The Forrester Wave™: Order Management Systems, Q2 2023

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E-Commerce = Revenue. Distributed Order Management = Margins.

How retail can pivot during social distancing

Stack of coins representing increasing profit margins
Advanced fulfillment rules can help you make a higher margin on each order.

By Rob Shaw

May 23, 2020

It’s no secret that the retail industry has been hit hard by the global pandemic. What began initially as a disruption in supply chains has turned into a worldwide slowdown that has put retailers’ profits at risk. Dozens of global brands, from Apple to Michael Kors to Estee Lauder to Ralph Lauren have issued profit warnings in the millions. Social distancing is in effect in many countries and stores have shuttered. This means retailers must turn to eCommerce and new fulfillment strategies to survive. Whether they have the right tech stack in place—including a best in class Distributed Order Management System—will determine who the winners will be going forward.

Even prior to the pandemic, UK retailer Asos saw the hit to revenue that can be caused by IT and fulfillment challenges. After switching from manually processing orders to an automated system in one warehouse and facing stock shortages in another in 2019, the company experienced nearly a 70% drop in profits. This should be a lesson to retailers everywhere about the effect of automation and global inventory management on profit margins.

In this changing world, even success stories like grocery are seeing their potential revenues evaporate. Despite surging sales, British grocer Sainsbury’s has issued a profit warning of £500 million as social distancing is expected to remain in place throughout 2020.

With no clear end to social distancing in sight, retailers must find other ways to expose their inventory to online shoppers, have the ability to easily move that inventory from point A to point B, and fulfill in the manner that is most convenient for consumers. Effective order management is the only way to improve and secure profit margins.

Following are some specific examples of how effective order management can increase those elusive profit margins.

Discourage split shipments

Split shipments—where multiple products are fulfilled and delivered separately—entail extra costs, either to the retailer or the customer. Given that so many retailers offer free shipping, split shipments can hurt margins. So it’s important that you keep them to a minimum. Using a sophisticated OMS, brands can implement fulfillment rules that minimize unnecessary split shipments. Alternatively, you can adjust your merchandising. For example, show ‘recommended products’ that can all be shipped from the same location as the main product. Do you charge for shipping? If so, you could offer an incentive for customers to wait until all products are available for delivery at once.

Even Amazon, which built its business on 2-day free shipping and “you may also like” product upsells, is discouraging its customers from buying too much at once. According to a report in Slate,

Overwhelmed with shoppers, trying to prioritize “essential” items like medical supplies and paper goods, and straining to keep its workforce healthy, Amazon has begun to nudge people to order fewer products by tinkering with its interface, cutting down on advertising, and making it ever so slightly less convenient to get certain packages delivered to people’s doors. A company premised on people buying stuff online is now trying to get people to buy less stuff online.

Treat your stores like Distribution Centers

With foot traffic at a standstill, many retailers are leveraging their existing store network as “dark stores.” These are stores that look and feel like consumer-facing outlets, but which exist just for online fulfillment. This strategy was pioneered in the grocery sector, where third-party pickers competed for aisle space and products with regular customers. The solution was to create mirror stores dedicated to just online fulfillment. This strategy may make sense especially if you apply some business rules, like shipping from stores only if an order meets a certain threshold. You can also control how many orders a dark store processes at any given time.

Ship from the right store

Ship from store is a tactic that will undoubtedly grow in popularity over the coming months and years. This can be as simple as shipping from the store closest to the customer or it can be more complex. If your OMS can handle advanced fulfillment rules, you have a big opportunity to increase margins. For example, you could ship from the store with the highest stock levels or the store with the lowest throughput. This means you can move inventory from store to customer in a way that makes the most financial sense. But without negatively affecting the customer experience.

Today’s purpose-built Distribution Order Management systems are uniquely designed to support new and evolving fulfillment strategies. As we move through this pandemic and beyond, the face of retail will undoubtedly change forever. That doesn’t mean that there isn’t profit to be made and margins to be maintained. It just means that you’ll need the right tools to survive and thrive and in the future.

Be prepared. Technology should be an enabler and never a constraint. The days of monolithic platforms with long implementation/upgrade times and costs are over. Covid-19 has highlighted the need for lighter weight, easy to deploy, cost effective solutions. Ones that enable businesses to adapt faster when market conditions change.

To see how Fluent Order Management can help you ship from stores and boost margins, schedule a demo today.

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