The plumbing behind e-commerce

   E-commerce improbably only accounts for about 7 percent of total U.S. retail sales, according to Census Bureau statistics in the first quarter of 2015.
   I say “improbably” because I’m pretty sure my wife and I account for at least 1 percent alone, given our predilection for Internet shopping.
   All kidding aside, it boggles my mind that e-commerce sales are still such a small percentage of total retail sales, because supply chain concern around dealing with e-commerce is surely higher than 7 percent (if it could be so quantified).
   Every retailer (and many manufacturers) must have an e-commerce strategy, one that evolves almost constantly as consumers find new ways to browse, compare, and ultimately purchase goods.
   Here’s the thing: retailers have largely been good at investing in technology that displays product ranges and captures orders in an attractive, seamless, and efficient way. To use a metaphor, the faucet of e-commerce is polished and shiny.
   But the plumbing that provides water to that faucet is where things get a little more troublesome. Simply put, retailers have not invested nearly as much in ensuring that the orders they take via their shiny faucets actually have proper plumbing behind them.
   To use another metaphor, it’s almost as if retailers are restaurants that take orders without having the kitchen to prepare and serve those orders in a timely, accurate, and quality fashion.
   I’ve had instructive conversations in recent weeks from key thinkers at two of the bigger supply chain software companies out there (JDA Software and Oracle), both of whom have released versions of their solutions aimed at helping companies manage the plumbing of e-commerce.
   Credit where credit’s due: it was JDA’s chief science officer Adeel Najmi who used the plumbing reference to help me understand what they were attempting to accomplish.
   “This is about the other side of the [e-commerce] coin,” he said about JDA’s release in July. “How do you position inventory to meet that [order]. It’s the plumbing in the back. How do you execute that well together?”
   In an April survey, JDA found that fewer than one in six executives said they were fulfilling omni-channel orders profitably. That gap largely comes in areas like final-mile transportation costs that don’t align well with promises made at the ordering stage.
   Retailers largely haven’t invested in technology that directs them on how to fulfill from the right place for each order—whether that’s in a regional distribution center, a nearby store, or a facility hundreds of miles away. The answer that seems right isn’t always the correct, or most profitable, option.
   Jon Chorley, Oracle’s group vice president of supply chain management for product strategy, sounded a similar note mere days after my conversation with JDA’s executives.
   He spoke of silos between the “taking the order” function and the “fulfilling the order” function. That conversation was in the context of Oracle releasing its cloud-based order management through fulfillment capability, and Chorley added that the silo effect is particularly pronounced when “some elements operated in the cloud and some did not.”
   As you might expect, the plumbing behind the cabinets is not as pretty and straightforward as the faucet up above. This is hard stuff, which is why retailers have been reticent to tackle it. But the stakes are too high to ignore. That 7 percent will creep ever higher as a larger proportion of consumers belong to generations for whom shopping online is an expectation, not a novelty.
   I can recall hearing an executive at a very prominent retailer talk in early 2013 about the way her company addressed the issue of e-commerce. She said her company had typically been conservative, measured, and analytical about any strategic supply chain decision it had taken in the past. That meant the company needed hard data to underpin those decisions.
   But when it came to investing in e-commerce and omni-channel fulfillment, the company had essentially invested blindly because it didn’t have the time to be measured. Customer behavior and expectations were changing too fast to take a long-term view—if the company took its normal route, it would have been hopelessly behind.
   This executive admitted the company was probably not deriving a lot of profitability through its e-commerce channels, but that was a short-term problem it had to face to stay in the game.
   Indeed, investing in tools that help you understand a few key transportation-related variables around e-commerce is absolutely vital. There are so many questions to be answered for almost every company. Here’s a key one: do you take a hit on transportation costs to fulfill an order to preserve stock in a closer location where sales are more likely to happen?
   Even if you don’t invest in a tool yourself, seek out logistics partners or supply chain consultants that can provide you answers. There are a lot of smart thinkers out there that can reorient your company to think about e-commerce in a more holistic way. It’s not a transportation problem, it’s not an inventory problem, and it’s not a fulfillment problem. It’s an all-of-the-above problem.
   The plumbing that some of the powerful omni-channel fulfillment solutions provide is not something easily reproduced within a company. IT departments usually have way too much on their plates to tackle something as sophisticated as this.
   If your company has the technology development bandwidth and internal expertise to manage this behind-the-scenes order-to-fulfillment management, then you’re ahead of the game, because this is leading-edge stuff. If your company doesn’t have that capability, then survey your options.
   That 7 percent of retail sales is only going higher. My wife and her credit card and keyboard mean business.

This column was published in the September 2015 issue of American Shipper.