Fulfillment Strategies: Is Your 2021 E-Commerce Plan in Place?

Fulfillment Strategies: Is Your 2021 E-Commerce Plan in Place?

This is important for many reasons, not the least of which is the big uptick in e-commerce that’s occurring in 2020, and that will likely continue well into 2021. Already increasing year-over-year, U.S. e-commerce sales were up 43% in September 2020, having grown by 42% the prior month. This growth impacted manufacturers, distributors, and retailers, many of which were unprepared for the onslaught. 

If you spent most of 2020 just trying to get through the pandemic, it’s time to dust off your supply chain, logistics and transportation plans and make sure your fulfillment strategies align with your 2021 e-commerce goals.

Changing Business Models 

As a whole, the pandemic was a wakeup call for these companies that were forced to question some of their fundamental assumptions. 2021 could bring an entirely new set of supply chain, logistics, and transportation challenges with it. 

“As many executives heave a sigh of relief, they are also preparing for a dramatically different environment in 2021,” Industry Week points out. 

“Recent economic challenges have forced manufacturers to change their business models, seemingly overnight, to stay competitive and prepare for not just recovery, but unprecedented growth,” it continues. “However, it may be difficult for manufacturers to keep up with both a snap-back in demand and a huge appetite from customers for innovative products and solutions.”

Navigating the New Fulfillment Normal

Under normal circumstances, companies can add labor and shifts to make up for throughput problems in their warehouses and DCs. With social distancing guidelines in place and the need to keep employees healthy a huge issue for companies right now, simply throwing labor at the problem doesn’t work anymore. 

These realities directly impact customer service which, in turn, affects margins and revenues. When customers feel like they’re being kept in the dark or that they’re not in control of the ordering and shipping process, they’ll take their business elsewhere. 

Here are six more strategies that all companies should include in their 2021 plans: 

  • Get your parcel shipping act together. In a world where nearly all customers expect their goods in three days or less, and where 30 percent of them expect them next day, you can’t reduce shipping costs at your customers’ expense. With this emphasis on delivery expectations, companies have to create parcel strategies that acknowledge the fact that shipping is the highest cost component of any e-commerce order.   
  • Watch your accessorials and peak surcharges. With the parcel carriers continuing to roll out increasingly-complex pricing strategies and inflating rates due to the lack of competition, shippers also have to keep a close eye on accessorials and peak surcharges at the package level. Understand how it’s impacting your costs and how to adjust and adapt moving forward into 2021. If SKU-level profitability is an important KPI, for example, then add that to list of metrics to measure. 
  • Consider a multi-carrier solution. There’s a lot of good value to be had by working with regional carriers and freight consolidators. Varying your approach also helps support customers’ delivery expectations. Amazon, for example, has worked hard to ensure high levels of visibility that starts when an order is placed and that doesn’t end until the package is on the buyer’s doorstep. With more of these customers having same-day and next-day delivery expectations, the multi-carrier approach can help support your overall fulfillment strategy and even make it more affordable. 

  • Rethink your fulfillment approach. To meet your customers’ fulfillment needs, you can either offer a higher shipper service level or you can change how your product is fulfilled and positioned (i.e., either with a bicoastal or multiple fulfillment level location plan). Whether you’re fulfilling it yourself, using a third-party logistics provider (3PL), or a hybrid approach, the key is to look to 2021 and beyond when setting up these networks. 
  • Use advanced technology tools. To get a head start on 2021, companies can tap into the tools that help automate, personalize, and engage virtual transactions, and that fuel their e-fulfillment engines. Cart integration, for example, automatically answers buyer questions like: How much is it going to cost? What are my shipping options? And, is there an opportunity for me to pick it up in-store? Through that integration and automation, the customer gets the choice and the control that they’re looking for today.
  • Focus on more than just the sales process. Companies should also consider post-purchase experience and post-purchase engagement tools, both of which automate the customer buying journey. These data-centric tools also lighten the workload for your customer service team. Finally, having shipping analytics right down to the individual order level puts the power of business intelligence (BI) into the shipper’s hands, and allows it to make good decisions based on accurate, relevant information (versus just guesswork).  

While it’s easy to get mired in the complications of 2020 right now, you’ll be much better prepared if you break the mold and start planning for the future today. That way, you’ll be in the right position and ready to pivot—in whichever direction is necessary—when 2021 comes. 

6 Qualities to Look for in an E-Commerce Logistics Partner

With changing customer demands, new carrier surcharges, COVID, and other challenges taking a bite out of shippers’ bottom lines right now, those companies are best served by logistics partners that bring a high level of value to the table. Even better, they do this while helping shippers overcome their key pain points and achieve their organizational goals.

