July 29, 2015

We recently held a webinar to explore the fundamental elements of order fulfillment. Capacity’s co-founder and CSO Thom Campbell identified five key areas to focus on if you truly want to develop a fulfillment process that keeps customers coming back to your business time and time again.

Today we look at  how you can keep fulfillment costs down, with regular process reviews and by building constructive partnerships in the industry. You can read the rest of the entries in this compelling series under the tag Fulfillment Fundamentals.

 

 

The fulfillment landscape can be complex, even confusing if you have little experience with the industry. That’s especially true when it comes to pricing, which makes it all the more important to understand how providers set their prices and how you can use that knowledge to better manage your own shipping costs.

Fulfillment providers work from a variety of cost models. Some ship goods based on an agreed percentage of a client’s gross revenues, while others set prices based on the cost of transactions.

Most service providers who specialize in B2C fulfillment offer transactional pricing, where orders and items shipped have a set fee. Some providers prefer to use cost plus pricing, whereby prices are marked up according to a set percentage. In this scenario, you hope that the company details specific costs, otherwise you have far less visibility of where service expenditure ends and profiteering begins.

Percentage-based pricing can be attractive because it clarifies what order fulfillment will cost as a proportion of your gross. Here it’s important to focus on a collaborative partnership with your fulfillment provider in order to keep costs down.

For a closer look at how to evaluate fulfillment provider pricing, read our full post on the topic.

So how do you know when to outsource and when to keep your fulfillment in-house?

There’s very little research at the low end of the volume spectrum, mostly because there is not very much data. It’s fair to say that the early days of a business see smaller volumes that can be managed by a skeleton staff.

As volumes grow and a company expands, however, the idea that your time is valuable, and perhaps better used across other functions, should fuel the consideration of outsourcing at an early stage. Even if you find time and again that you do not need to outsource, going through the exercise is a valuable monitor.

There are several reasons to keep your fulfillment and customer service functions in-house at the beginning:

  • You gain an understanding of what’s involved and your company’s unique fulfillment challenges,
  • You can document the fulfillment process and create standards specific to your business,
  • You get closer to your customers, creating more touch points with them and learning opportunities,
  • You ensure your brand is being represented by its #1 brand ambassador: you.

 

Clearly those advantages are attractive, but this isn’t a scalable system as you seek to expand your business.

The demands on your time grow, distractions increase, and order fulfillment inevitably threatens to fall through the cracks. This is why we find that the point at which your fulfillment drives you crazy on a daily basis, is also the time to look for a partner to take the weight off your shoulders, no matter how broad you assumed they are!

At the other end of the spectrum, Forrester did research back in the late 90s which indicated that at about 10,000 orders per day you may be better served by bringing fulfillment back in-house. You can afford a facility, a top shelf manager and the appropriate technology and equipment, if you have the million dollars or so in up-front costs (which you should if your order value is more than $1.)

The landscape of third party order fulfillment providers is broad and highly fragmented. It is confusing to attempt to distill these varied offerings and price models. A well-informed, well-prepared consumer of any service is always going to be more successful.

For example, consider the parts and packaging suppliers, McMaster Carr and Uline.

Both of these organizations have very large operational arms.  They both fulfill as many complex multi-line items and orders as anyone in business. Lines per order are the number of unique items on an order; units are the total quantity. This means they would be very hard pressed to outsource these activities. There is simply too much labor in picking from hundreds of thousands of SKUs and too much real estate to house them. There would not be anything left over for a fulfillment providerto make a profit.

Conversely, a single SKU (or small SKU base) is a fairly straightforward fulfillment challenge. Even a modestly competent provider should be able to handle this work, as it involves very little planning and minimal travel time during picking. With pick time a major driver of labor costs, it is therefore considerably easier to manage costs when less complex fulfillment challenges are presented.

The Bottom Line

Make sure you understand your pricing. Lay out anything you currently pay and question potential new providers about their cost structure and any unlikely or unexpected extras you could incur. Although there will always be extraordinary circumstances with some fulfillment challenges, they should be the exception, not the norm, and any reputable provider should be willing to discuss exceptional pricing

Model sample orders, including your most regular scenarios and a selection of emergency situations, and ask the provider to confirm them. This way, you can understand excessive costs early on and decide how much weight to allocate them in your decision to go with a certain provider

Finally, go to see the warehouse. There is so much you can tell about a provider in a single visit, from their security to cleanliness, organization and morale. All are key to a successful partnership and any questions your visit raises should be answered there on the spot.

July 22, 2015

We had a close call here recently in New Jersey, as a facility next to us on Corporate Road in North Brunswick was hit by a fire.

