In recent times, and especially after the massification of eCommerce as a result of the pandemic, the concept of fulfillment has gained popularity within the operational strategies of companies that have bolstered eCommerce. There are two main reasons for the development of these operational centers:
- Reduction of delivery times: by opening Fulfillment Centers closer to the demand, it is possible to reduce the delivery time to customers by at least one day.
- Inventory availability: Developing an exclusive center to serve such an important channel is a way to avoid the impact of chain inefficiencies on committed orders (stock differences, lack of processes, and control, etc.).
While much has been said about this trending topic in terms of its commercial benefits and its opportunities for optimization and automation of the operation, little has been said about its impact, in integral terms, within existing Supply Chains.
Developing a Fulfillment Center, independent of the main Distribution Center, implies adding a new link in the chain, with all that this implies: a new physical structure, a new inventory process, and new planning and management needs. This is a particularly critical point, as it is here that we see the main challenges in the medium term for the optimization and efficiency of these centers.
Just as the pandemic boosted digital channels, it also changed the paradigms and challenges of supply chains. This led companies to put their strategic focus on nearshoring (bringing suppliers closer, shortening the chain) and the rationalization and optimization of their inventories, thus enhancing their Integrated Planning processes (S&OP). In order to meet these challenges, Information Systems and Management have taken on a preponderant role in modern, agile, and more efficient chains.
The development of E2E visibility of the entire chain, such as Control Towers, BI tools, and forecasting and planning management systems, have been promoted, among many other information management and visibility tools.This is why fulfillment centers cannot be oblivious to these strategic challenges of modern chains and must be part of this comprehensive optimization process, based on planning and digitization. It is at this point where we have identified the main difficulties, or inefficiencies, that many companies have experienced with the implementation of fulfillment centers.
We believe that the development of a fulfillment center implementation plan should consider the following aspects:
- Inventory Management: it is necessary to determine stock policies, inventory rotation criteria, obsolete or low rotation management, and returns. If there is a lack of focus and strategy at this point, this will lead to an increase in inventories or, conversely, to an internal "cannibalism" among the different channels, where everyone seeks to "reserve stock" in the face of shortages.
- Supply Chain Planning Methodology: lengthening the chain means greater responsibility in the planning and communication of all the links. Each part must understand its role and responsibilities and orient its actions to the common objective of the companies (sustainable profitability, i.e., making money from a high value quality of service).
Planning means efficient communication and aligned objectives, and this implies a cultural change and a solid and constant methodology. Fulfillment centers, which generally have limited static and dynamic capabilities, must be part of comprehensive planning processes to ensure proper operation. Digitalization.
A company's inventory levels represent the inefficiency levels of their supply chain (iceberg model). Today, inventory rationalization as an instrument to mitigate risks in a responsible and sustainable way requires efficient inventory management. The main tools to achieve this are Integrated Planning (or S&OP) and E2E.
In summary, we recommend that the development plans for fulfillment centers be accompanied by a complete integration of the chain (visibility) in terms of digitalization and planning. It is important not to lose focus on how these operational centers relate to the rest of the chain and directly impact costs and inventories.