If your e-commerce logistics provider isn’t living up to expectations in these six areas, it may be time to find one that will.

  1. Technology Systems that Mirror the Carriers’ Own Systems
    This allows the provider to estimate cost impact and predictive modeling to the penny. Every time the carriers make a change, that change should also be made in your provider’s system.
  2. A Strong Team of Subject Matter Experts
    That team should include engineers and analysts that know how to leverage the carriers’ profitability areas to gain better advantages for you (versus what a traditional account rep can manage). Our experts regularly share their insight with the marketplace.

  1. Ongoing Analysis and Strategic “Thinkery”
    Look for a partner that thinks well beyond the “one and done” approach. Today’s business environment requires a partner that focuses on continued delivery optimization and cost mitigation.
  2. A Proactive Auditing Function
    Rather than relying on a reactive mindset (e.g., asking for the same refunds over and over again), your provider should be working with an “identify and repair” mindset to eliminate these potential issues and mitigate ongoing costs.
  3. Advanced Analytics and KPI Tracking
    As e-commerce continues to grow, you need a partner that is constantly innovating and adding functionalities like margin management, SKU-level profitability, KPI tracking, order performance management and high levels of supply chain visibility.   
  4. A Problem-solving Mindset
    When new accessorials or surcharges are released, your logistics provider should be measuring the impacts of those changes on your budget and helping you mitigate those impacts.

Master Your E-Commerce Supply Chain

Possessing these key qualities, we bring our client partners ongoing value as they race to meet demands for delivery speed, service and choice. Supporting your efforts to enhance customer experience, we also implement strategies to control costs so that you can maintain awareness of how each and every product and customer is performing. 

Our Parcel Experts created “You Shipped It, but … Did it Make Money?” to identify some of the emerging challenges that jeopardize your profit. It highlights our approach in the marketplace and gives you a glimpse into the level of analysis that we bring our customers. 

Let’s take a deeper look at the supply chain challenges you are experiencing. Reach out to our supply chain masters today to begin a conversation about your personalized solution.

Margin Management: Why Are You Selling Money-Losing SKUs?

In July, Coca-Cola announced that it was cutting some “zombie brands” and focusing its resources on more profitable lines by introducing margin management. The company has about 400 master brands, half of which are brands of little or no scale and that account for about 2% of the firm’s total revenues. 

These brands (Odwalla juice and smoothie brand was among the first to get the axe) consume resources and divert money and time away from Coca-Cola’s more profitable businesses. 

Do you know the products that are consuming your resources without delivering the profitable benefits of sale?

Following Suit

Shippers of all sizes can borrow a page from Coca-Cola’s playbook which takes the examination of SKU viability to new levels by assessing (and in some cases, eliminating) entire brand portfolios in order to determine which products are making money, and which ones aren’t. 

When you understand SKU viability, you can refine your marketing messages, pricing, pass-through costs, and other elements that determine whether you make money on an order (or not). The key is to determine which products are “winners” and which are “losers,” and then focus on the former. Weed out the products that are not making money and focus on the ones that are profitable.

Use the 80/20 Rule

The Pareto Principle (80/20 Rule) comes into play here, and asserts that roughly 80% of the effects come from 20% of the causes. Recognizing that 20% of your SKUs typically represent 80% of your sales volume, determine a baseline. Focus on what it costs to pick, pack and ship each of those different SKUs. 

There aren’t many companies that have a good handle on profitability at the individual SKU level, particularly when factoring in fulfillment costs, inbound costs and shipping costs. Combined, these drivers can make a major difference in an order’s profitability.

Consider the manufacturer of outdoor goods that typically sells to big box retailers. During COVID, this company began shipping directly to consumers when more people started placing orders online. Shipping a pallet of 25 outdoor umbrellas to a large retailer at no charge was a profitable venture. On the other hand, free shipping for those 9-foot, 75-pound umbrellas bound for 25 different households via Parcel takes a huge chunk out of the bottom line.

This is a situation where evaluating SKUs based on the price that customers pay doesn’t work. Offers like “Buy $50 in merchandise and get free shipping” can further complicate the circumstances. Complexity increases when orders must be shipped in multiple boxes—a reality that quickly consumes the profitability on any order. 

Find a Margin Management Partner to do the Heavy Lifting

Resource Guide called "You Shipped it, but Did it Make Money" offers strategies to support margin management.

Without good transportation analytics, SKU profitability becomes an expensive guessing game. And the more SKUs you’re selling, the more complex your margin management profile will be. 

Avoiding these problems requires a pick-and-axe approach similar to what Coca-Cola is using to whittle down its brand portfolio. If you don’t have the time, staff, or technology in-house to manage it on your own, Transportation Insight is here to do the heavy lifting for you.