It’s always scary to see that much smoke up close and personal, and seriously disheartening to note the damage done as crucial company equipment goes up in flames.

Thankfully, no-one was hurt in the incident and, with the proper insurance, property can always be replaced. Continue reading A Local Reminder on Insurance and Preparedness

July 14, 2015

So, are you all set for the big day?
If you shrug your shoulders and look mildly confused, you’re forgiven; July 15th is not typically a day of great note… yet. Amazon would like to change that, however, as it seeks to set the date in stone as Prime Day.

Under the banner of celebrating the company’s 20th anniversary, Prime Day is the latest in a line of members-only promotions and services that Amazon hopes will win over new subscribers. Billed as an event “bigger than Black Friday,” it’s fair to say that the company has high hopes of cornering the calendar on this one.

Make no bones about it, the e-commerce giant is serious about becoming the consumer’s one-stop shop for online purchases.

Do We Need a New Black Friday?
After raising the question late last year as to whether retailers had jumped the shark with fabricated discount days, it’s clear which camp Amazon falls into.

Clearly, there’s some indication that it felt the same about the seasonal holiday rush to deep discounts. The answer from Bezos and co, however, is not to curtail these celebratory sales events, but rather to spread them out.

Somewhat inevitably,  Amazon won’t be alone in this endeavor. Walmart has already entered the fray with something it’s calling “atomic deals,” and others are expected to follow.

Whether they can make the July 15th deadline is another matter, but there’s plenty of summer left yet and you can bet your bottom dollar that retail marketing managers around the country are in meetings this week to plan their respective responses.

Interestingly, Amazon seems to have been inspired to hold Prime Day by competitors both existing and emerging.

On the major player side,  Alibaba’s Singles Day has been a growing sales event in China since 2009. With the company’s successful IPO last year on the New York Stock Exchange, Alibaba clearly has ambitions to become more of an influence in Amazon’s home market and the wider international stage.

On the start-up side, jet.com is set to launch next week. The club savings site is run by Amazon alumnus Marc Lore, who has a history of rattling his former employer’s cage and is basing much of the site’s appeal on discounts that are deeper even than Amazon’s.

Whether it’s celebration or competition that gave birth to Prime Day, the end result is the same: a speeded-up schedule for the e-commerce price wars, with all of the pluses that come with it for consumers, but also plenty of associated negatives for smaller-scale retailers.

At the Other End of the Scale
For smaller brands, the current retail landscape is less clear.

Unable to compete in a long-term price war with the giants, who can afford to accept heavy losses on select products to win the wider war for consumers, they must fall back on other competitive distinctions. Quality of service and depth of knowledge in a specific niche still offer an opportunity to give customers something they can’t find in mass services, and some are willing to pay for that quality regardless of the discounts on offer elsewhere.

A price squeeze is inevitable as discount competition hots up, but it doesn’t spell the end for smaller brands in general.

There are always brands that will find a loyal customer base when they stay true to a core value or service offering. With a targeted strategy and tight operation, it’s possible to emerge from whatever dust Prime Day and its peers stir up, stronger and more focused on what it is that makes your business special to consumers.

July 10, 2015

It’s Friday and heading into the height of summer sun, so we’ll get right into it this month. Here’s your review of everything supply chain and logistics industry-related that mattered most in June.

(If we missed anything important, please let me and the readers know in the comments!)

Logistics in Review: June 2015

  • US rail freight posted impressive numbers throughout the month, with the highlight being a record-setting second week in which intermodal volumes hit 283,363 containers. The news continues the country’s wider embrace of intermodal transport solutions, which we examined in this article last fall.
  • Road freight bounced back from its April dip, with the American Trucking Association reporting last month that May’s 1.1% increase in tonnage almost erased the 1.4% drop the previous month Although volumes have not been able to sustain January’s record high, analysts remain positive on the sector’s performance for the rest of the year.
  • In other road-related news, the Department of Transport effected an important part of its long-term road safety initiative, ensuring that tomorrow’s vehicles will all be fitted with anti-rollover devices. The measure makes it mandatory for all trucks manufactured after August 1st, 2017, to be fitted with electronic stability control systems that are expected to prevent thousands of crashes every year, some of them fatal.
  • When the world’s largest shipping line lays out plans for a $1.8 billion capital investment in new vessels, you know the future of the industry is looking rosy (for them and the cargo they carry, at least). The major expenditure will bring 11 new ships into the expansive Maersk Line fleet, which currently stands at 255 vessels it owns and hundreds more that are chartered. The company has a reputation for introducing the latest and greatest ships to the high seas, such as the E-Class series which occupy two of the top five positions in terms of  container volume.
  • Speaking of shipping, the balance of Asia-centric imports to the United States has long favored West coast ports, for obvious reasons. That may all change in the second half of the decade, however, not only due to recent industrial action causing severe congestion for much of 2014, but because the expanded Suez Canal is about to reopen. As a bicoastal fulfillment provider, we’re open to either side of the country, but this is an intriguing development that could see our home base of New Jersey seeing even more action than usual in the years to come. Let the (friendly) competition commence!

