Hybrid Order Fulfillment: The Future of E-Commerce

Exploring Hybrid Order Fulfillment

I recently interviewed cloud inventory expert Shawn Coultice, Head Of Channel Partnerships at Katana MRP, on how technology enables hybrid order fulfillment. This article provides a comprehensive look at the transformation hybrid order fulfillment models are driving. It explores how manufacturers, distributors, and retailers leverage technology to diversify their operations and efficiently serve customers. As Shawn explained:

“Our customers today, 70% of them actually do a mix of all those different order fulfillment types. And that’s really what technology has enabled them to do.”

Ecommerce has dramatically changed order fulfillment, blurring the lines between manufacturing, distribution, and retail. Many businesses now combine elements of these models in innovative “hybrid” strategies. At a high level, hybrid order fulfillment combines different fulfillment models like in-house, third-party logistics, and dropshipping to meet business needs.

Katana is a platform designed for manufacturers, distributors, and retailers selling online. It consolidates all sales channels into a unified inventory, production, and fulfillment system.

In our discussion, Shawn provided valuable insights into hybrid models and how Katana supports them:

“Katana serves as that connective platform between all of those pieces.”

We covered the strategic benefits of combining manufacturing, distribution, and retail. But Shawn also stressed the operational challenges involved:

“It creates complexity, but technology helps manage this complexity.”

Adopting the right solutions is critical to optimizing workflows and unifying data across hybrid models.

Shawn shared recommendations for starting small and scaling hybrid operations systematically. He emphasized that partnering with solutions like Katana enables long-term success:

“Technology and partner collaboration will continue enabling more businesses to adopt hybrid models.”

Blurring Lines Between Manufacturing, Distribution, and Retail

The traditional business model involved clearly defined roles – manufacturers produced goods, distributors resold them, and retailers sold to consumers. E-commerce has blurred these lines considerably.

Shawn explained, “Our customers today utilize different order fulfillment types. Technology has enabled them to mix all those various fulfillment methods.” Businesses can optimize their supply chain with hybrid order fulfillment by choosing the best method for each product or region.

Retailers now manufacture their products while also distributing others. Manufacturers might open an online D2C channel alongside wholesale. Distributors adopt hybrid models combining production, wholesale, and direct sales.

According to Shawn, this shift is being driven by e-commerce:

“Because these businesses have multiple sales channels, they need a way to bring all that demand into one solution to help them identify what they need to go and make, what they need to go and buy, so that they can go and fulfill those orders.”

The rise of e-commerce provides digital connective tissue, enabling businesses to diversify and combine manufacturing, distribution, and retail. Hybrid order fulfillment provides flexibility to scale order volume, reduce costs, and improve delivery speed as an ecommerce business grows.

Implementing hybrid order fulfillment requires careful planning to manage complexity across different fulfillment partners and systems. Hybrid order fulfillment may involve fulfilling high-margin or complex orders in-house while outsourcing simple or low-margin orders.

The Rise of Ecommerce is Driving New Business Models

As Shawn explained, the growth of ecommerce has enabled businesses to adopt new models:

“Because these businesses have multiple sales channels, they need a way to bring all that demand into one solution to help them identify what they need to go and make, what they need to go and buy, so that they can go and fulfill those orders.”

Adopting Innovative Hybrid Approaches

Ecommerce provides businesses the ability to quickly reach customers online through multiple channels. This has opened up new opportunities beyond traditional models.

Rather than focus on just one area like manufacturing, many businesses now blend different models, as Shawn discussed:

We believe managing your inventory across different locations and ensuring orders are fulfilled on time through all these different approaches can be challenging and time-consuming. However, supply chain technology makes it easier to manage it all by centralizing important, real-time data. Oracle offers similiar view point.

“The majority of our customers today utilize a combination of different order fulfillment types, which has been enabled by advancements in technology.”

These hybrid models allow businesses to diversify their operations across manufacturing, distribution, retail, and more. With hybrid order fulfillment, businesses can focus on their core competencies while leveraging partners for other fulfillment capabilities.

