Discussing present-day fulfillment challenges with Fulfillment by FHB Group Managing Partner Ľubomír Fogaš

The business of e-commerce, fulfillment and last-mile has hot up significantly in recent years, with the well-known pandemic effect boosting online purchases all over the world. Labour shortages, supply chain disruptions and high energy costs, as well as the pressure to decarbonise, are nonetheless all challenges that the sector needs to grapple with.

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Just as is the case in most areas of the world, fulfillment centres in Central Europe are reacting to these developments. This includes the Fulfillment by FHB Group, which operates the largest fulfillment centre in the region.

The business, which has been in the fulfillment market for more than 15 years, claims it can easily deliver packages to the end customer in most European countries within 24/48 hours, using its own direct line hauls in combination with proven last-minute couriers.

The company says it has grown on average twice since its establishment and made regular investments in its warehouse capacity, automation, and information systems.

How is the business dealing with the aforementioned challenges though? And what are its best practices during this intense period of change?

To find out the answers to these questions and more, we spoke to the Fulfillment by FHB Group’s Managing Partner, Mr Ľubomír Fogaš.

E-commerce has developed a lot in the last few years. Before the pandemic, buying items online often meant purchases from stores that didn’t have brick-n-mortar shops. But with the coronavirus restrictions, this trend changed in Central Europe. How has this affected the services fulfillment centres provide?

The world is moving forward, whether through technology, capabilities or even in the e-commerce environment. But sometimes it gets hard to get used to new things. However, online shopping has been growing for a long time. This trend is everywhere in the world, although it is true that it is different in various countries. Even so, that doesn’t change the need for retailers to move forward and be competitive in the market.

The growth in the number of e-commerce clients is therefore normal, which also brings greater interest in 3PL fulfillment services. This is a natural development that has jumped even more significantly with the onset of the pandemic. Moreover, it has only accelerated the trend of brick-n-mortar shops switching to e-commerce solutions, and existing large e-shops continue with further expansion.

For us, as a fulfillment centre, this is good news. We have solutions for processing orders in all countries of Europe and the world, and sufficient capacity to expand our clientele. We observe this interest in e-commerce logistics outsourcing from all over the world, which gives us positive prospects for the future.

In addition to purely e-commerce customers, our clientele also includes traditional stores that use e-commerce sales as one of their sales channels. The number of traditional shops with e-shop solutions is still growing, and those who already have them can see an increase in the number of orders and constant development.

The development of the e-commerce channel in traditional stores did not burden us too much, as our services are set up to meet the needs of different clients. This change has had a rather positive impact. E-commerce logistics is much more specific and demanding than the classic logistics involving a store and a traditional logistics provider.

As a result, the traditional store with an e-commerce channel is looking for solutions to better manage their processes, and we can provide these clients with the required services.

Although our priority is to provide B2C orders, we will also process B2B orders for their brick-and-mortar stores. As a result, the traditional store with the e-shop has a complex solution to its logistics needs.

Was there a huge leap forward in online shopping during the pandemic? Could fulfillment centres such as yourselves keep up with the demand?

Yes, there was a leap, but every good fulfillment provider must be prepared for that. And we are among them. We regularly invest millions of euros in automation, storage expansion and information systems.

Last year, for example, we launched a high-speed packaging line, which is also the fastest in the world. We also expanded the warehouse-picking zone with a new, extensive multi-storey shelving system. Similar investments like that will continue in the future.

The reason we are constantly improving our services is the ever-increasing demand. There are also several peaks during the season, such as Mondays, various sales events, and, of course, the Christmas season.

But it is true that it was the gift-shopping under the Christmas tree that surprised us in the last pandemic year. Traditionally, this part of the season lasts from Black Friday until 3-4 days before Christmas.

Last year, this shopping fever was extended and lasted from about the end of October for about 2 months. During this period, demand was very high. But the customer is not interested if you are catching up with high demand or not, and wants the goods as soon as possible. Therefore, we are preparing in advance for the busiest parts of the season so that we can handle them without major problems.

Moving on to the topic of operations and storage, ideally, inventory should not sit in a fulfillment centre for a long time. On the other hand, a seller’s nightmare is running out of stock. What is the ideal scenario and what is the reality?:

The long-term storage of goods is not ideal for the seller in terms of tying up resources in those goods as well as storage costs. On the other hand, the lack of goods in stock is a problem in terms of the availability of goods while managing orders. There are clients who have goods with us for a longer or for a seasonal period, but there are also clients whose products come to us and leave almost immediately.

The client has the last word in terms of the quantity of goods. It is up to them to decide what volume of goods they want to store. Our system has a perfect overview of how many goods are in storage or what their expiration date is. It also has an overview of orders and their status. The seller keeps track of each month in terms of orders, how demand develops and, based on that, adjusts the storage of his products. This prevents the goods from standing in stock unnecessarily, and the seller will not have to pay extra money. Thanks to that, sellers are able to prepare in advance for the peaks of the season and higher demand.

In a fulfillment centre, it is important how to approach various goods. For example, electronics do not have an expiration date, but products such as organic food or similar groceries do.

In this case, we use the FIFO method, which means the first goods that arrive also leave first. This ensures that the goods fluctuate and reduces the risk that the goods will expire, break, or be in stock for a long time.

The advantage of our warehousing system is that it largely eliminates the human factor. It assigns goods to their positions and decides which ones should go to sorting and packing. By multiple scanning and weighing, we also reduce the error rate of the process to zero.

