With high fuel costs keeping bution, “It’s safe to say that virtually every consumers out of stores, client in the retail space now has a direct-retailers are focusing more to-consumer component in their network. on their online efforts — Two to four years ago that wasn’t the case.” including the direct-to-con- Direct-to-consumer distribution cen-sumer distribution center. ters are distinguished from other facilities Retailer interest in direct-to-consum- in several ways.
er distribution facilities is increasing 25 Because they handle and ship a variety of percent a year, partly in response to a small parcels straight to the end consumer, forecast that online orders will build at direct-to-consumer operations rely heavily least 20 percent a year for the next three on the delivery networks of parcel carriers years, according to research conducted such as UPS, FedEx and DHL. Meeting the by Tompkins Assoc iates and shipping requirements of mul-materials handling pro- tiple outsourced carriers, vider Tech Conveyor. with their own packag- “I would think ing, labeling, manifest-you’re going to see ing and invoicing a continued ero- Pieces demands, “is not a sion of business 95% traditional network from retail outlets model,” said Jim to direct-to-con- Capece, Tompkins’ sumer activity,” said Other
2% senior vice presi-Richard Armstrong, Cases dent of material han-CEO of Armstrong 3% dlingintegration.
& Associates and pub- The distributor-car-lisher of the bench- rier relationship is also mark “Warehousing Percentage of Product Order Lines complicated by the fact in North America” Shipped From Direct-to-Consumer that packaged goods annual report. Distribution Center are sent straight to the Direct-to-consum- end consumer and so Source: Tompkins Associates, Tech Conveyor
er distribution opera- must be customized tions got established in the mail order and and handled with that presentation in catalog industries of the 1960s and 1970s but mind. “Also with a direct-to-consumer have expanded by leaps and bounds in the (facility), you really don’t know what your Internet age. While they were slow to catch on product mixes, sizes, personalizations will with the public in the 1990s, due to concerns be,” said Ted Peyrek, vice president of about reliability and timeliness, e-commerce Tech Conveyor. “There may be hot prod-direct-to-consumer warehouses of the 21st ucts each year that you have to accommo-century benefit from secure modern technol- date” for special shipping needs. ogy, adaptations of inventory management All that complexity means that direct-techniques such as just-in-time delivery and to-consumer facilities tend to be even a buying public more confident about the more technology-oriented than ordinary direct-to-consumerdeliverymodel. warehouses. Armstrong said, “What
Bill Vincent, director of engineering and you’ve seen over the years is an increasing project management at Tompkins, said that mechanization and expansion of the IT while it’s hard to put a definitive number capability, the capability to read the labels on the growth in direct-to-consumer distri- on the fly and to use more and more con-
veyors systems and automated sorting and segregating activity… making them much more efficient than they used to be.”
Direct-to-consumer operations are also more labor-intensive. “There’s a larger labor component in direct-to-consumer (operations) because of handling and everything else,” said Kevin Callery, principal for material handling applications at Tompkins. “Peaks tend to be heavier because you want to have one-day turnaround usually on an order. Mondays tend to be particularly busy.”
An inordinate quantity of that labor is occupied with returns, which Armstrong said can be up to 10 percent of total shipping, significantly higher than standard retailer-oriented distribution. “Buyer’s remorse is a real complication in the expansion of (business to consumer) activity,” he said, “but expand it will.” Tompkins’ research found the most common mistake retailers make in setting up a new or expanded direct-to-consumer distribution facility is to “lead with technology.”
The Limited Brands’ Victoria’s Secret Direct division, established at Columbus, Ohio, in August 2007, illustrated the problems with this approach during the past holiday season. The 1 million square foot-plus facility had so many difficulties integrating new technology systems that Victoria’s Secret was forced to reduce mailings of its catalog by as much as 30 percent so employees could catch up.
“A holistic approach is most important for implementation of any system you design,” Capece said. Every aspect of the direct-to-consumer system — from hardware and software to business processes and personnel — should be taken into account before implementation. “You have to start with the basics and build up,” Capece said. “Find the requirements you need to meet and grow from there.”
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