Major crises rarely appear out of nowhere. There are warning signs, ominous developments, and missed opportunities to intervene in time. The complexity of the interrelationships often leads to the inevitable: an economic crisis or the bursting of yet another bubble. Since World War II, the Western world has been largely spared major disasters and catastrophes. Brexit itself was considered manageable, without causing major problems for the EU.
Micro-fulfillment – crises rarely come alone – Image: Victor Runov|Shutterstock.com
corona crisis
The COVID-19 pandemic changed everything abruptly. Existing problems and bottlenecks became particularly noticeable in logistics. Supply chains were disrupted, and the population's needs could only be met with emergency logistical solutions. For shipping logistics, 2020 saw a volume of work comparable to the Christmas season, almost a full year's worth of business.
It's slowly becoming clear to everyone that the current situation is not temporary. That the changes already implemented will be permanent and will become the norm.
Some, however, still seem to cling to the desperate hope that this is just a storm that will pass and then everything will continue as before. Anyone who thinks this way is mistaken and is losing valuable time to the competition.
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- 7 points and one chance: The Corona pandemic is forcing us to rethink our approach
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- Lessons learned from the crisis: Logistics as a key factor
Above all, the big players, especially Amazon, are the big winners and profiteers of this crisis. Small and medium-sized e-commerce businesses are becoming increasingly dependent on digital platforms. Many now generate their leads almost exclusively through these platforms and major social media channels, instead of utilizing multiple digital sales channels. SEO has long been neglected. Investments are increasingly focused on automating lead processing instead of expanding performance marketing. New, distinctive approaches are no longer being developed or even sought. Their own digital microcosm is being lost. It's also worrying to see established industries competing with each other year-round with 20-30% discount campaigns to attract new and existing customers.
Marketing crisis
Budgets are increasingly shifting towards paid ads on Google and other platforms. Anyone being honest knows that a 600% return on advertising spend (ROAS) in social media is a pipe dream for many. When agencies celebrate a 150% ROAS as a success, it's just smoke and mirrors.
If I generate €7,500 in revenue with an advertising budget of €5,000 (150% ROAS), this doesn't include the advertising agency's fees, nor my own other costs such as wages, rent, supplies, etc. Even a 300% ROAS is unsatisfactory. Anything above that is hard to find. The big winners of "our" advertising campaigns and lead generation efforts are ultimately the social media giants Facebook and others.
It's also alarming to see that many are intensifying their marketing efforts through social media, directing their customers there. This essentially means sharing their customers with Facebook and other platforms, thereby exposing them to the competition. Many are unaware of this mistake and are implementing funnel marketing in precisely the wrong way. Many forget that this very data—customer data, their contacts, their behavior and interactions—is the capital that the social media global players know how to exploit to their advantage: through advertising, including advertising from our competitors.
Fulfillment crisis at Amazon
Individual orders and deliveries are costly, time-consuming, and hardly profitable unless you specialize in them. Therefore, many companies outsource their e-commerce business and use fulfillment service providers. But not all fulfillment services are created equal. Large, well-known fulfillment service providers like Amazon, Arvato, DHL, Fiege, Hermes, XPO Logistics, and Kühne + Nagel differ in their areas of expertise.
Amazon, for example, provides a sales channel along with its eponymous digital platform. Amazon is particularly generous with its returns management, especially at the expense of its partners. The partner and merchant are always held responsible for shipping errors.
It can also happen that Amazon unilaterally and independently extends the payment terms, blocks certain items and already received payments, and removes them from the listing. Reactivating the item on the Amazon platform is usually possible (but not always possible) through a complex procedure.
Everyone needs to be clear about what they are getting into and to what extent they are becoming dependent on fulfillment services.
When shopping on Amazon, it's important to be aware of the market environment. Chinese online retailers are becoming increasingly dominant on the platform. The number of Chinese sellers is also rising significantly on the German Amazon marketplace. According to a recent analysis by the US company Marketplace Pulse, Chinese online retailers now outnumber Chinese sellers on Amazon.com for the first time. Of the top 10,000 sellers on Amazon, 49 percent are based in China, while only 47 percent are based in the USA.
In Germany, the number of Chinese sellers on Amazon has also increased by 10 percent, reaching a current share of 38%. Last year, it was 28%. However, among the top 100,000 sellers, Chinese sellers have already overtaken German sellers, holding 41% compared to 33%. In France, the share among the top 10,000 sellers is 55%, in Italy 53%, and in Spain 58%. The trend is upward.