What are the biggest challenges fulfillment centres in Central-Eastern Europe face now?

The biggest challenge for us at the moment is not to be satisfied and to continue with the company’s growth. We have been achieving this by investing in automation, informatization and acquisitions. Because of that, we are and will be competitive, or we will even extend our leadership to other parts of Europe.

There is also a lot of staff turnover or absences at fulfillment centres, which the pandemic reminded us of. Orders don’t just wait because a department is missing an employee. The big challenge for 3PL companies is, therefore, to better adapt the work organization and conditions for employees. Fortunately, we are doing well. In difficult times, departments can help each other, which eliminates the risk of delays.

Among other things, the price of energy and packaging materials have been rising in the world for the last year. This is not a small increase, but a relatively significant one. There are no preconditions for a more notable decline. This takes us to the question of how logistics centres will be dealing with these rising costs in the upcoming months.

Closed ports in China, delays and overcrowded ports in the USA or UK, container shortages – the many supply chain problems we have seen in recent years have raised the question of whether Europe needs more warehouses, distribution or fulfillment centres to become less dependent on Asia. But, at the same time, free space is limited and expensive in Europe. How do you think this issue could be managed the best?

Yes, these pandemic issues have also caused problems for our sellers, with delays in warehousing, and some e-commerce representatives have not even been able to travel abroad to arrange the purchase of goods. But with gradual stabilization, these production and logistics processes will also return to normal.

However, we register an interesting trend in which Asian e-shops, particularly Chinese ones, are either building their own warehouses or using the services of fulfillment partners in Europe.

Their purpose is to ensure the smooth transport of packages and goods to Europe. This is important for them both in terms of customs solutions and faster delivery. From the point of view of the type of service, they choose either cross-dock, which is immediate transfer without storage of goods, or complete fulfillment. We also store, pick and pack their goods, thanks to which they are sure that if a problem occurs, it will not disrupt delivery to the customer.

Big warehouses outside of cities – smaller ones inside the cities. As green logistics is getting more important, what used to seem like a good idea (building huge storage buildings outside of cities where there is plenty of space for relatively smaller money) receives more and more criticism. What do you think is the way forward?

In bigger cities, building larger warehouses is both urbanistically and economically unsuitable. Outside of the cities are more friendly conditions. However, it often happens that warehouses are built on fertile land, which is not entirely ideal from the point of view of greener logistics. Nevertheless, the higher the demand is, the more goods must be produced and restocked. Therefore, a step forward in this matter is both, the proper selection of the construction site, and the full use of these warehouse spaces.

There are different ways of storing goods where space can be saved and thus large warehouses are not required. For instance, various shuttle storage systems, multi-storey shelving systems, or others, where the warehouse can be used to their full height. The benefits are in a less used land area, there may also be lower heating costs and transport routes within the warehouse, which all help the environment.

In terms of green logistics, there are also other solutions that are in favour of the environment. One of them is fit-to-size packaging, where the machine scans the goods and adjusts the size of the packaging material exactly to its dimensions. This means we don’t have to fill the air in the box with fillings, and we can also put more packages in the transport lines. For example, if we fill two vehicles with fit-to-size packages, the third is completely empty compared to traditional packaging.

These are the things that ultimately decide the carbon footprint of each package. Materials for packaging, sorting, recycling of waste and more are added to them. This is one of the ways to move towards greener logistics. At the same time, we should not forget about electric cars, which will gradually find their way into logistics.

One of the biggest fulfillment service providers is Amazon. However, it doesn’t operate everywhere in Europe. Is it a benefit for independent fulfillment centres or would Amazon help by accelerating e-commerce in these countries?

Amazon provides fulfillment mainly for clients who sell through their marketplace. As the number of their clients expands, so does Amazon and the volume of packages they manage. The entire Amazon fulfillment process is subject to a set standard that does not give retailers room to adapt to their requirements, as our services do, for example.

However, sales through Amazon are only part of the e-commerce space. Therefore, in the usual e-commerce space at classic e-shops or at retailers in other marketplaces, where Amazon does not offer solutions for these retailers, our fulfillment services come to the fore.

The advantage of Fulfillment by FHB Group is also that we are compatible with Amazon’s capabilities. Thus, if our client has orders on Amazon and is responsible for their dispatch, we can process and deliver them according to the Amazon standard, via the FBM (Fulfillment by merchant) service. We also prepare for FBA (Fulfillment by Amazon), where we pre-package and mark the goods to the standards for their receipt at the warehouse.

While the unemployment rate has increased during the pandemic, the logistics sector is thirsty for labour. Why is there such a big labour shortage in this sector?

As e-commerce grows, so does logistics. Mathematics will not let go here, and with the growing number of orders, a larger number of employees is also needed. The lack of employees does not only concern logistics, but also gastronomy, agriculture and other sectors. For example, in Slovakia, where we have the two main warehouses, in 2021, unemployment was the lowest it has been in the last 10 years.

The fight for employees is therefore natural throughout the market, as everyone needs to ensure the continuity of their processes. In the end, the details that matter the most, like what kind of work it is, what the conditions are in the company, the environmental benefits, and more. Of course, as an employer with a large number of employees, we are aware of this.

We therefore work to make our employees happy. We are constantly continuing to improve the organization of work and conditions for employees, because, after all, satisfied workers subsequently perform quality work.

Sooner or later, however, it is necessary to reasonably replace certain activities with automation, which we will also implement. This ensures the smooth operation of our company and eliminates the risk of staff shortages in the logistics sector in the future.