you’re not sourcing internationally, your competition is,” Anderson said. “The revolution was driven by international trade — once supply lines were out of the U.S. and Canada, across the world everything changed.
“If you’re just in the Midwest market and can serve [clients] out of one warehouse — super. But that doesn’t work for a national market, and it definitely doesn’t work for a global market.”
Rosalyn Wilson, author of the Council of Supply Chain Management Professionals’ “State of Logistics Report,” calls the Internet-fueled demand for speedy delivery driving the regionalization of warehousing “the Amazon factor.”
“You pay today, and you want it tomorrow,” Wilson said.
In compiling her report, which she presented at the National Press Club last month, Wilson spoke with several warehouse suppliers and even encountered one provider who was so overwhelmed by the pace of sending out mixed shipments several times a day that he devised a warehousing system that did not involve an actual building.
“One guy told me he had extra truck trailers parked in a lot and just stages stuff there — he’s not even using a warehouse,” Wilson said.
Other warehousing service providers are dealing with the demand for faster, more frequent and extremely varied shipments in less radical ways.
3PD currently has 21 regional warehouses located in or around the most densely populated U.S. cities and said the company’s goal is to have goods into market within 150 miles of the customer in as little time as possible.
Marzen said a key component of 3PD’s warehousing strategy is providing value-added services. White-glove delivery and furniture removal fall under the umbrella of value-added services, and these special extras, which a large central warehouse could never provide, are driven by consumer need.
Customers don’t just want their packages delivered the next day — they want them to arrive gift-wrapped.
Ron Cain, president of TMSi, Fernandina Beach, Fla., which provides warehousing services for a wide variety of clients, said that, as with faster delivery times, the demand for value-added services is rising. “The consumer puts more value on certain services every year, but if you turn the clock back 10 years, most of these services weren’t even dreamt of.”
TMSi offers kitting, customized labeling and other value-added services to its clients. Cain said offering these extras also is a way of coaxing hesitant companies into adopting regionalization.
“Many businesses are resistant because the regionalized model is harder to manage,” Cain said. “Going from two to three locations to upwards of six locations makes it hard to maintain quality control, which is when they call in a company like ours.”
Another way regional warehouses take part of the burden off clients is by handling returns. 3PD, for instance, deals directly with consumer merchandise returns and runs reverse logistics for its clients.
Bill Vanderheid of St. Louis-based FKI Logistex North America, which builds and manages warehouses for some of the largest retailers in the world, acknowledges the regional warehousing trend. But, he said, his company’s biggest clients have not embraced it.
“In terms of going to smaller, satellite centers — I can’t say we’ve been exposed to that,” said Vanderheid, FKI’s director of systems sales.
But Wilson said retailers that still maintain only one or two warehouses and are not going regional are handling increased shipping demands in a different way. They’re pushing responsibility down the supply chain and leaning heavily on their suppliers.
“Their warehouses haven’t changed, but when you used to go to the back of a Wal-Mart store, you couldn’t walk through for all the merchandise. Now you may only see one or two cases of paper towels — the supplier holds the rest,” Wilson said. “There isn’t an incentive for a Wal-Mart or a Target to invest in dozens of regional warehouses because they’ve developed a supplier network and have performance-based contracts.”
Those contracts, Wilson said, mean warehousing and logistics providers are told shipments have to arrive at a certain place at a certain time and if providers don’t meet guidelines, they are replaced with a company that will.
Although Vanderheid’s clients are not following the multi-warehouse trend, he does acknowledge that shipping from distribution center to store is less of a problem than direct consumer sales, and he said the more consumer sales a retailer handles, the more likely it will explore a more local approach to shipping goods.
“When Target puts together an order for its own stores, it could be two or three semitrailers all going to a single store,” he said. “Consumers cause problems.
“If a large container of hard drives comes into a facility, you’re no longer shipping out a large container of hard drives — you’re shipping out 2.5 pieces per order.”
Vanderheid said relying on parcel services such as FedEx and UPS typically eliminates the headache of handling large volumes of small orders, but oversized purchases pose a dilemma. “When someone orders a hard drive and a three-piece sectional couch, you have a problem.”
Marzen said anything above 80 pounds is beyond the capabilities of FedEx and UPS and diverts to the warehouse. “Think about flat screen TVs. They’re getting so big that two people can’t carry them, and [the consumer] still wants them in-house tomorrow. A regional hub is the only way to support that network.”
This story appears in the July 16 print edition of Transport Topics.
The advent of point-and-click online shopping has pushed warehouses into the business of consumer direct sales, and e-commerce has rendered the typical warehousing model — which involves the use of one or two large warehouses to serve a vast area — virtually ineffectual.
“E-commerce has turned the warehouse into a subcontractor for retailers,” said Joel Anderson, president of the International Warehouse Logistics Association.
In years past, retail warehouses predominantly made scheduled shipments of similar items at regular intervals. A centrally located distribution center in Chicago or Los Angeles could count on sending out electronics to stores every Friday, for example. Consumers bought their items from those brick-and-mortar stores and, with the exception of an occasional special order, warehouses served their corporate clients and had little interaction with consumers.
The job of getting goods into the hands of customers as quickly as possible was the problem of store managers, and the tasks of fielding questions about shipment ar-rivals and handling returns were the exclusive province of the men and women who staffed customer service counters.
Maintaining one, two or three massive warehouses, as has been standard in the industry, is an efficient way to store and ship goods if stock is being distributed to 30, 40 or even more different locations.
