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Perspectives

Online Grocery: Feeding the Fulfillment Beast

2017-11-21


To keep pace with online grocery demands, retailers must adhere to best practices and select optimal order fulfilment models. Here’s how.

Online grocery retailer Webvan went bankrupt in 2001 after three years of operation and was later folded into Amazon.com. Although the challenges that Webvan faced in making online grocery profitable still exist, consumers’ insatiable appetite for online grocery shopping continues apace, if Amazon’s and Walmart’s trajectory are any indication (see Figure 1).

Figure 1

To further turbocharge growth, (i.e., increase margins and justify their online grocery expansion)., retailers must scrutinize each touchpoint in the fulfilment path to find the best-fit model for their omnichannel propositions. Retailers need to choose among multiple options when selecting optimal fulfilment models for delivering online grocery orders. The top three areas to consider are:

1. Which dispense mechanisms should retailers use?

Various options are available (and continue to increase to make grocery shopping more convenient) as part of the now traditional omnichannel proposition. These dispense mechanisms can be classified broadly by the following:

  • In-store pickup.

  • Remote pickup/collection.

  • Home delivery.

2. Where along the spectrum should retailers place their fulfilment operations?

The spectrum ranges from picking items from a store or warehouse to building an appropriate hybrid fulfilment model leveraging their end-to-end supply chain inventory. Retailers may want to consider benefits such as reducing costs of fulfilment, satisfying customers with fulfilled orders, and efficiently managing grocery reverse logistics. Options for retailers include:

  • Picking ordered items from the store.  This can increase inventory turnover from customers’ foot traffic as well as fulfilling online orders from the same inventory, leading to faster fulfilment in which orders are ready for pickup shortly after being placed online. It can also minimize the cost of reverse logistics when customers return to the stores. On the other hand, “out of stocks” may rise as online orders increase; picking/order management efficiency may not be ideal.

  • Picking ordered items from a warehouse.  Given a warehouse’s tighter inventory controls and dark store-like characteristics, out of stocks can be managed well within bounds. Picking efficiency can be based on industrial standards, especially for automated grocery warehouses.

  • Hybrid models.  To get the best of both worlds, certain retailers combine picking at the warehouse, at the store or the vendor, and consolidate items from various sources at one location to eventually dispense to the customer as a single order. Examples include drop shipping certain items from vendors directly and site to store where certain items are picked at the warehouse and transported to the store.

3. What’s the best way to operationalize last-mile delivery considering cost, customer-centric policies and customer experience?

When it comes to grocery, last-mile delivery can be especially daunting given its special cold chain compliance requirements, regulatory requirements like age verification and managing returns of frozen items such as ice cream. Retailers face challenging questions related to the return of perishables and partial returns.

They also need to uniformly distribute order delivery throughout the day while also being flexible about the most convenient times for customers. Various kinds of collaboration are emerging in today’s marketplace. Both traditional and innovative options available to retailers include:

  • Owning a fleet.

  • Outsourcing to third-party logistics.

  • Collaborating with crowd sourced delivery options like Uber, Lyft and Deliv. Uber has rolled out “Uber Rush,” its grocery delivery service.

  • Rolling out a mix-and-match ordering model such as what startups like Instacart and Google Xpress have done; customers place orders from retailers and get deliveries to their doorsteps.

  • Delivering through drones is at the leading edge of last-mile delivery. Amazon and Google are experimenting with it. In July 2017, the drone delivery startup Flirtey successfully delivered a 7-Eleven customer’s order.

Three Fulfilment Best Practices

Order management.

  • Leverage analytics solutions to drive customer-specific substitutions based on their historical returns and/or delivery charges based on loyalty/basket size.

  • Build early checkpoints in the entire process around substitutions to minimize costs.

  • Drive online promotions based on real-time information about expiring inventory in fulfilling nodes.

  • Integrate capacity management algorithms to display available delivery slots.

  • Route full or partial orders based on real-time inventory information to the most efficient fulfilling node.

  • Manage inventory effectively by having the right mix of items sourced from the larger regional distribution centers.

  • Direct vendor-managed inventory for very low shelf-life items like milk and bread.

Order pick-pack-ship.

  • Build flexible picking mechanisms for grocery.

  • Define streamlined processes for fulfilling customer orders across ambient, frozen and chilled items as per cold-chain compliance from storage until dispense.

  • Effectively plan picking trips by considering priority orders for express delivery (e.g., pick perishable items 30 minutes before shipping out).

  • Enhance picking efficiency with methods like price/weight embedded barcodes for pre-weighed variable/catch weight items, and provide personal shoppers with handy information such as item images, customer instructions, and more.

  • Define different picking types like picking by item or order.

  • Enhance customer satisfaction by delivering zero-discrepancy orders through system-driven audits for predefined scenarios about high-value customers and items, substituted items, and type of pickers.

  • Implement goods-to-person automation to enable faster fulfilment and reduced overhead, and effectively handle capacity spikes.

Order dispense.

  • Define uniform dispense process/mechanism across all customer channels and fulfilment nodes.

  • Dynamically choose delivery charges as per demand of delivery slots. 

  • Manipulate delivery fee against delivery windows for uniform order delivery density.

  • Ensure that POS validations are part of the last-mile dispensing system—including age verifications, payment authorization, returns management, and refunds.

  • Build systems that can reasonably accommodate flexible delivery schedules.

Consider Our Three-Pronged Advice

1. Use your existing assets.

There is no one-size-fits all solution when it comes to configuring a supply network for online grocery order fulfillment. We suggest the following two steps to optimize online grocery:

  • Evaluate existing infrastructure and supply chain connections to understand key areas of strength in grocery retailing and build on those core pillars to handle online grocery expansion.

  • Scan the marketplace and collaborate with established players with proven expertise in handling grocery.

2. Understand that the value proposition of online grocery retailing rests on customer convenience.

Weave in this mindset while designing processes and systems for online grocery fulfilment.

3. Leverage technology to manage the complications of fulfilling grocery orders.

Complications include perishables, weighted items, dairy-deli, meat, substitutions, vendor-managed inventory, supply chain traceability for produce, recalls and many more. The Internet of Things and connected devices will drive the need to automatically place grocery orders based on in-stock items in customer homes. Sensor technology is being used in preventative maintenance of grocery-handling equipment. And bots are handling storing and retrieval of grocery items, following all regulatory standards of segregation.

For more insight, visit the grocers solutions section of our website.

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Online Grocery: Feeding the Fulfillment Beast