e-Commerce: Turning a Great Idea into a Great Business

Adding e-commerce capabilities to a warehouse or distribution center requires more than installing new equipment or revamping workflows

Nuener 11148924

It sounds like a great idea when someone first brings it up at the executive conference table: Let’s increase sales and profits by selling our products online and shipping them directly to the consumer. After all, who doesn’t want to increase sales and profits?

Yet, like many seemingly great ideas, such as solar-powered homes or the second “Star Wars” trilogy, success is really in the execution. Adding e-commerce capabilities to an existing warehouse or distribution center (DC) requires more than installing new equipment or revamping workflows to accommodate small quantities. There are many factors that must be considered, starting with your organization’s readiness and commitment.

The hard reality is the bar for delivery has been set very high by the current crop of online sellers, so there is no room for error. It’s a very unforgiving marketplace.

If there are any missteps—inventory not being available when customers order, shipping the wrong product(s), orders arriving to the customer late or incomplete, etc.—you may lose that customer for life. Not just for your e-commerce site, but your other sales channels as well. So you either need to be “all in,” or you need to hold off until you can dedicate the capital and the resources to do it right. Just keep in mind that if you feel you’re not ready yet, get ready fast. It’s no longer a question of if e-commerce may impact your space; it’s a question of when.

Following are some suggestions that can help you add e-commerce to your market space.

Put Together a Cross-Functional Team

Naturally, step one of building that team is finding an executive sponsor—someone in the C-suite who fully believes that e-commerce is necessary, and has the clout to help you obtain the time, personnel resources and funding to do it right. Also make it someone with the authority and respect to make the tough decisions along the way, because there is going to be tough decisions. Without that, all the rest may be an exercise in futility.

You want to bring in leaders in marketing, sales, IT, operations, inventory management, accounting, even facilities management and maintenance—just as you would with any other challenge. e-Commerce operations are very complex and require a great deal of integration across the enterprise. Every part of the organization that would be impacted should provide input and have a stake in how to enter the e-commerce market. Otherwise, you may encounter problems and resistance when what you need is focus and cooperation.

Consider Bringing in an Expert

Once you have your internal team assembled, you’ve reached your first major decision point: Do you try to figure out how to add e-commerce capabilities to your warehouse or DC alone, or do you hire an outside expert with experience in these types of conversion?

While doing it yourself may seem like the least expensive or most expedient option initially, there are so many potential break points in an e-commerce conversion that the odds are it would take longer and cost you more to do it yourself in the long run. Integrators with extensive experience in preparing warehouse and DCs for e-commerce already know the questions to ask, considerations to make and pitfalls to avoid. They also likely know some intelligent shortcuts that can help you implement your conversion while your competitors are struggling to figure it out on their own.

Work the Process End to End

It’s very easy to get caught up in one aspect or another of a move to e-commerce. One major mistake companies make is focusing on selecting cool equipment and/or software, then trying to make the rest of the operation conform around it.

The smarter approach is to look at the entire process and work through it end to end. For example, how would the front-line site’s ordering software integrate into real-time inventory management? After all, you don’t want to show customers that you have an item in stock, ready for the promised free, same-day shipping when another customer just snatched up the last one.

You want to be sure that your existing systems—ERP, WMS, inventory management, etc.—are fully integrated and automated, and that your e-commerce front-end can be integrated into that system.

The biggest culture shock to organizations that are used to shipping cartons or pallets to stores is the timeframe of order fulfillment. While that business may seem hectic, it’s nothing compared to the pure chaos of picking mixed lots of items in small quantities at high volume—particularly if you carry a large number of SKUs.

Then there are the challenges of customer expectations. With store shipping, you can plan according to a set schedule, which gives you time to work your processes to the way that best suits the business. With e-commerce, everything is reactive, yet customers have been conditioned by their online experiences to expect that orders they place today ship today. As experienced sellers get better at managing their processes, the cutoff time for same-day shipping moves later and later. You need to ensure that your processes can keep up with the established industry standards and expectations of your market niche. Otherwise, you may become a distant second choice—or the last resort.