To help you better understand all that’s required in determining SKU profitability, we created “You Shipped it, but … Did it Make Any Money?” Download it today for strategies that will help you protect profitability on every order.

You Ramped Up E-Commerce Shipping for COVID…Now What?

The effort didn’t go unnoticed. 

Comparing year-over-year e-commerce sales, DigitalCommerce360 says volume was up 76% in June. And while that increase leveled off at 55% for July 2020, e-commerce sales are still up 55% year-over-year for the first seven months of the year. 

Retailers are driving much of that growth as many completely changed their distribution models (either permanently or temporarily) away from brick-and-mortar and over to alternative online fulfillment strategies. Already underway pre-pandemic, the movement to sell more online accelerated rapidly once B2B and B2C customers started placing more orders from their laptops and mobile devices. 

Reacting quickly to an event that hit fast, hard and unexpectedly, companies made e-commerce shipping decisions based on a desperate need to stay in business. As a result, those decisions do not always include a complete analysis of the true cost of shipping those goods to customers. As added costs emerge, including peak parcel surcharges from UPS and FedEx, the true cost picture becomes blurry. 

It’s time for a thorough assessment of exactly what your COVID-related e-commerce strategy is costing your company.

Take a Step Back, Assess E-Commerce Costs

As you continue to hone your business model to accommodate e-commerce growth and changing customer demands, it is time to take a step back and truly assess the costs associated with these models. 

Many of these companies will continue handling more e-commerce volume than they did pre-COVID (even with their physical stores opening again). Managing both sides of the equation profitably requires a thorough investigation of the true cost of shipping and a strategy that factors in customers’ needs with organizational profitability. 

Companies should also weed out their “losing” SKUs, assess shipping costs right down to the package level, practice good margin management across the entire organization, utilize data for good decision-making, and work with a reputable logistics partner. 

Master E-Commerce Shipping, Master Order Profitability

Continue shipping products without closely examining the time, effort and money that goes into sending out each package and you will soon find yourself underwater. As pandemic pushed e-commerce sales and residential orders to new heights, was your organization among those that raced into reactive mode?

Do you know the true cost of your e-commerce shipping decisions? You can not afford to ignore this problem.

To help you master your response to online demand, our Supply Chain Masters created “You Shipped It, but … Did It Make Money?” Read today and access strategies to protect profitability for every order and every customer.

Engineering and Analyzing the Supply Web

As an example, sourcing from multiple producers across your web can add inbound shipping costs on all modes: ocean freight, multi-modal inbound delivery and outbound shipping. If your company decides to offer direct fulfillment as a service, can you identify how much additional shipping and handling costs affect your bottom line?

Moving to a supply web model is not an overnight experience. Rather, it is a process that involves understanding how all the pieces work together, how they can drive improved revenue and how to best share information and work hand-in-hand with your partners.

Becoming the Conductor of the Supply Web

When you consider managing the supply web, think of the work an orchestra conductor must do before a symphony performance. At the center, the conductor leads multiple parts that must work together to create art. Although each individual section can create beautiful music on its own, one slip from the brass, strings or percussion and the sound of the entire symphony is broken. Only by building up each part’s strengths as a collective whole can the conductor get everything performing in harmony.

In the context of the supply web, logistics leaders are the conductors, bringing multiple pieces together to create symbiosis across each part. This requires analysis on multiple metrics, including profitability by SKU category, customer types and service levels.

Without a knowledge of how granular cost components affect the supply web, you can’t achieve cost savings in both order and promotion management. Good shippers put multiple pieces together to get their supply webs operating in line, including linking order data with carrier billing data, and tracking SKU-level and order-dimensional profitability. Understanding each metric can help your supply web perform on cost targets and with more efficiency – exactly like a well-tuned orchestra ready to perform.

Engineering for Data-Forward Supply Webs

The transformation from a single-source, lowest-cost supply chain into a supply web presents the prime opportunity to start gathering previously inaccessible data from your supply network. By building in the capability to accurately determine production, storage and shipping costs at granular levels that support cause and effect analysis, your company is prepared to identify cost factors that ultimately affect performance.

This is a two-step procedure, requiring deep insights on both shipment sizes, as well as carrier analysis.

Regular investigation of network costs can help you recognize where increases are occurring, and why they are cutting into SKU-category profit. Gaining visibility and taking a deep look into each cost category gives you a deep understanding of where your costs are, and how to control them.

Furthermore, understanding costs today can help you navigate around operational peaks and valleys. With regular research into your procurement and shipping habits, you can maintain costs and drive additional value.