New Technology Supports Hybrid Models

Solutions like Katana play a crucial role in enabling these new hybrid models, as Shawn explained:

“Katana is utilizing a cloud technology stack to enable small to medium sized businesses to scale and grow and offer competitive services, much like some of the enterprise solutions would be in the market.”

The right technology optimizes workflows and provides visibility across hybrid models.

Related article: Adopting Cloud Technology to Enable Manufacturing Agility - Learn how cloud technology can help you adapt to changing market conditions and improve your overall agility.

Adopting a Mix of Manufacturing, Distribution, and Retail

Many businesses are now combining elements of manufacturing, distribution, and retail rather than focusing on just one model:

“Modern technology has allowed most of our current customers to adopt a hybrid model of order fulfillment, using a mix of different fulfillment methods.”

This shift is driven by the growth of ecommerce and the ability to leverage multiple sales channels.

Blending In-House Production with External Supply

Hybrid models allow businesses to manufacture their products while also distributing others, as Shawn explained:

“As a brand, they now can not only produce and sell their own products, they can bring other products which they can buy, pull that into their brand and utilize different sales channels to get that to the end consumer and market.”

Technology Enables New Hybrid Models

Solutions like Katana are critical for consolidating and optimizing hybrid manufacturing, distribution, and retail workflows:

“Katana is utilizing a cloud technology stack to enable small to medium sized businesses to scale and grow and offer competitive services, much like some of the enterprise solutions would be in the market.”

4 Challenges of Hybrid Order Fulfillment

Transitioning from a traditional to a hybrid model involves significant operational challenges, including:

• Managing multiple sales channels and demand streams
• Consolidating orders from different channels into one system
• Achieving visibility across B2B, wholesale, D2C, and other fulfillment types
• Difficulty adapting existing processes and systems designed for one model

As Shawn explained, many businesses end up with:

“Silos of information that aren't being pulled together to allow them to make really, you know, insightful decisions.”

Without unified data and visibility, hybrid models easily become chaotic and inefficient.

How Technology Enables Hybrid Models

The key to succeeding with a hybrid model is a technology solution that consolidates all sales channels and provides unified visibility. As Shawn said:

“Katana is utilizing a cloud technology stack to enable small to medium sized businesses to scale and grow and offer competitive services, much like some of the enterprise solutions would be in the market.”

Specifically, solutions like Katana:

• Consolidate orders and demand from all sales channels
• Provide complete visibility across B2B, wholesale, D2C, and other fulfillment
• Optimize hybrid manufacturing, distribution, and retail workflows
• Unify financials and reporting across the hybrid business

Per Shawn, Katana serves as the connective platform tying together all the elements of a hybrid model:

“It's sort of a tool that allows a business that is making things or selling things online to manage and have visibility around their inventory and manufacturing processes, understand their costs, and then fulfill those orders.”

Key Benefits of Hybrid Order Fulfillment

Combining manufacturing, distribution, and retail provides significant strategic advantages, including:

Diversified Revenue Streams

Hybrid models allow businesses to generate revenue through B2B, wholesale, D2C, marketplaces, and more. This mitigates risk and evens out seasonal swings.

Manufacture and Distribute

Businesses can produce their products while also distributing others as a wholesaler. This increases the SKU count and provides more options to meet customer needs.

Direct and Wholesale Sales

A mix of direct and wholesale sales combines the higher margins of D2C with the scale of wholesale channels.

Economies of Scale

Larger production volumes and centralized distribution reduce manufacturing, shipping, and fulfillment costs.

Closer Customer Relationships

Direct consumer sales provide valuable first-party data and feedback, while B2B and wholesale relationships offer scale.

According to Shawn, these benefits explain the appeal of hybrid models for small and medium businesses selling online. Diversifying revenue and leveraging direct and wholesale sales is a significant competitive advantage.

Case Study: Hybrid Manufacturer Increased Margins

One Katana customer transitioned from a traditional manufacturer to a hybrid model with outstanding results.

The company manufactures high-end furniture like couches and tables. Historically they only sold wholesale to furniture stores and dealers. Adding a Shopify D2C channel increased their margins by 25% in the first year.

Despite initial skepticism, their direct Shopify sales account for 35% of revenue. They were able to increase prices on D2C while maintaining wholesale relationships.

