Fulfilment companies are preparing for the expected boom in e-commerce by automating warehouse and other services for online retailers.
Hanging or lying? The question refers to the most significant difference in fashion storage compared with other products: clothing must often be stored hanging if the item is to be delivered in perfect condition. “Storage of hanging goods is more expensive than conventional warehouse storage: it requires more space and special equipment,” explains Ingo Heinze, CEO of Modotex.
The online fashion sales agency was established in 2007 and is now active worldwide. The company focus is selling fashion on international marketplaces. The service portfolio includes automated product descriptions in 15 languages, marketing, reporting, customer support and handling logistics.
In Heinze’s experience, even major providers like Amazon have their problems with fulfilment services. He sees Arvato as the clear pioneer in fashion logistics, with others springing up later to join the fashion bandwagon. DHL and Hermes have in the meantime also developed their expertise. A further factor is that hanging storage is less easy to automate. “This is also why many vendors are cautious about getting started,” Heinze added.
Investments in automation
If a customer wishes, Hermes Fulfilment can store their hanging goods at its facility in Suedhafen in Haldensleben, which the company has just upgraded technically. In a 30,000-square-metre hall, goods from external customers – i.e. not part of the Otto Group – are stored, picked and packaged. The site has 60,000 storage locations for hanging clothing and 540,000 storage locations for folded garments. From the site, Hermes Fulfilment ships items for online stores that fit into a standard carton or shipping bag – mainly items from the worlds of fashion and home & living.
Significant investments have also been made in the picking and sorting technology, including an automated, guided vehicle system. This conveys the trays with the orders from the picking area to the transfer station, where they are raised onto the conveyor system. Previously, processing at Suedhafen was a manual operation.
One reason for the automation: Hermes Fulfilment expects an increase of online orders, so it has increased its processing capacity at Suedhafen from 12 million to 35 million units per year.
Merchant size is decisive for service providers
“By tripling our throughput capacity we achieve two advantages: the unit price per unit processes is lower; and thanks to the technological support, employee productivity and throughput times have been improved”, explains Dieter Urbanke, CEO at Hermes Fulfilment, an Otto Group company. “The new technology allows us to offer attractive prices and advanced logistics services,” he says. Urbanke also expects the technological investment to attract new customers for e-commerce fulfilment.
Many factors determine whether an online retailer takes warehouse operations into their own hands, or uses an external service provider. “One important factor, of course, is the size of the company. If a retailer only delivers a modest volume, this is of little interest to many service providers,” explains Heinze.
Until recently, this was also the case at Hermes: previously, online retailers shipping a certain volume were the main target group. Now, the service is also open to start-ups and smaller retailers. To this end, a special fulfilment solution, Smartful, was introduced specifically for small and medium-sized online retailers last autumn.
A modular range specifically for small firms
Smartful consists of the basic warehouse logistics package, plus the warehousing and returns management modules. Additional modules can be added, including customer service, finance and shipping goods. The underlying IT architecture is modular and can interface with various shopping cart software solutions. “Repeated fine-tuning of the software is no longer necessary,” explains Urbanke. This facilitates entry into professional e-commerce.
Often, the decision to outsource fulfilment comes down to the company policy: if, for example, a fashion manufacturer makes its first venture into e-commerce, it suddenly has to deal with a number of entirely new questions, such as product photos and descriptions, payment, marketing, etc., which were not previously part of its core competences. “If a company then also has to take care of logistics, it is sometimes better to bite the bullet and get a service provider on board,” says Heinze, CEO of Modotex.
More and more providers in the market
The advantage for the shop operator: as demand for logistics and fulfilment services continues to increase due to the growth of e-commerce, more vendors will enter the market. Even new-comers that have developed comprehensive industry know-how from their own business, will discover the benefits of fulfilment. Even Zalando intends to expand its business model with fulfilment services. The range of services offered by fulfilment providers is constantly growing: Arvato SCM, for example, lets online retailers shoot product photos direct at its warehouse photo studio. Nevertheless, Heinze recommends that shop owners limit themselves to a few partners – after all, every outsider wants a piece of the pie.
Another reason in favour of a company taking logistics into its own hands: greater flexibility. If the merchant has the goods in his own warehouse, he can quickly find the product and respond to any customer queries. The same applies for the returns processing: after an initial visual check, it must be decided how to proceed with the returned garment. If a service provider handles this, an extensive checklist needs to be drawn up in that the right decision is made in each individual case. Again, the question remains: is returns processing part of the retailer’s core competence? And how many items must he process, on average? The higher this number, the stronger the case (and the cheaper it becomes) for using a service provider.
Gather multiple offers and renegotiate prices
If a retailer is looking for a fulfilment partner, he should in any case look closely at the market and collect a number of offers. Alongside the service offered, other factors play a role, including geographical coverage, international shipping costs and customs clearance. Finally, the price is important: according to Heinze, is one of the largest expenses. If a service provider dispatches large volume, it can negotiate far better prices with DHL, Hermes & Co.
Hermes Fulfilment offers customers two billing methods: on the one hand, unit-related prices; on the other hand, a net sales solution. In the latter variant, Hermes receives a percentage of net sales from the merchant as consideration for the fulfilment.
Thus, part of the cost-risk remains with the fulfilment service, Urbanke explains, and both the merchant and the service provider are trying equally to keep the return rate as low as possible. The majority of customers currently opts for unit-related pricing, while around a quarter chooses the net sales solution, according to Urbanke. A typical contract is for three years.
Heinze has a further tip for online retailers: to keep costs under control, they should always gather more offers, and renegotiate repeatedly with their service provider. This applies especially if the merchant has strong growth and increasing shipping volumes.