Challenges for the order fulfillment process of online retailers due to the COVID-19 pandemic


Essay, 2020

9 Pages, Grade: 2,0


Excerpt

Table of contents

1. Introduction

2. Challenges to the order fulfillment process
2.1. Changed, unpredictable buying behavior
2.2. Procurement and Warehousing
2.3. Fulfillment centers
2.4. Transportation and Delivery

3. Conclusion

4. List of References

1. Introduction

No other topic dominates the current public perception more than COVID-19. National, federal and local authorities require their citizens to stay at home and avoid social contact during the pandemic. The result is an e-commerce boom, with online retail orders increasing for example in the US by 146% in comparison to the previous year (Richter, 2020). However, customers experience that many well-known benefits, such as a seemingly endless selection of affordable products or shipping in two days, are no longer guaranteed. The reason lies in the process of order fulfillment. This process encompasses all the activities a company undertakes from the moment an order is received until the items are delivered, including all customer services. It comprises back-office activities such as packaging, delivery, accounting, inventory management, and shipping as well as front-office activities such as advertising and order acceptance (Turban et al., 2017, P. 504-505).

This paper aims to identify the challenges for the fulfillment process of online retailers due to the COVID 19 pandemic.

2. Challenges to the order fulfillment process

2.1. Changed, unpredictable buying behavior

The COVID-19 pandemic changed the buying behavior of people in a very short time, for which a large majority of retailers were not prepared. To contain the spread of the virus, consumers stay at home but still have to eat, drink, and pursue other important daily routines. For the first time, more people are therefore shopping online in new categories, especially food and household goods (Bayraktar, 2020). This represents a major, unforeseen burden for online retailers, especially those who sell daily consumables. At the beginning of the pandemic, items such as toilet paper and canned food made up the majority of all online orders. Now people buy items such as hair dyes, skin care products, and dietary supplements (Richter, 2020).

The online wine retailer Wine Insiders has seen an enormous increase in orders in recent weeks. CEO Zac Brandenberg says he is recording a similar volume of orders as on Black Friday and Cyber Monday. Wine Insiders has so far been able to keep up with demand (Evans, 2020). Other food and household product retailers are also experiencing increased demand but are unable to meet it.

The massive change in buying behavior was not foreseeable and is causing problems not only for small online traders. Even market leader Amazon was not prepared for it, says James Thomson, sales expert and former head of Amazon Services: " They had no time to plan and that’s the really scary part Amazon is great at forecasting when the data is predictable. Well, this was unpredictable" (Palmer, 2020b).

" While we generally have experience in getting ready for spikes in demand for known events like the holiday season and Prime Day, we also generally spend months ramping up for these periods," told Brian Olsavsky, Amazon's CFO investors during a conference call. " The COVID crisis allowed for no such preparation" (Palmer, 2020b). As a result, by mid-March Amazon had to prioritize the dispatch of products in its warehouses and at the same time severely restricted the sale of goods such as face masks and disinfectants (Evans, 2020).

2.2. Procurement and Warehousing

All online shops, whether small or large, are currently struggling with the effects of supply bottlenecks. Production in China has slowed down or has been completely stopped. Products that have already been manufactured may be waiting for shipment. Especially smaller online shops are being hit hard by interrupted production and supply chains. While large online shops usually find alternative sources of supply quickly, a smaller online shop or an Amazon FBA seller is powerless if delivery fails (North, 2020).

Accordingly, it is enough if there is a single deadlock in the tightly linked chain of producers, suppliers, freight forwarders and cargo shipping companies to cause non-delivery. This risk is disproportionately higher if the business is based on dropshipping. Dealers have no warehouses to fall back on in the event of supply bottlenecks. If the producer or supplier is unable to deliver, there is no sale of goods (Muradowa, 2020). This is a major problem for any retailer because according to the SymphonyIRI Group, 70% of buyers go to a competitor if the desired product is not available (Veeqo.com, 2020).

The occupancy of the available storage space is also becoming a challenge. Due to the changes in retailing, some goods are barely moved and containers with new goods are already waiting in the ports. AmazonWhitepaper turned down some of its FBA customers in mid-March, as the dispatch giant primarily stored commodities. Since the beginning of April, these measures have been loosened, but many sellers are still dependent on how Amazon is prioritizing their goods (Internet World Business, n.d.).

2.3. Fulfillment centers

Furthermore, COVID-19 has led to a reduced utilization of human resources in the fulfillment and distribution centers. Buying online shifts the risk of virus infection away from the counter to the warehouse workers in the parcel centers. Here, social distance rules apply, so that workers work further apart than usual, leaving workstations vacant and thus slowing down the overall process. Also, online retailers and fulfillment centers have a reduced workforce when employees are quarantined, sick, or do not want to take the risk of infection (Velicheti, 2020).