Moving product from one building to hundreds, or even thousands, of discrete home addresses every day is a more complicated process — especially considering that individual consumers don’t order pallets of paper towels every Monday and place their orders weeks in advance. They order disparate items, and they want them to arrive the next day — or even the same day, in some cases.
As a result, a new warehousing model has emerged — multiple regional warehouses are replacing the monoliths of the past. “It was previously thought that it was great to have all inventory in one warehouse,” said John Wisser, director of warehousing for A. Duie Pyle, “but it’s trending toward [regionalization].”
The idea behind regionalization is that having many warehouses sprinkled throughout the country makes it easier for warehouses to meet the consumer de-mand for near-instant delivery.
“The customer doesn’t want to wait,” said Russ Marzen, executive vice president of logistics and warehousing for 3PD, Marietta, Ga. “If you have a hub in Dallas and have to ship to Chicago, it takes three to five days, minimum. If a customer wants something online, they want it no later than three days — and maybe next day. A lot of people are creating regional facilities,” Marzen said.
“There’s even the option of same-day delivery now,” he said. “You can’t have one or even three large central facilities and accommodate that need,” Marzen said. “People have PDAs [personal digital assistants], cellphones . . . they can purchase something from their phone and they expect it the next day.”
Anderson said the Internet definitely is a factor but added that global trade is a major force behind the trend, as well. “If you’re not sourcing internationally, your competition is,” Anderson said. “The revolution was driven by international trade — once supply lines were out of the U.S. and Canada, across the world everything changed.
“If you’re just in the Midwest market and can serve [clients] out of one warehouse — super. But that doesn’t work for a national market, and it definitely doesn’t work for a global market.”
Rosalyn Wilson, author of the Council of Supply Chain Management Professionals’ “State of Logistics Report,” calls the Internet-fueled demand for speedy delivery driving the regionalization of warehousing “the Amazon factor.”
“You pay today, and you want it tomorrow,” Wilson said.
In compiling her report, which she presented at the National Press Club last month, Wilson spoke with several warehouse suppliers and even encountered one provider who was so overwhelmed by the pace of sending out mixed shipments several times a day that he devised a warehousing system that did not involve an actual building.
“One guy told me he had extra truck trailers parked in a lot and just stages stuff there — he’s not even using a warehouse,” Wilson said.
Other warehousing service providers are dealing with the demand for faster, more frequent and extremely varied shipments in less radical ways.
3PD currently has 21 regional warehouses located in or around the most densely populated U.S. cities and said the company’s goal is to have goods into market within 150 miles of the customer in as little time as possible.
Marzen said a key component of 3PD’s warehousing strategy is providing value-added services. White-glove delivery and furniture removal fall under the umbrella of value-added services, and these special extras, which a large central warehouse could never provide, are driven by consumer need.
Customers don’t just want their packages delivered the next day — they want them to arrive gift-wrapped.
Ron Cain, president of TMSi, Fernandina Beach, Fla., which provides warehousing services for a wide variety of clients, said that, as with faster delivery times, the demand for value-added services is rising. “The consumer puts more value on certain services every year, but if you turn the clock back 10 years, most of these services weren’t even dreamt of.”
TMSi offers kitting, customized labeling and other value-added services to its clients. Cain said offering these extras also is a way of coaxing hesitant companies into adopting regionalization.
“Many businesses are resistant because the regionalized model is harder to manage,” Cain said. “Going from two to three locations to upwards of six locations makes it hard to maintain quality control, which is when they call in a company like ours.”
Another way regional warehouses take part of the burden off clients is by handling returns. 3PD, for instance, deals directly with consumer merchandise returns and runs reverse logistics for its clients.
Bill Vanderheid of St. Louis-based FKI Logistex North America, which builds and manages warehouses for some of the largest retailers in the world, acknowledges the regional warehousing trend. But, he said, his company’s biggest clients have not embraced it.
“In terms of going to smaller, satellite centers — I can’t say we’ve been exposed to that,” said Vanderheid, FKI’s director of systems sales.
But Wilson said retailers that still maintain only one or two warehouses and are not going regional are handling increased shipping demands in a different way. They’re pushing responsibility down the supply chain and leaning heavily on their suppliers.
“Their warehouses haven’t changed, but when you used to go to the back of a Wal-Mart store, you couldn’t walk through for all the merchandise. Now you may only see one or two cases of paper towels — the supplier holds the rest,” Wilson said. “There isn’t an incentive for a Wal-Mart or a Target to invest in dozens of regional warehouses because they’ve developed a supplier network and have performance-based contracts.”
Those contracts, Wilson said, mean warehousing and logistics providers are told shipments have to arrive at a certain place at a certain time and if providers don’t meet guidelines, they are replaced with a company that will.
Although Vanderheid’s clients are not following the multi-warehouse trend, he does acknowledge that shipping from distribution center to store is less of a problem than direct consumer sales, and he said the more consumer sales a retailer handles, the more likely it will explore a more local approach to shipping goods.
“When Target puts together an order for its own stores, it could be two or three semitrailers all going to a single store,” he said. “Consumers cause problems.
“If a large container of hard drives comes into a facility, you’re no longer shipping out a large container of hard drives — you’re shipping out 2.5 pieces per order.”
Vanderheid said relying on parcel services such as FedEx and UPS typically eliminates the headache of handling large volumes of small orders, but oversized purchases pose a dilemma. “When someone orders a hard drive and a three-piece sectional couch, you have a problem.”
Marzen said anything above 80 pounds is beyond the capabilities of FedEx and UPS and diverts to the warehouse. “Think about flat screen TVs. They’re getting so big that two people can’t carry them, and [the consumer] still wants them in-house tomorrow. A regional hub is the only way to support that network.”
