This year has seen massive operational shifts in nearly every industry, not least of all in the world of consumer packaged goods (CPG). From toilet paper to hand soap, mac and cheese to aspirin: In the era of COVID-19, the demand for CPG companies to improve and maintain their order fulfillment process comes from all sides.

With more consumers than ever spending nearly all their time at home, the consumption of packaged goods has skyrocketed, causing shortages in retail stores and a large-scale shift to direct-to-consumer eCommerce order fulfillment. Customer service has always been a focus for CPG companies to a certain degree, but 2020 has led many to reevaluate their order fulfillment solutions to meet retail customers’ and end consumers’ heightened expectations.

The bright side of this shift accelerated by the COVID-19 outbreak is that CPG companies have been adapting to changing customer needs over the last several years. Advances in technology have improved customer-company connection, as well as helped to streamline order fulfillment to warehouses, retailers, and consumers. This year put the CPG fulfillment process to the test and has highlighted areas for growth.

Table of contents

The 4 Different Types of Order Fulfillment
The State of Order Fulfillment in 2020
Order Fulfillment Challenges
Best Practices to Optimize Order Fulfillment
5 Ways to Reduce Fulfillment Supply Chain Costs
Enhance Order Fulfillment with Hitachi Solutions

The 4 Different Types of Order Fulfillment

There are four different types of CPG order fulfillment. In 2020, many CPG companies had to reevaluate if their chosen fulfillment strategy still works for them. The four types are:

In-House Order Fulfillment:
All steps of the order fulfillment process are managed by the CPG firm and its employees, from purchase, to product storage, to shipping. This fulfillment solution enables the firm to control all aspects of order fulfillment, though it can be costly to maintain staff and inventory.

Outsourced Order Fulfillment:
Following the point of purchase, the firm outsources all order fulfillment to a third party logistics provider (3PL), or a fulfillment center. This is a good solution for firms that have limited space for inventory. Many 3PL companies provide warehouse security, climate-controlled storage, return services, and secure shipping options.

Drop Shipping:
The retailer accepts customer orders but maintains no inventory. They will source (purchase) the goods from a third party — either the supplier, a warehouse, or a wholesaler. Drop shipping is a low-cost fulfillment strategy for retailers, but the retailer’s challenge here is to provide visibility into the status of an order during fulfillment, as well as the quality of the product shipped to the consumer.

Hybrid Fulfillment:
The retailer uses a mix of fulfillment solutions: in-house for popular items, outsourcing for items that require assembly, and/or drop shipping for infrequently-purchased items. This solution works well for companies that require flexibility, such as those that maintain both brick-and-mortar and eCommerce stores.

The State of Order Fulfillment in 2020

The CPG industry has seen some seismic shifts in order fulfillment demands since the COVID-19 outbreak. While many of these demands have been or are being met, CPG companies are still experiencing growing pains. Order volumes have doubled and even tripled, and so has consumers’ demand for immediacy. Goods like clothing and housewares are must-haves for most consumers, and retailers like Amazon have set a high bar for nearly instantaneous order fulfillment. Many CPG companies have adopted a direct-to-consumer fulfillment strategy to avoid delays caused by drop shipping or retailer shortages. Concern for environmental impact has also led consumers to buy directly from CPG companies, to cut down on extraneous shipping materials and fuel.

For the last few years, there’s been an industry-wide push to improve CPG customer service technologies. With this year’s influx of direct-to-consumer ordering came inevitable product shortages, leading to an uptick in status inquiries. Consumers want to know where their product is, when it will ship, when it will arrive, and why it might be delayed. Many CPG companies simply don’t have the personnel or product fulfillment software in place to address the high volume of consumer inquiries, and some have even closed until the pressure of the COVID-19 era subsides.

The heightened volume of packaged goods consumption has also increased shipping costs and compromised warehouse storage capabilities. When a fulfillment center runs out of storage space, CPG companies have to consider shipping to alternative distributors, which may delay delivery to the consumer; or directly to retailers or consumers, which may hike up shipping fees. And many firms, to avoid the hassle of warehouse shortages or overflowing inventory, are resorting to drop shipping, resulting in damaged or missing goods.

Order Fulfillment Challenges

Even before the COVID-19 outbreak, CPG firms experienced their fair share of challenges as consumer expectations rose. Here are some of the most common obstacles faced by the CPG industry:

Inventory management:
In a normal year, at some point along the order fulfillment journey, an item will be out of stock. Once may not be enough to turn consumers away from a CPG brand or retailer, but if their warehouses are consistently understocked, the consumer will lose faith and take their money elsewhere. Maintaining optimal inventory levels is important in the best of times but became crucial in the age of COVID-19.