To counteract this, while meeting the increased demand as well as keeping the workforce happy in the current crisis, Amazon has invested over $350 million worldwide and has increased salaries by $2.00 per hour for employees working in fulfillment hubs, transportation, and other facilities. The company is also hiring 100,000 additional employees and emphasizes that it has implemented several preventive health measures at locations around the world (Evans, 2020). According to a blog post by Dave Clark, CEO of Worldwide Operations, Amazon has made more than 150 "significant process changes" in response to the COVID 19 outbreak (Nickelsburg, 2020).

Many of these changes are slowing down the process: training new employees takes time, changed processes do not run smoothly at the beginning and some workplaces cannot be occupied due to distance regulations. Convey, a logistics service provider, analyzed millions of packages that were shipped in the USA since February. The data shows that the fulfillment time has increased by almost 40 percent. The same order, which took 15.1 hours to complete on February 23, took 21.2 hours by March 16. For large-format deliveries, the fulfillment time more than doubled from 20.1 hours to 44.4 hours in the same period (Krieg, 2020).

As a result, customer service is also facing new challenges. The increased tension and anxiety caused by COVID-19 is taking its toll: A Harvard Business Review article describes a doubling of the number of "difficult" calls to service center personnel (Dixon, McKenna & de la O, 2020).

2.4. Transportation and Delivery

Besides, there are delays in supply due to bottlenecks in the company's own logistics networks. Usually, when a buyer submits an order for an item that is out-of-stock, Amazon is able to take measures to quickly obtain that product from another fulfillment hub. During the COVID-19 pandemic, these mechanisms are largely inaccessible, and the remaining options are taking longer or are more expensive, says James Thomson. It's a difficult problem to solve as Amazon “can hire a million new people, but it doesn’t matter if there’s no air cargo. One of the reasons Fulfillment by Amazon is so good is they have so many modes of shipping. They figured out how to optimize all those pieces, but all of a sudden, those pieces don’t exist. Amazon is having to optimize its network using higher expense or longer time transportation modes" (Palmer, 2020b).

The dispatch to the end customer is another critical success factor for online retailers in the fulfillment process and at the same time an area that is particularly sensitive in times of COVID-19. This is particularly because parcel shipping requires the physical presence of staff. Coupled with the high volume of orders and bottlenecks at the borders, many delivery service providers are currently experiencing delivery delays. Convey analyzed that the proportion of parcels whose delivery date was missed rose from 12 percent to 17 percent between 1 March 2020 and 24 March 2020 (Krieg, 2020). Besides, a disproportionate number of parcels were not delivered, leading to an increase in the rate of returns (getbyrd.com, 2020).

3. Conclusion

The COVID-19 pandemic has severely restricted stationary retailing worldwide and has led to an explosion in orders of specific product categories from online retailers. The purchasing behavior of the population changed so quickly that very few order fulfillment processes were prepared for this situation. Supply chains broke down, employees were no longer available, and legal distance and hygiene regulations slowed down the order processing process. Also, shipping companies were often unable to meet their normal delivery times, which in the end has resulted in a significant increase in order fulfillment time since the COVID-19 outbreak.

Even Amazon, with one of the world's largest and strongest fulfillment networks, faces a variety of problems and cannot keep its promise to deliver within two days for Prime customers and within two hours for Amazon Fresh orders (Palmer, 2020a). "We have long known about pandemics. We didn't understand their impact on our business and didn't really do much to plan for them," said Joe Dunlap, Global Head of Supply Chain Advisory at CBRE. "I think that given the likely wave two, wave three of COVID-19 and the next pandemic, people are likely to incorporate it into their business plans for the future" (Cosgrove, 2020).

In the long run, the industry will learn from the challenges of the current crisis and, despite the difficulties, can be expected to be the main beneficiary in the future.

[...]

Excerpt out of 9 pages

Details

Title
Challenges for the order fulfillment process of online retailers due to the COVID-19 pandemic
College
Cologne Business School Köln
Grade
2,0
Author
Year
2020
Pages
9
Catalog Number
V912512
ISBN (eBook)
9783346233301
Language
English
Tags
Amazon, Corona, Covid-19, order fulfillment, E-commerce, online retailers, Procurement, Warehousing, Fulfillment centers
Quote paper
Paul Heck (Author), 2020, Challenges for the order fulfillment process of online retailers due to the COVID-19 pandemic, Munich, GRIN Verlag, https://www.grin.com/document/912512

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