"E-commerce Is a Very Dynamic Industry Adapting New Technologies Rapidly and Flexibly" | Interview

The digitalization of sales and digitalization of logistics are organically interconnected, mutually conditioned, and at the core of new retail (Retail 4.0).

The trade magazine Systems of Logistics interviewed our expert on intelligent logistics solutions Peter Bílik. They talked about the specifics of logistics, supply chain, and order fulfillment in online sales and e-commerce, and how swiftly the industry implements and utilizes digital technologies in inventory and order management.

What are the specifics of e-commerce logistics?

The specifics relate mainly to methods, strategies for inventory, warehouse and orders management, as well as human resources and work assignments (labor management). Regarding the efficiency of order picking, the most suitable method for the e-commerce industry is the method of cluster picking or a combination of the zone, wave, and cluster picking, which means hybrid order picking.

Furthermore, the performance of a distribution center or e-commerce warehouse can be maximized with a WMS/WES system that enables real-time management of work tasks and assignments. WMS/WES system enables to utilize the most suitable strategy for put-away and storing - dynamic SKU slotting. Implementing these strategies not only contribute to optimizing the overall order picking time, but also allows for a more flexible response to seasonal fluctuations and market volatility.

What are the latest trends in e-commerce logistics from your point of view?

E-commerce is a very dynamic industry that responds swiftly and flexibly to new technologies, which inevitably affects the supply chain and order fulfillment processes. This is the reason why companies and e-shops are working intensively on increasing the synergy between sales and order fulfillment in order to ensure smoothness, speed, and customer comfort for both processes – sales and order delivery.

Efficient handling of large volumes of diverse orders can no longer be done without warehouse management systems (WMS/WES) and intelligent logistics solutions, which already utilize disrupting technologies such as digital twins and artificial intelligence. The digitalization of sales and the digitalization of logistics are organically interconnected, they are mutually conditioned and form a concept of the so-called new retail (Retail 4.0).

Omnichannel logistics was once a rising trend and now it is a norm for successful e-shops. The reason behind the universality of omnichannel logistics is one of the consequences of accelerating the digitalization of retail which is the expansion of sales channels and their combination (hybridization).

New technologies have blurred the boundaries between online and offline shopping, which has also led to the integration of sales processes and warehousing and shipping logistics. This ultimately means integrating different systems and platforms into a single comprehensive digital ecosystem.

What is the position of warehouses in regards to the expansion of omnichannel logistics?

Due to the expansion of omnichannel logistics, a warehouse or distribution center is becoming a critical point in the supply chain and order fulfillment infrastructure of retail and e-commerce.

Current control systems can process product data and order data in real-time. As a result, warehouse management systems can make better use of warehouse spatial availability and dynamically adjust picking strategies, along with automatic replenishment of stocks according to the real turnover of items. A dynamic warehouse can also respond flexibly to market fluctuations or unexpected changes in consumer behavior and preferences.

In 2020, consumers were forced to adapt their shopping habits. With returning to normal, we are expecting that customers will also partially return to their original habits, but not necessarily to the full extent. The omnichannel model includes reverse logistics used primarily for the returns.

With the increase in online shopping, the volume of returned goods also increased, mainly because customers could not try it out in person at first. For this reason, too, the retailers (or fulfillment intermediaries) tried to ensure the smoothest possible course of the complaint and return of the goods.

While receiving orders from courier providers remains an available and frequently used option, it may not always be the most economically advantageous, we expected the rise in in-person returns of goods at stores. Even in cases where the goods were originally purchased online (so-called BORIS model - "Buy Online Return in Store").

Ensuring the smooth running of two-way logistics from the seller to the customer and back will be a challenge in the coming period since it is already a part of the concept of circular logistics. We are expecting that circular logistics should soon become a new standard in regard to sustainability.

Would you mention another trend you see?

Reducing the cost of reverse logistics was another trend. One of the most effective solutions is to ensure that the customer buys goods with which he will be satisfied right the first time. This means that stores will have to focus more on the pre-sales process (customer experience) in order to be able to reduce the costs that could result from the post-sales process (logistics) in the event of a complaint and return.

The hybrid model of online and offline shopping will also survive the pandemic. E-shops (or primary online stores) will also build physical, not just virtual, representations meaning some form of a selling point (pop-up stand, kiosk, or brick-and-mortar shop). Dynamically managed logistics flows and inventory enable a smooth and inexpensive transition of selling (shopping) points from digital to the physical environment, as well as their mutual integration and functional integration.

In addition, thanks to consumer data, retailers are able to better identify sites of increased concentration of their potential customers. They will also be able to reach consumers through pop-up stands and mobile kiosks, which have lower operating costs compared to brick-and-mortar stores, and at the same time allow greater flexibility should a prompt relocation be needed.

The omnichannel strategy includes a hybrid distribution model that combines online shopping with sales at brick-and-mortar stores and pop-up stands (for example, at seasonal peaks such as Christmas). This model leads to decentralized sales and better targeting of individual consumers.

Machine learning and AI remain among the tools whose use will continue to grow. The recommendation algorithms, which, based on sophisticated and personalized analyses, suggest relevant products to e-shop visitors, will also be used in intelligent warehouse, inventory, and order management in order to optimize the overall order picking time.