Plan Your Space

If part of your process planning results in a need for new equipment and/or separate operations, you need to find adequate space. There are three options:

  • The first is to remove part of your current operation and replace it with an area devoted to e-commerce. If your business is shifting away from store fulfillment into more direct sales, that could be the right decision.
  • If you’re looking to add e-commerce capabilities without affecting your current business processes, however, you need to add more space. One way to do it, of course, is to build out—add on to your current facility, build a second facility for e-commerce or consolidate operations in a green-field building designed for both. We’ve had clients do all three.
  • The third possibility is to build up by adding a mezzanine. That way, the main floor can remain dedicated to your traditional distribution systems while the second story is specifically designed for e-commerce. It may take a little additional work and planning, but it is worth it if you can add new capabilities without disrupting the current ones.

Look for Ways to Drive out Cost

If the purpose of moving into e-commerce is to increase profits, then it stands to reason that the more you can drive cost out of your operation, the better you can fulfill that mission. The primary drivers of cost are delivery labor, space and equipment. The winners in e-commerce are those who can deliver reliably, swiftly and at the lowest cost.

Picking is one of the most cost-intensive areas of the process because it’s one of the most labor-intensive. It often accounts for 60 percent of the overall cost of fulfilling an order, so employing automated solutions drives down your costs.

In a traditional DC, automated storage and retrieval systems (AS/RS) automate picking of cartons or pallets. But those are of little value when it comes to picking two boxes of pens, three staplers and five reams of paper for an order in an office supply warehouse. New technologies (such as a system that combines pick-to-light and put-to-voice), however, are taking an important step toward automation.

In these hybrid systems, pickers are able to pick multiple orders at once rather than one at a time. Orders are grouped together by like product as best as possible, reducing the number of times the picker has to go to the same bin to pull those items. The voice technology then directs how many of each product to put into individual totes to complete those orders.

Down the road, advanced systems will bring products to robotic pickers that will have the ability to scan and recognize SKUs, select the correct number for each order and place them in the appropriate totes. This level of automation will further drive down costs while improving order accuracy and efficiency. It’s likely these robots will come to market in the next few years, so consider them for your long-term plans.

Similar advances in automation are being made at every stage, from unloading and moving products through the DC to loading and shipping. These should be considered as you plan your operation.

Create a Simulation

Once you have your complete plan in place, there’s another important step before you start: building a computer simulation. Not only does the simulation give you an opportunity to test and tweak the processes, software and equipment, but it also gives you a baseline to use for changes in the future—such as adding the robotic picking units previously mentioned.

In addition, if you have a simulation in place, you can use it to tweak your processes as you go along, running “what-if?” scenarios to see if there are other ways to increase productivity, reduce costs, shrink shipping times, etc. You can evaluate the impact of changing out one piece of equipment or process for another, and avoid a costly mistake.

In short, a simulation can help you plan and execute your e-commerce strategy more effectively by giving you that one last sanity check to ensure the plan you have is the one you want—and are prepared to execute.

Work in Small Bites

Once you’re ready to implement your e-commerce operation, the smart move is to start small and build from there. Offer a representative sample of popular items and work out the kinks on those before trying to put your entire inventory for sale on the Internet.

For example, while you may have 1,000 or 10,000 SKUs in your total product offering, you can start by selling 50 or 100 of them online. That may not seem like much, but if you select items you sell in volume through other channels, you would likely gain enough critical mass to ensure your carefully planned systems and equipment are working properly before jumping in the deep end of the e-commerce pool.

When those 50 or 100 are moving through the system smoothly, expand to the next number that makes sense—perhaps 200 or 300 SKUs. Then bulk up to 500 and so forth. By introducing SKUs on a rolling basis, you can make ongoing adjustments to your business processes and equipment in order to ensure delivering on customer expectations.

Build a Great Shopping Experience

In a physical retail store, customers shop for themselves. They select their items, put them in the basket, pay and transport them to their final destinations. Your primary concern is ensuring that the products are available for them at the store.

In an e-commerce setting, the shopping experience becomes of prime importance. Essentially, you change the purchasing interface with your customer. By taking the time to understand everything that’s involved, planning carefully and taking advantage of the knowledge of an engineering solutions provider who has proven expertise, you can embrace the trend and turn your great idea into an actual, thriving, efficient e-commerce business.

Companies in this article