It’s the end of the year so it is clearly time to see what is up with how retailers are handling holiday logistics. A useful starting point is this graphic from the Wall Street Journal (As Web Sales Spike, Retailers Scramble to Ship From Stores, Dec 1).
This shows how Toys R Us fulfills its web orders. And, yes, that says that over 40% of the web sales were fulfilled from stores. (To put that total in perspective, the company’s revenue last year was $11.8 billion.)So I must admit that this number kind of surprised me. Plucking items from store inventory to pack up for UPS has to be more expensive than doing the same thing in a fulfillment center set up for picking and shipping. Doing so much volume from stores has to be affecting Toys R Us’s bottom line.
There are some caveats to this. First, there is a question of what is meant by “fulfilled from stores.” They may well be counting items that customers order to pick up from the store (i.e., click-and-collect). The labor costs of picking such orders should be higher in a store than in a fulfillment center, but the firm won’t have to pay shipping costs. Additionally, if customers favor the click-and-collect model for larger or more expensive items (e.g., a big doll house as opposed to a Barbie outfit), the firm could really benefit. Finally, if these end up being relatively large dollar amounts, then the stores role in fulfillment will be rather inflated in the sense that something well less than 40% of orders are shipped from stores even if stores account for 40% of web revenue.
Having said that, it seems that Toys R Us is doubling down on using stores to back up web sales.
[T]he Wayne, N.J., company has prepared nearly its entire chain of 870 stores to help ship web orders during the holidays. It started cramming its stores with as many goods as possible weeks earlier than last year, and is offering bonuses and better wages to recruit seasonal warehouse workers. …
The chain started stocking up on inventory in August, weeks earlier than last year. Larger items such as playhouses and gear for its Babies “R” Us business also were shipped to stores earlier to free up its supply chain so it has maximum flexibility during peak times.
There is another consideration here, labor. Yes, a toy retailer has to staff up for the holidays, but that’s going to be most relevant for weekends and evenings when people are out of work. Tuesday mornings, say, should still be relatively dead and stores may be able to use experienced staff to assemble orders. At the fulfillment center, you are going to end up with green workers handling a lot of orders. That also affects costs.
Or does it? That gets us to a second Journal article (How Amazon Gets Its Holiday Hires Up to Speed in Two Days, Nov 28), which discusses how Amazon gets novice warehouse workers to be productive quickly.
To prepare for the flood of holiday orders already under way, the retail giant has been using technology ranging from touch screens to robots to shrink the time it takes to train new hires to as little as two days, compared with up to six weeks for a conventional warehouse job.
The shorter training period saves Amazon money, and could give the company room to offer higher wages as it seeks to expand its workforce about 40% by adding 120,000 temporary workers at its U.S. warehouses for the peak sales season that runs roughly from November through December.
So what is Amazon doing? In many ways, it is a pretty classic substitution of capital for labor — for example, using robots to move material around. But they are also providing decision support tools to simplify tasks. For example, how do you know the correct box size to use? That is, something that presumably takes some practice to get good at. Unless, of course, you semi-automate that decision.
Amazon’s newest facilities incorporate the most automation, using screens, robots, scanners and other technology to quickly get workers up to speed, according to Mr. Olsen. Amazon trainees get hands-on training as early as their first day on the job, which he said has proven to be a huge advantage in getting them up to speed. On the warehouse floor, they learn how to pack up shipments, coached by a screen that tells them which box size to use and automatically spits out a piece of tape to fit it.
The payoffs to this are multifold. First, when you hire someone, they are a productive team member sooner, an obvious benefit. Additionally, this lowers the cost of turnover; having an experienced worker leave is less painful if a new hire can be working at a similar level of productivity within days as opposed to weeks. Finally, a lot of these approaches will payoff year round and not just at the holiday rush. Getting people to use the most appropriate box size is good thing even in July.