What is ANASOFT offering to e-shops regarding order fulfillment?

Our Smart Industry division has long been dedicated to digitalization and intelligent automation of warehouse management, inventory, and order picking processes. This includes the deployment of our WMS for order picking as well as the design, development, and implementation of complex intelligent logistics solutions, for example for rapidly expanding e-shops or for fresh food logistics and distribution (i.e. cold chain management).

In the case of WMS, clients can choose from a wide range of functionalities that best suit their warehouse (shop-floor) needs and business plans, including SKU mirroring, combined inventory slotting and picking strategies, real-time inventory tracking and sales forecasting, and sales replenishment management, kitting (the process by which different but related SKUs are assembled and new SKUs are assembled), cartoning and (de) palletizing, or control of conveyors, AGVs (AMRs) and automatic retrieval and storage systems (AR/RS).

At the same time, we also work on complex projects of intelligent logistics management for larger shop floors and distribution centers. In these cases, we are already deploying a more sophisticated WES system, which controls all processes throughout from goods receipt, quality control, warehousing, warehousing, picking, order completion to order dispatch.

In both types of projects, we work with elements of the Fourth Industrial Revolution, as the control system is based on the concept of a cyber-physical platform. Other technologies are part of our intelligent warehouse and customer order management solution.

Real-time data and information transmission and interconnection of operational components is ensured through the Internet of Things (IoT) and the Internet of Services (IoS), we also use machine learning or digital twin technology, which are essential for dynamic and autonomous real-time logistics management.

The combination of these technologies brings transparency into all processes, speeds up order delivery at reduced operating costs, and, thanks to process flexibility, ensures that the right goods are delivered to the right place at the right time and in the required quantity and quality. In addition, these technologies become essential if a business wants to maximize its operational performance or scale up automation.

In addition to inventory, warehouse, and order management, we also offer clients just-in-time (JIT) solutions for operational strategies, dynamic Milk Run (Milk Run 4.0), e-Kanban and autonomously managed synchronous flows.

How do you see the future of e-commerce?

The combination of diverse online and offline sales processes and tools, i.e. omnichannel strategy, is already becoming an unavoidable norm. Logistics procedures, inventory management, and the overall process of order fulfillment must be also adequately adapted for omnichannel sales strategies.

The interconnection of the physical and digital environment in omnichannel logistics provides a substantial part of the answer to the question of how to ensure sufficiently flexible, sustainable, and operational logistics with adequate performance. The timely and error-free operation of e-commerce logistics is no longer possible without an immediate overview of available stocks, real-time monitoring of material flows, sales, and turnover forecasting, and the expansion of customer-oriented services.

From the point of view of strengthening the strategy of sustainability and business continuity, and due to cases of unexpected circumstances such as a pandemic, it is nowadays necessary to serve several sales channels simultaneously.

Warehouse transformation - adapting inventory management and warehouse logistics to a multi-channel model - already requires a comprehensive and integrated smart logistics solution. In addition, due to the increasing demand for efficient processing of larger volumes of diverse orders, shortening picking cycles, and maximizing the efficiency of fulfillment processes, businesses can no longer do without an advanced WMS system.

Concerning the ever-increasing demands on the performance and quality of inventory and warehouse management processes, scaling of warehouse automation, and the demand for extended customer-centric logistics functionality, we see a new generation of WMS systems - WES system (Warehouse Execution System) emerging and taking place. The necessity for omnichannel logistics is driving the implementation of WES systems which is a long-term innovation.

Growing volumes of customer orders, increasing turnover of goods, variability of sizes and types of offered goods, and at the same time integration of other activities into picking processes, such as order completion, packaging and repacking of goods, priority order dispatching, already require a smart warehouse with an automated management system.

Following the trend of omnichannel logistics and the expansion of services aimed at individual customers, in addition to the operational intelligence of the warehouse, the concept of a lean warehouse emerges as a key feature.

The concept of lean inventory management and warehousing primarily focuses on eliminating three side effects: waste, variability, and inflexibility leading to improvements in optimizing operating costs, increasing process quality, and expanding customer service levels.

The methodology of lean warehouse and supply management specifically includes eliminating unnecessary traveling around the warehouse, eliminating lengthy searches for required goods, preventing downtime, overtime, and value-added activities, eliminating picking errors, and preventing erroneous items from being held among available stocks.

E-commerce logistics and retail inventory and order management must be adapted and tuned according to changing consumer behavior and market conditions. This is one of the reasons why warehouse and distribution center operators need to take more agile logistics management so that they can adapt smoothly and without delay: changing trends, market circumstances, changing customer requirements, and individual customer expectations.

For these reasons, too, increasing warehouse intelligence and streamlining inventory management (or orders in the case of retail and e-commerce logistics) go hand in hand. To achieve this, they use mostly dynamic warehousing procedures, automated and demand-driven replenishment, and hybrid picking strategies.

A similar set of functionalities is also employed to increase the efficiency of the omnichannel warehouse (a distribution center or a node), while the basic premise in both situations is an efficient warehouse management system and proper IT infrastructure, which are already included in modern WES systems in most cases.