 

We’ll be back to our regularly scheduled programming next week, including some new industry-specific articles that we’re sure you’ll enjoy.

Be sure to sign up for those here, or by following our social streams on Facebook, Twitter, and Linkedin. In the meantime, have a great weekend!

July 1, 2015

We recently held a webinar to explore the fundamental elements of order fulfillment. Capacity’s co-founder and CSO Thom Campbell identified five key areas to focus on if you truly want to develop a fulfillment process that keeps customers coming back to your business time and time again.

To follow up on that event we’re unpacking each of these elements in more detail. Today we look at the importance of using the most suitable order fulfillment technology to ensure that you can deliver on your fulfillment promises to customers. You can read the rest of the entries in this compelling series under the tag Fulfillment Fundamentals.

Before we get started, let’s clarify one thing: fulfillment technology is not going to trouble NASA. We’re not landing on the moon, even if we are getting an important package, your product, from A to B (and often in challenging conditions!)

What the tech in our industry must provide is a stable and consistent platform on which we can deliver the goods, literally, and delight customers with prompt service and clearly communicated tracking. That’s what makes it a fulfillment fundamental, and why we dedicated an entire section to the tech in our presentation.

When you consider a 3PL provider, the key is finding that appropriate balance between best practices in technology and a solid service platform.

 

Identifying the Appropriate ORDER FULFILLMENT Technology FOR YOU

Your business needs a provider who offers a warehouse management system (WMS), the foundation of any stock tracking and inventory control operations. These software platforms allow companies to track all inventory through bar codes and radio-frequency identification (RFID) scanning devices.

Some common characteristics of an effective WMS include the following:

  • End-to-end tracking through the key stages of your fulfillment process,
  • Easy to set-up, with a quick learning curve,
  • Integrates seamlessly with your own core systems,
  • Clear measurement and reporting,
  • Flexibility to scale with your business needs and upgrade alongside new tech developments.

An online portal is another provision of a 3PL service that is a requirement in most cases. You need to be able to access the information you need, when you need it and in a format that makes it easy to do your job. This tends to mean you’ll need close integration capabilities and custom reporting in any fulfillment solution, if your brand is to be truly tech-ready. Think about the key performance indicators that you’ll need to measure and the data points that must be captured to effectively track. Our ‘Unpacking’ article on supply chain metrics will also be helpful here.

data visualization
The ability to efficiently analyze and visualize your fulfillment operations is a key element of appropriate technology.

So while your 3PL must be a partner in your order fulfillment, don’t rely solely on them to tell you what you need in terms of technology, at least in the first instance.

Any decision to outsource some or all of your fulfillment should be taken in the confidence that you know what you require from a provider, have communicated it clearly to them, and vetted their systems to confirm they can deliver what they say.

Expect, Accept and Improve on Errors

It’s tempting to think that the right technology will solve all our fulfillment issues and eliminate errors, but this is never the case. Errors are part and parcel on any system, whether they’re caused by human hands or ghosts in the machine.

It’s how you react and learn from them that counts. The right technology will help you to analyze issues that arise and identify the most suitable solution. You’ll be able to review the order’s movement through the fulfillment process, pinpoint exactly where things went wrong and identify contributing factors that can be remedied for the future. Here’s where a 3PL can again be a great help, as they’ll not only show you what to look for but also help you to come up with a solution for the future.

In a broader sense, the best way to handle errors is to think of them as an opportunity to get closer to your customer. If something has gone wrong, you have a chance to address the issue and solve a problem for your buyer.

All of us have had a negative customer service experience, whether it’s a car break down where we’re told that everything including the rear view mirror needs to be replaced, or hours on hold only to be told that our issue cannot be resolved over the phone. That’s what an error can turn into if the wrong attitude is adopted.

Conversely, we also all have customer service experiences which were real standouts. Occasions where the person on the other side of the counter or phone really makes you feel like they were a caring human being who wanted to help. These interactions can be deeply positive, no less so because they often come on the heels of a disappointment.

Being able to turn the former situation into the latter is a skill that requires both a deft, skilled human touch and the appropriate technology to deliver a solution. Much like the wider supply chain, when you have these two components working in harmony, errors are reduced and those inevitably occur are a lot easier to deal with.