Bringing the Supply Web Together

Simply put: operating in a supply web model gives you visibility into your operations like never before. Operational redundancies, a deeper understanding of SKU-level profitability, the ability to adapt with changes in consumer behavior and demand, and ultimately managing costs through continued improvement gives you the opportunity to compete at a higher level. When they all operate in harmony, the supply web offers a prime opportunity to drive your business forward and use logistics as an overall competitive advantage.

Transportation Insight can help you evolve from the supply chain into the supply web, using our logistics mapping skill sets and LEAN methodology. Contact us today to start your transformation.

How E-Commerce is Driving the Supply Web Evolution

Many aspects of our life may be changed forever. Air travel shut down virtually overnight, with no indication on when we can fly to see friends and loved ones across the country. It’s not uncommon to see retail store shelves barren of the cleaning items we take for granted, leaving some to seek these necessities through less-traditional channels. Additionally, when shoppers do visit mega-stores, their carts are usually filled with groceries instead of household items, appliances and clothing.

Will isolation and social distancing cause a permanent change in shopping behavior? Will e-commerce become the new way Americans get their vital needs? A shift in consumer trends could have serious implications for retailers, their entire supply network and the overarching logistics strategies applied around the planet.

Why do companies need to pay attention to the spike in e-commerce orders?

With federal and state guidelines suggesting that everyone stay at home, online shopping increased in popularity. The online demand is so significant that Amazon is conditioning customers to not shop excessively on its platform. Meanwhile, e-tailers are overwhelmed with requests. We’re also seeing this trend among our customers as well. One customer – a chain of home improvement stores – recently asked for our help managing a skyrocketing e-commerce business that required an adjustment in their freight and parcel strategy.

The end consumer may see nothing wrong with this change. Online shopping is more convenient, requires less effort, and happens either over the phone or online. But for retailers and distributors, a growing e-commerce demand creates many issues on the back end.

While the growth of e-commerce has been the big story over the past decade, it still represents less than 20 percent of all retail sales overall. If that volume doubles, could your business sustainably make money?

Our research tells us that the largest companies are spending more time focusing on e-commerce profitability. Direct order fulfillment costs can easily exceed 25 percent of sales, which creates a precarious balance for companies offering direct-to-consumer service. Slim profit margins in brick-and-mortar retail add complexity. In the best situations, in-store sales only yields a profit margin of three percent.

If your e-commerce channels aren’t optimized for success, growing the channel is expensive at best, and unsustainable at its worst.

An inconvenient truth: environmental concerns from e-commerce

Another issue to consider is the environmental impact of online shopping. Fulfilling digital orders requires additional resources, including packing materials, corrugated boxes, additional fulfillment centers and waste handling. On top of that are emissions from trucks making last-mile deliveries and returns to homes across the United States.

All of the packaging and air pollutants have to go somewhere. While corrugated boxes and most packaging can be recycled, there’s never a full recovery of those materials. Although emissions can be reduced, we’re a long way from net-zero emissions globally.

These two challenges illustrate why the supply chain needs to change. We are no longer in a world where the supply network is one straight line from source to consumer. Instead, retailers and distributors need to work together to discover new ways to manage commerce through a supply web.

E-commerce as a catalyst to the supply web

As our world looks to e-commerce as a potentially permanent shopping solution, now is the time to start the transformation from a supply chain to a supply web. There are many different reasons why the supply web provides better solutions for both your company, distribution points and end consumers.

A supply chain suggests freight moves in one direction: from the source to the distribution center and then out to the retailer or customer. However, this model may create several unnecessary steps. For instance: if a customer makes an online order, the supply chain implies the product goes from its source point to the consumer. Under a supply web model, the order can go from the retailer or manufacturer to the closest distributor for fulfillment. The customer gets their order faster from the closest point, without the need for excessive shipping or re-packaging.

One of our clients in the construction industry recently transformed their supply chain into a web model. Instead of taking everything in at one center and re-distributing through smaller fulfillment centers, freight began moving from overseas into two different distribution centers that fed other centers in their network. This gain in shipping efficiency ensured customers could get orders in days instead of weeks.

Measuring the efficiency of the supply web is critical to success. Transportation Insight has tools which enable your e-commerce team to understand key performance indicators and drive success. Our margin management tool enables shippers to determine profitability by both dimension and SKU. It quickly identifies cost-killing areas of your e-commerce offering such as SKUs that drive split-package orders, excessive freight expense, high cube, high service expense or long zones.

The second key tool available through Transportation Insight is our supply chain and value stream mapping expertise. We develop a graphical representation of where your items, information and finances are coming from and going to. By mapping out your flows in this manner, we identify gaps and risks that can be mitigated through actionable plans and network optimization.

The significant profitability and sustainability challenges of e-commerce fulfillment are here to stay. By transitioning to a supply web model, your company can not only find better routes to profitability online, but also drive long-term, sustainable results.