How to run a virtual distribution network
Companies no longer compete with each other. Their supply chains do. In today's fast-paced changing global market, it is impossible for a company to make, sell and service its products on its own. Companies rather focus on their core competencies such as design and rely on their trading partners to help with the rest. In order to survive as a brand, most consumer goods companies spread their offerings around the world through third-party logistics providers (3PLs).
It is not cheap to run your own distribution center. It requires a large capital spending upfront and an ongoing operational expense to run things efficiently. As brands try to establish intimate relationships with their consumers through e-commerce or flagship stores, they require their distribution centers to meet different fulfillment requirements. Imagine a brand servicing wholesale, retail, and e-commerce channels. Wholesale orders tend to be few in numbers with large quantities. Retail replenishments are more frequent with mid-volume quantities. Then add e-commerce orders which are high volume but small quantities on top of the wholesale and retail. The storage, pick, pack, and ship processes in the distribution centers are vastly different as orders go from low volume / high quantity to high volume / low quantity. This makes running a distribution center quite expensive. No wonder why brands prefer to outsource their distribution to third parties to keep their costs down.
As companies try to serve their customers in multiple geographies, they end up working with multiple 3PLs. The company and the 3PLs need to exchange data to ensure efficient distribution. Thus, it is important to set up standards for such data exchanged upfront - especially if you are interacting with multiple 3PLs. First, you need to make sure that there is a single Order Management System (OMS) that keeps track of all your orders across all your channels. This single OMS needs to then be hooked up to one or multiple 3PLs for data exchange. Single OMS will ensure the correct allocation and prioritization of orders prior to their releases for fulfillment.
This data exchange can be grouped into four categories namely inbound, inventory, outbound, and other. The company sends inbound shipment information (such as a Vendor ASN) to 3PL first. Upon receipt, 3PL sends receipt confirmation against the inbound shipment back to the company. There are generally two inventory syncs. 3PL is always the master when it comes to on-hand inventory. 3PL sends inventory adjustments (such as damaged goods) to the company throughout the day. At the end of the day, the company also receives the full on-hand inventory from the 3PL to ensure inventory sync. On the outbound side, the company will send pick tickets against the sales orders to the 3PL. As orders are picked, packed, and shipped, 3PL will send acknowledgments back to the company. Finally, we have exception messages. For example, if an order is canceled after it is dropped at the warehouse, 3PL may need to cancel the ticket first and send an acknowledgment back to the company. Customer returns need to be also addressed. The reverse logistics is different for blind receipts versus receipts against Return Merchandise Authorizations (RMAs).
3PL interfaces are one of the most complex interfaces in new system deployments. Establish a standard upfront. Communicate it to your 3PLs. Start development as early as possible. Ensure development and testing environments are set up on both sides. Iterate through development. Test the "happy" path first. Then, focus on exceptions. Go through several testing cycles. Get your virtual distribution network ready for your new system.
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My name is Cem and this has been another gem.
