The Return of Warehouse Wednesday - eCommerce Part 1

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Yes, Warehouse Wednesday is back again, at least for a few weeks in a mini-series that is focused more on eCommerce workflows than warehouse operations but we didn't think that 'Workflow Wednesday' got the message across and 'Warehouse Workflow Wednesday' just wasn't as catchy, so you are stuck with 'Warehouse Wednesday.'

As I mentioned we are going to look at eCommerce workflows as a primer for another upcoming mini-series on eCommerce.  You are probably thinking that we just covered eCommerce a couple of months back, and you would be true in thinking that because we did cover various marketplaces, shopping carts and merchant services along with exploring various integrators. 

In our upcoming series we will dive deeper into some of the mechanics of eCommerce and explore several areas we only spoke about on a limited basis including B2B and EDI.  But for now our next few weeks of Warehouse Wednesday will serve as a 'workflow' analysis to bridge the last series with the next.

Workflow Matters

Whether you are a small retailer, or a major online presence, a simple fabricator or a major manufacturer, if you engage in eCommerce the efficiency of your workflow can make the difference between success and failure.  One thing is simple, when customers engage eCommerce for their buying decisions they are typically doing so because 'they want it now'.  They don't want to take the time to pick-up and phone and talk to a salesman, and they certainly don't want to drive down the street or across town. In fact, they would prefer to order online, walk to their front door, and let the delivery man hand them the package all within moments of each other.

If you think that is unreal then you need to ask yourself why Amazon is building fulfillment centers in nearly every major city everywhere, or why you keep hearing stories about how they are going to use 'drones' to airlift your package directly to your front door.  They know that they exist because of their ability to show buyers exactly when their order will be delivered because it is in stock and being pulled from their shelves even as the order is being finalized. 

Many of the software packages we looked at for integrating eCommerce engines like shopping-carts and marketplaces are designed for use within specified workflow patterns.  A few only handle the financial aspects of the transaction but even those have some reliance upon a standardized workflow.  Others provide a great deal of flexibility in their configuration to deal with complex or multiple workflows that allow you to work through the process of order to fulfillment to delivery and everything in between or kinks in the system.

With this fundamental in mind, we begin this new mini-series by looking at the most simplistic of the eCommerce workflows, 'the local-fulfillment' workflow.

Local-fulfillment Workflow

This is undoubtedly the most common workflow for small E-commerce businesses starting out, especially if they are using their own shopping-cart built into their website.  In this workflow (shown below) the customer places their order online at the businesses' website for a product they offer (and routinely stock), the customer also pays for that order using the online merchant service the business has associated with their shopping-cart. 

If the business is not using one of the integrators we discussed in the last mini-series, they probably log into the ‘back-end’ of their shopping cart and download orders, or they might have their shopping-cart configured to email them copies of each order.  If they are using an integrator they download those orders either on a manual basis, or on a scheduled basis, depending on their specific integrator set-up.

The orders get manually processed from the local stock on the business shelves or in their warehouse and then prepared for shipment…this is typically known as the ‘pick-pack-ship’ processing. Depending on the size, ship to location, and shipping costs you determine the logistics of your shipping requirements for each order and schedule the appropriate pick-up of each order.

For example, the business might have some orders being delivered by United Parcel, others by Federal Express Overnight, and still some by an overland freight company. This process or coordinating delivery is known as ‘outbound logistics.’

In the back-office the general ledger imports bank feeds from their merchant-service ‘bank’ to keep track of their ‘on-line sales’ revenues; hopefully they will match any information imported from the shopping-cart.

As some point either the business owner/manager or warehouse manager,  or even the 'warehouse inventory-guy' recognizes that the business is getting low on certain items…and that somebody needs to start thinking about ordering more stock. This is a form of ‘material resource planning’ (MRP), just not a very good form of it. 

Maybe the business keeps track of ordered quantities on their shopping-cart, so they can subtract total quantities sold from their purchases on a spreadsheet and like magic the business thinks they have quasi-automated their MRP.  In reality they are fooling themselves, but a lot of small businesses fool themselves in this way.

Now they buyer (sometimes the owner or manager) either calls their supplier(s) up and gives them an order and requested date of fulfillment, or they might even issue the vendor a purchase order via email or fax. If they are lucky they have a way to project the impact of future stock to be delivered on their ability to fulfill orders by a specified date.

If the business is paying the freight they may try to pre-determine your costs via different freight providers, so they can tell their supplier how to ship the order.  While most small businesses don't, they really should start at that moment to plan for the order’s arrival. Upon arrival they must receive and put-away the stock and hopefully insure that the received quantity not only matches the purchase order and vendor invoice, but that the quantities are updated in both their inventory counts and online store.  This process of controlling and managing your arriving product from your suppliers is known as ‘inbound logistics.’ 

When the supplier’s bill arrives, many businesses will strive to pay it in a manner that either meets their current cash-flow or provides the greatest discount the supplier offers. Believe it or not, this method of determining how and when supplier payments are made are directly related to the ‘big picture of materials resource planning.’  A sophisticated MRP program takes all of this into consideration in the timing of orders, deliveries, and everything in-between.

Well our small business has come full circle, without any hitches.  There is just one small component of this process left out of the workflow.  What happens when their customer decides they don’t like what they bought, it was too big or too small, the wrong color, broken upon arrival, didn’t work, or it wasn’t even what they ordered?  We are talking about ‘customer returns’ with either exchange, warranty replacement, refund, issued credits or some combination thereof.  Fortunately we will be looking at that process in another episode of this mini-series.

But before we end this Part 1 I do want to take the opportunity to discuss one other ‘kink’ in the system. That kink occurs when the business doesn't have sufficient stock on hand to fulfill the customer’s order, but they have the ability to have the order fulfilled via a drop-shipment from their material supplier.

You will note in the illustration below that the previous process is reflected in the exact same way as the workflow before, but we have inserted some nifty ‘orange arrows’ intended to reflect this alternative workflow. 

In this case the inventory for fulfillment simply will not go through the typical receipt of delivery and stocking process even though the business is purchasing it.  Similarly, the business will still have delivery charges, but they will be passed on in the material supplier’s invoice for the inventory along with any other costs for delivery associated with re-stocking of the business shelves/warehouse.

It's a simple little workflow adjustment that almost any business will use from time to time, but this same 'workflow alternative' has become one of the most common workflows for all of eCommerce as we will see in our next installment.