Demand planning:
Knowing and forecasting the demand for a product regulates inventory levels in your warehouses. This is where eCommerce fulfillment strategies for packaged goods come in handy: If a consumer can’t find a product at a brick-and-mortar or on a retailer’s website, chances are they’ll go directly to the source. ECommerce fulfillment software enables CPG companies to gather data on consumers’ needs and use this data to avoid over- or understocking their inventory.

Logistics planning:
For CPG companies, maintaining control over the shipping process is crucial in building brand loyalty. Brands need to be able to guarantee secure and timely shipping methods, or they risk delivering damaged, delayed, or incorrect products, and losing customers as a result.

Supply chain execution:
Choosing the right suppliers can make or break a CPG company’s reputation. Suppliers that can fulfill orders quickly without compromising quality is of the utmost importance, especially in times of increased demand.

In order to avoid these challenges in the future, there are some best practices that will ensure your order fulfillment process operates seamlessly.

Best Practices to Optimize Order Fulfillment

  1. Find out what works for you.
    Assess the fulfillment strategies you currently use and see where you could make changes or improvements. For instance, could you optimize eCommerce fulfillment to increase lucrative direct-to-consumer sales, while also gathering data that helps improve your demand planning for outsourced order fulfillment?
  2. Use data to make more informed decisions.
    This year will provide valuable information that will guide CPG industry choices for years to come. Using data gathered from customer inquiries, retailer demands, and shipping and storage concerns will streamline order fulfillment management across the board.
  3. Communicate early and often.
    Inventory shortages and shipping delays will happen no matter how much you plan ahead. Sharing updates with customers as soon as they happen will instill trust in your company, even if order fulfillment can’t be met right away. Meet the increased demand for updates with frequent communications, whether it’s to alert customers to a delay or to provide clear return information.
  4. Embrace automation.
    The modern workforce is troubled by the shift toward automation, but robotics can be a massive space- and cost-saver for CPG companies. Robots can fulfill orders faster, aren’t subject to human error, and can collect data on consumer habits and inventory status.

5 Ways to Reduce Fulfillment Supply Chain Costs

  1. Choose the right fulfillment model.
    With the increase in direct-to-consumer sales comes higher shipping costs. Evaluate whether same-day shipping is worth the extra cost of getting it to the consumer faster.
  2. Don’t be afraid to reevaluate your supply chain.
    Picking suppliers that can deliver faster isn’t always a positive — if you’re encountering a lot of returns because of faulty products, that speedy delivery is costing you in the long run. Consider diversifying your supply chain if it will guarantee higher-quality product, more visibility into the shipping timeline, and better communication. Having multiple suppliers in different regions of the globe will help protect you against changes to tariffs or workforce challenges (such as COVID-19).
  3. Create a fit-for-purpose supply chain process.
    Like reevaluating your fulfillment strategy, you can take a hybrid approach to your supply chain. If it costs less for one product to be shipped directly to the consumer, you don’t need to overhaul your entire fulfillment process; mix and match supply chain solutions to regulate costs and satisfy the largest number of consumers.
  4. Introduce warehouse automation wherever possible.
    Are there warehouse tasks that could be performed faster, easier, or in a safer way by a robot? Instead of using manpower to count and categorize products, have robots collect real-time updates by using radio-frequency identification (RFID) tags affixed to product packaging. Likewise, IoT (Internet of Things) sensors can monitor changes in the environment that might negatively affect a product — changes that may go unnoticed by a human.
  5. Reevaluate transportation costs.
    It’s often a flat rate to send one truckload of product to a distribution center or retailer, which can end up costing more than it should if the truck isn’t full. If multiple partially-full trucks are headed to different locations, would it be more cost-effective to fill up one or two and send them to multiple stops? Consider alternative transportation methods like flight (especially while many airlines are struggling with diminished passenger loads), or even using smaller, local carriers to deliver your goods.

Enhance Order Fulfillment with Hitachi Solutions

In a year that saw record demand for consumer goods, firms and suppliers have had to overhaul and optimize the way they manage order fulfillment and keep retail customers and end consumers satisfied.

Hitachi Solutions and Microsoft have the expertise and technology to help you streamline your order fulfillment solutions. From inventory management to customer service, Hitachi Solutions leads the charge in delivering modern, data-driven, and responsive product fulfillment software. Consumer needs are ever-changing — contact us today to stay ahead of the curve.