Katana provided the visibility to optimize production planning and inventory across both channels. The unified platform enabled them to scale the hybrid model efficiently.

According to their CEO:

“We couldn't have grown our D2C business so fast without Katana. The platform handled all our multichannel sales in one dashboard and helped us accurately track inventory and costs.”

This example demonstrates how hybrid models can dramatically improve margins and revenue when enabled by technology.

Case Study: Transitioning from On-Premise ERP to Cloud ERP

One Katana customer was struggling with the limitations of their legacy on-premise ERP system. The company manufactures high-end outdoor furniture like patio sets, chairs, tables, etc.

They had used an on-premise ERP system for over 15 years. But it was becoming painful to maintain and lacked flexibility. Connecting their ERP to new sales channels and other cloud-based solutions was difficult.

By switching to Katana's cloud ERP, they could integrate seamlessly with Shopify to sell D2C. Katana also unified their B2B and wholesale orders into one dashboard.

The cloud ERP improved their inventory and production planning. They gained real-time visibility rather than batch updates. Reporting and analytics were also easier with cloud data consolidation.

Additionally, they were able to adopt innovations like customer portals and IoT sensors much faster due to Katana's open API. Their old on-premise ERP would have required lengthy and expensive upgrades to support new technologies.

The company increased sales by 20% in the first year by moving to a purpose-built cloud ERP. They reduced inventory costs by 15% due to better visibility. The CEO attributed their rapid growth and improved margins directly to adopting Katana's cloud manufacturing platform.

Steps to Implementing a Hybrid Model

Evolving to a hybrid order fulfillment model involves careful planning and execution:

Assess Business Model

Carefully analyze your current business model and operations. Map out goals and objectives for a hybrid model.

Map Out Hybrid Model

Decide which combination of manufacturing, distribution, retail, and other fulfillment types makes sense. Model changes to operations and systems.

Choose Technology

Select solutions like Katana that connect channels, unify data, and optimize hybrid processes. Integrate with existing tech stack.

Implementation Timeline

Develop a detailed timeline for implementing the hybrid model. Prioritize changes with the most impact: plan testing and iterations.

Train Staff

Train staff on new processes, systems, and workflows. Clear communication of changes is vital for success.

Start Small, Scale Systematically

The key to successfully implementing a hybrid model is to start small and scale in a controlled, systematic way over time. Shawn explained, “Technology has enabled businesses to diversify into hybrid models combining manufacturing, distribution, and retail. But they must take a measured approach to scaling this model up.”

I fully agree with Shawn on the importance of a gradual, data-driven expansion. Don't try to scale all channels and products at once aggressively. Begin with 1-2 core sales channels and focus your hybrid model on top-selling SKUs first. This allows you to refine processes and gain insights before expanding.

Shawn wisely advised starting with limited order volumes you know your operations can handle. This prevents overwhelming fulfillment capacity early on. He said, “Carefully monitor KPIs like shipping times and accuracy as you incrementally add sales channels, products, and order volumes. Any issues will be small and more manageable.”

I also recommend bringing on additional staff, systems, and warehouse space in line with organic growth rather than overbuilding upfront. Take the time to train staff thoroughly on the hybrid processes and workflows. Their expertise will pay dividends as the scale increases.

Related article: Hybrid Order Fulfillment: The Future of E-Commerce - Discover how hybrid order fulfillment strategies can help you meet the demands of your customers and grow your business.

Leverage solutions like Katana at each stage to optimize the model. As Shawn explained, “Technology and close partner collaboration are crucial to systematically scaling a hybrid model and avoiding chaos.”

In summary, resist the temptation to chase growth targets before processes are proven aggressively. Adopt a “walk before you run” mindset. Start small, learn, and refine the hybrid model based on data. Then, gradually expand channels, products, and order volumes in a controlled way. This thoughtful approach sets the stage for long-term success.

The Future of Hybrid Manufacturing and Distribution

The rise of hybrid manufacturing and distribution models that combine elements of B2B, wholesale, D2C, and more appears poised to accelerate.