One problem is not only that not all Chinese products comply with European or German regulations, but it is also unclear to what extent the applicable tax is correctly paid.
Amazon is struggling. This, but not the only factor, explains why Amazon's delivery reliability and customer service have apparently declined. The COVID-19 pandemic has certainly contributed significantly, and Amazon is fighting back with all its might, including a new micro-fulfillment project.
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Fulfillment problems
Even before the COVID-19 pandemic, a new trend was emerging. Thanks to technological advancements and the growing demands of e-commerce from its impatient customers, the same-day delivery concept has increasingly come into focus, as has its feasibility. Same-day delivery is a type of courier express parcel service that delivers packages faster, ideally within one calendar day or a scheduled time window. Although same-day delivery in Western Europe was projected to reach a volume of three billion euros by 2020, due to higher costs and customer frugality, it was initially expected to remain a niche market. However, the COVID-19 pandemic is expected to change this significantly and accelerate its growth.
The COVID-19 pandemic, for example, has forced a decisive step forward with video conferencing. Companies are rethinking their approach. The longer business travel, especially internal international travel, is replaced and learned through video meetings, the more the need for long-haul flights will decrease.
Working from home is another good example. What was previously almost impossible has suddenly become commonplace, and one wonders why it took so long. Of course, not everything that glitters is gold, but it has nevertheless expanded and simplified the possibilities for a more flexible working environment.
Related to this:
- Courier, express and parcel shipments in Germany
- Same Day Delivery
- Last Mile Logistics – Facts You Should Know
The closure of shops during the pandemic quickly exposed the major weaknesses of our e-commerce system. While many everyday items can be ordered online, they are far from being available with "fast" shipping. Several days are not uncommon. Local pickup services, if they exist at all, are mostly rudimentary. Whether drive-through, click & collect, or vending machines, everything had to be set up in record time. This didn't always work. A shoe retailer in my area sold a pair of shoes to a neighbor at his front door without permission. He was seen and reported to the police. A fine will follow. Financially, it certainly wasn't worth it, even though one can assume that providing quick assistance was the primary motivation.
Existing fulfillment solutions do not allow
- a) Small orders and
- b) Fast deliveries (Same Day Delivery)
not optimally cost-effective.
Especially in the food sector, where the perishability of goods necessitates rapid delivery, micro-fulfillment is the next necessary step.
Micro-fulfillment
Daifuku, the world market leader in intralogistics, has already successfully implemented such a system:
In general, Japan is already a few steps ahead of us in this regard. More on this here:
A fundamental requirement for this is an automated warehouse system. In micro-fulfillment warehouses, pickers and customers don't get in each other's way. The automated pickers (robots) are in operation around the clock, all year round.
The human factor is important
Because micro-fulfillment is very cost-intensive, this must be offset by automation, automated processes, and robotics. An autonomous warehouse alone will not work. Consulting and services are crucial for acceptance and success.
It is not simply about reducing contact between sales staff and customers because of the Corona pandemic.
It's about the absolute freedom to decide whether the goods can be ordered locally, via mobile device, or at home. It also includes whether and where the goods can be delivered, or, if desired, picked up and even continued as an on-site purchase.
Flexibility in the possibilities is a key characteristic of today's economic thinking.
It is not progress if we transform customer-staffed stores into autonomous sales hubs where there is no longer room for interpersonal questions and advice, complaints and many other services such as letter and parcel drop-off, and this therefore represents a blatant step backwards.
Conditions for micro-fulfillment from the customer's perspective
Home Shopping
- Collect goods
- Continue shopping on site
- Delivery service
Mobile shopping
- Collect goods
- Continue shopping on site
Hub Shopping
- Online shopping in the meeting area (e.g., in a cafe, Hubspot)
- Real shopping experience
Payment systems
- Cashless
- Contactless payment
- Paying at the non-autonomous checkout (presence of cashiers)
Special features
- 24/7 Service – Shop and receive your goods around the clock
- 24/7 Meeting Area – Café, snacks etc. available around the clock
Daifuku's Business Development department is an excellent point of contact for expert advice and support. Market leadership, many years of experience, and personal contact are key factors for the Daifuku team in understanding its customers' concerns and problems and offering solutions.
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