As we have said before the transformation over recent years of the modern DC, from making bulk stock shipments to perhaps a few hundred stores to serving millions of customers directly every week, is quite remarkable.
However, as retailers continually evolve their online offerings, and consumers become ever more accustomed to simple, frictionless transactions, the challenges facing the DC in delivering more and more great customer experiences every day are significant.
In this series about the scalability of Distribution Centres (“DCs”) in response to increased online consumer demand we looked first at issues around automation and logistics, and then to people centric considerations. Now, in this third part we turn our attentions to issues around stock…
Modern retailing is becoming synonymous not with the emergence of multi or omni-channel retailing, important developments though they are. For that is just a means to an end. This age of retailing is coming to be defined by the pre-eminence of the customer journey.
From initial engagement through ordering and onwards, retailers are focusing on every touchpoint that the consumer has with the organisation and working out how to cumulatively make each part the best, most frictionless journey imaginable. And as a brand succeeds, and more and more customers have to be served, so the pressure on the DC grows.
Stock control is a major consideration in the provision of an excellent customer journey. Without good stock control click and collect falls to bits, returns and refunds go through the roof, customers get angry and they simply ignore your name next time it comes up on their Google search.
So, when scaling up your DC here are some things to consider…
Stock quarantining has become a big issue, especially for the fashion industry. Across Europe there are significant variances in how long stock should be quarantined after being tried on by a customer. In some parts of the world it is 24 hours. In others a week. A trend for 72 hour quarantining seems to be emerging. Wherever expanding your DC make sure to factor in the additional space required for quarantining either in permanent or temporary buildings – more on the latter below.
In many stores now, customers are dissuaded from handling stock unnecessarily. Again in the clothing industry stores have been particularly adversely affected. Customers can no longer try on garments in store. Instead they make their purchases and then try on at home. If a refund is required the clothes may be returned to store. However, it may equally be sent back to the business by the customer via the DC.
All of that clothing being tried and returned is a lot of stock heading at the DC. Add to it the fact that pre Covid many online operations were citing 50% returns from their online customers anyway and you have a massive amount of goods being returned, some to store and others to DC. And for many stores it is impractical for that returned clothing to be quarantined, so the store is returning tried on items to the DC for quarantine, checking and repacking.
The first issue for the DC is the significant amount of stock coming at it from customers. Consideration must be given to how these packages are received and that event recorded. Some retailers unpack on receipt. Others hold the whole lot in a quarantine area for 72 hours before their staff go near it. The identity of this stock is of course an issue. You have potentially millions of pounds worth of potentially unidentified goods languishing in a quarantine area with perhaps little or no understanding of the stock profile or value. If stock is effectively under the radar, that has to be bad news from an asset protection point of view.
If through, say, bar coded returns address labels you have an idea of the stock profile you still have no idea of the condition of the goods. And if the customer is returning the goods because they are the wrong ones you are about to feed that error back into your stock profile reports and inevitably disappoint yet another customer in future incurring all associated costs in terms of money and goodwill.
Returned stock is also increasingly housed in temporary buildings. These lead to increased security risks in terms of potentially being a soft target for organised crime. How are goods booked in and out of these temporary stores, how are they secured as a valuable asset to the business and are security measures as robust as purpose built bricks and mortar. These considerations also extend to bonded goods and the requirements of HMRC to secure these bonded good appropriately.
Business expansion means a growing range. It may also mean new suppliers and these could be located anywhere in the world. As the value of stock grows by virtue of increased demand and broadening of range, so the asset value increases. Quite simply, this makes for a more attractive target for ORC. And of course more stock needs more space.
Your Goods in Transit risk is going to grow significantly. Apart from anything else you can expect to be receiving more damaged items that need to be rejected, either to the manufacturer or the customer depending on when the damage occurred. And with more stock in one place, the possibility of a big loss to the business from a major incident increases too. Consideration should be given to the benefits of multi-site storage with in-built spare capacity as mentioned last week.
More sales probably means more suppliers, and there is the possibility that some of these may be of varying quality. With busy Goods-In areas receiving a lorry every minute, adding to this workload without careful consideration of the logistics could cause problems. Not least is the need to verify that you are receiving in good condition that which you ordered. These lines might be new to the company. Easy if you sell slate chippings like Silverton, not so easy if you are an international off-price retailer with stock profile changing every shipment! And of course if buying from abroad the time taken to correct any errors could be significant, especially where seasonal items are involved.
All of the above will inevitably lead to increased operating costs. However, for some parts of the business it may also mean a fundamental rethink of the way on which available space, IT and systems are used. Because as attractive as it sounds to simply ramp up DC operations to meet demand, from a risk perspective it is not necessarily “just as simple as that!”