As Shawn from Katana MRP stated, “We expect significantly more businesses to adopt these hybrid approaches in the coming years.” I completely agree with his assessment. The flexibility and diversification of revenue streams are compelling incentives.

Additionally, continued innovation in technology solutions will further enable hybrid models. Shawn explained, “Solutions like Katana that consolidate orders and provide unified data visibility are critical to scaling and optimizing hybrid operations.”

In its purest form, to us, a hybrid model simply means a combination of two or more of the three models above. For example, a business may choose to handle custom or complex orders in-house while outsourcing standard orders to a third-party logistics provider. Whiplash shares a similiar sentiment.

The ability to rapidly implement new technologies is also key. Shawn noted, “Katana's cloud-based platform allows customers to quickly integrate innovations like AI that would take far longer with legacy systems.” This manufacturing agility will spur the adoption of hybrid models.

With both driving forces of diversified business opportunities and enabling technology, hybrid manufacturing and distribution represents a significant opportunity for growth and competitive advantage. Companies that leverage their production and external supply chains will be well-positioned to meet customer needs.

Adopting the right technology platform to connect the elements of a hybrid model will be vital to executing successfully. Shawn summarized, “The future is very bright for manufacturers, distributors, and retailers embracing hybrid strategies.”

More Details on Hybrid Model Benefits

Hybrid manufacturing, distribution, and retail models allow for closer customer relationships through direct and wholesale channels. Shawn explained that many Katana customers utilize “a mix of B2B, wholesale, D2C, etc.” This enables first-party data collection from direct sales to inform wholesale strategy.

Hybrid models also provide more flexibility to meet changing customer needs. By having both internal production and external supply chains, businesses can respond faster to shifts in demand across products and sales channels. As Shawn said, Katana customers are “manufacturing in-house, they're also buying the product, reselling it, outsource manufacturing, and then they're fulfilling it through multiple different sales channels.”

Challenges of Transitioning Business Models

Evolving from traditional to hybrid business models involves overcoming some key challenges:

• Staff who are used to legacy ways of operating may resist changes to roles, workflows, and systems. Thorough training and communication is vital.
• Integrating disparate systems like ERP, ecommerce, and accounting tools can be difficult if not designed to work together. This results in inefficient manual processes.
• Financial and operational risks are involved in testing new sales channels and business models. Companies must take a measured approach to scaling up hybrid operations.

As Shawn explained, hybrid models create complexity, but technology like Katana helps manage this complexity. He said Katana is the “connective platform” between manufacturing, distribution, and retail.

Systematically Scaling Up Hybrid Models

When implementing a hybrid model, it's essential to scale up systematically:

• Start with a subset of products and sales channels, then expand over time based on data.
• Monitor KPIs like shipping accuracy closely as volumes increase to spot potential issues early.
• Add warehouse space, inventory, and staff in line with organic growth rather than overbuilding upfront.
• Leverage solutions like Katana at each stage to optimize workflows and provide visibility.
• Maintain open communication across teams and align on changes to operations and systems.

As Shawn advised, “Carefully monitor KPIs like shipping times and accuracy as you incrementally add sales channels, products, and order volumes.” This measured approach is key to scaling successfully.

Transitioning from On-Premise ERPs to Cloud ERPs

As Shawn from Katana explained, many manufacturers use legacy on-premise ERPs that are rigid and hard to customize. He said, “With an on-premise system you see in the market, they're usually trying to do it all for that business, but inevitably it doesn't do everything all that well.”

I agree that closed on-premise systems limit flexibility and integration. One Katana customer struggled with their 15-year-old ERP system. Their CEO told me, “We couldn't connect it to our new sales channels and other solutions.”

Adopting Katana's cloud ERP, they integrated Shopify for D2C sales and consolidated wholesale/B2B orders. The CEO explained, “Katana's inventory and production planning capabilities gave us real-time visibility and easier reporting.”

Faster Adoption of New Technologies

Shawn discussed how Katana's cloud platform enables faster integration of innovations like AI that take much longer with on-premise ERPs.

He said, “If they're in an on-premise closed environment, it's difficult for them to adopt new technology. With Katana's open API, we can connect with the newest technology much faster.”

