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The Long-Term Strategy: Transforming Operations for Sustained Online Growth

May 20, 2020 3 min

Because of the COVID-19 outbreak, we are currently seeing an unprecedented increase in online orders as consumers are significantly limiting – or, in some cases, eliminating – their in-store purchases. While many people are buying everything from groceries to household goods online out of necessity, in doing so, they are discovering the convenience of both click-and-collect and delivery models.

We predict that a large percentage of new adopters will continue to take advantage of online shopping, even when physical stores are able to reopen. The existing online customer base will only grow from here across all retail types, and grocery in particular is likely to see a long-term boost in online ordering. Will your retail business be ready to fulfill more online orders than ever before, even after this crisis passes?

When planning a long-term strategy to manage online orders, retailers should prioritize workforce and resource allocation to support an omnichannel strategy while developing an effective and adaptive fulfillment and supply network.

So how can retailers ensure that their supply chain and operations effectively support their selected omnichannel strategy over the long term?

Level up the Fulfillment Network and Picking Operations

To sustain increased online demand and save in costs, we recommend that retailers invest in the development of their online order picking operations and make critical changes to their fulfillment and supply network. Grocery and pharmaceutical retailers, in particular, will benefit from these recommendations.Together, those two industries have faced some of the highest increases in online demand during the coronavirus pandemic.

For retailers with locations across multiple geographic areas, it may well make sense to continue using stores for online fulfillment over the long term. Larger retailers that are seeing exceptionally high online demand increases due to COVID-19 should also consider adding dedicated fulfillment locations or a network of online fulfillment centers designed to run online order picking operations. DCs can then be used for stocking and allocating inventory between stores and dedicated online fulfillment centers.

Make sure to optimize the space and layout of stores and dark stores for picking, based on product- and category-specific online demand and orders. For example, consider establishing a separate picking area within a store for the items most often included in online orders, based on trends identified by your inventory management system.

To ensure adequate inventory allocation, look to utilize virtual ringfencing. Through this process, a retailer can hold stock in one location, but their planning system can virtually reserve portions of that inventory for individual channels — whether physical stores or online channels — based on channel-level demand forecasts.

Optimize Based on Demand Forecast and Online Order Data

Granular online forecasts will be necessary going forward – even when the coronavirus is an unwelcome memory. Make sure you have a reliable demand-based workload forecast for stores and dark stores that is aggregated at the DC level. This forecast should take into account each type of task, so include a category-level online picking forecast for each fulfillment location, whether a store, dark store, or DC. This will ensure that you have enough capacity for all kinds of picking and enable better workforce optimization and planning.

To optimize the future fulfillment and supply network, analyze by regional fulfillment areas based on online orders per ZIP code. Having this level of data in your planning system will further allow online demand to be dynamically allocated to the optimal fulfillment location when network changes, such as the addition of a new fulfillment center, are made.

Because of the COVID-19 crisis, people have been taking advantage of online ordering – some for the first time, many out of necessity. And these people are discovering that they enjoy the convenience of online shopping. This is likely to put pressure on retailers in all sectors – including grocery and pharmaceutical retailers – to continue to offer next-day and same-day delivery options. Thus, due to increased last-mile costs and necessary changes to the fulfillment and supply chain, delivering from optimal fulfillment locations will become more important than ever.

Short-term solutions can help retailers manage the sudden uptick in online orders during the coronavirus crisis period. Over the long term, though, retailers will need to develop a strategic online plan to optimize operations and inventory management to ensure they can support and improve online order fulfillment as that channel grows. 

Written by

Samuli Tanninen

Head of Product Commercialization