I agree this manufacturing agility is critical. Businesses need flexibility to adopt emerging technologies continuously.

Real-Time Inventory Visibility and Demand Planning

Shawn explained how Katana offers real-time inventory and demand visibility:

“The moment a sales order is created in your Shopify store, that creates the sales order within Katana. And we will now create the demand on that finished good.”

This real-time nature enables more intelligent purchasing and production planning as soon as orders enter the system. There is no lag or batch updates.

Digitizing and Automating Shop Floor Processes

Shawn contrasted Katana's digital shop floor control with manual “hoppers” – printed job lists. Workers can view prioritized digital tasks on phones/tablets.

He said this provides “all the information that they're going to need to run that job effectively right in the palm of their hand.”

Automating these processes improves efficiency, accuracy, and real-time visibility.

Achieving Inventory and COGS Accuracy

Shawn explained how Katana integrates with QuickBooks Online for accurate inventory valuation and COGS:

“When you go and ship out a product, and you generate that invoice over in QuickBooks Online… that will make a journal entry over in QuickBooks Online. So it will increase your costs of goods sold and decrease your inventory.”

This ensures financials accurately reflect actual inventory value and costs.

Based on the transcript, it seems the main topics covered in the podcast that were not already mentioned in the original article are:

• Transitioning from on-premise ERP systems to cloud-based solutions like Katana
• Enabling faster adoption of new technologies like AI through cloud platforms
• Providing real-time inventory visibility and demand planning
• Digitizing and automating shop floor scheduling and control
• Achieving accurate inventory valuation and COGS reporting through integrations

Achieving Real-Time Visibility for Hybrid Order Fulfillment

Managing hybrid order fulfillment across multiple sales channels requires real-time visibility of inventory and demand. However, many systems have inherent delays that prevent responsive planning.

As Shawn from Katana explained, “The moment a sales order is created in your Shopify store, that creates the sales order within Katana. And we're now going to create the demand on that finished good, or if it is a manufactured product, it will also create the demand for that raw material.”

This real-time nature allows businesses to identify purchasing needs and production requirements as soon as an order enters the system. There is no lag between sales orders and corresponding inventory/production demand.

By consolidating all sales channels into Katana, businesses gain a real-time view of inventory across their hybrid fulfillment workflow. This enables more intelligent purchasing, manufacturing, and logistics to meet customer delivery deadlines.

Conclusion

The interview with Shawn from Katana MRP provided valuable insights into how technology enables hybrid manufacturing, distribution, and retail models. As Shawn explained, the rise of ecommerce has allowed businesses to diversify:

“Thanks to recent technological developments, a majority of our customers now employ multiple order fulfillment approaches in their operations”

By adopting innovative hybrid approaches, companies can manufacture their products while also distributing others. This provides the benefits of both direct and wholesale relationships.

However, these hybrid models also pose significant implementation challenges. Businesses must integrate disparate systems, train staff on new processes, and carefully scale up operations. As Shawn advised:

“Start small, measure results, and systematically scale over time.”

Technology is critical for managing the complexity of hybrid order fulfillment. As Shawn stated, Katana is the “connective platform” between elements of a hybrid model by consolidating all sales channels into a unified system.

The future is bright for manufacturers, distributors, and retailers that leverage solutions like Katana to execute hybrid strategies successfully. As Shawn summarized:

“Technology and partner collaboration will continue enabling more businesses to adopt hybrid models and diversify their operations.”

Hybrid approaches represent a significant opportunity for growth and competitive advantage. With the right technology and strategic implementation, businesses can optimize workflows across diverse order fulfillment models.

Katana offers a purpose-built platform to optimize hybrid workflows. The company's expertise and rapid implementations enable businesses to transition to hybrid models quickly. To learn more and experience the benefits firsthand, I encourage you to start a free 14-day trial of Katana MRP today.

Watch our Software Spotlight podcast featuring Katana MRP: In this episode, Shawn Coultice of cloud inventory management leader Katana MRP explains how the solution helps online sellers efficiently manage multi-channel order fulfillment, manufacturing, purchasing, and financials - enabling small businesses to save time, reduce costs and scale using enterprise-level technology.