As E-Commerce Grows, Retailers Find Fulfillment Costs Rising in Step

It’s no secret that online retail is growing rapidly, this year alone e-commerce businesses are expected to increase revenues by up to 12% achieving record high figures of $436 billion by year end. As more and more customers move online, everyone from bricks and mortar chains to virtual stores are finding it necessary to optimize. From website interfaces, to warehouses, international shipment providers and domestic carriers, entire back-end supply systems are being updated to reflect changing customer increasingly global customer requirements.

In a world where shipment costs can account for up to 25% of overall business costs, shipping services such as FedEx, UPS and USPS aren’t content to let retailers pocket their share of the pie. According to EKN Research, 18 percent of every dollar gained through online sales goes towards fulfillment costs. With rates rising across the board, businesses are finding it necessary to find new and innovative solutions for driving down their fulfillment costs.

Customers Expect More

In large part these costs are being driven by E-commerce behemoths such as Amazon and Wal-Mart. Both companies are locked in a struggle to offer the most competitive shipping rates possible, with Wal-Mart implementing free two-day shipping on all orders under $35. Amazon has matched these rates and also offers free two-day shipping on all items to subscribed Prime members.

With more and more customers flocking to these sites, in order to compete other retailers are finding it necessary to offer similar incentives despite the cost. For smaller businesses however, dealing with these costs while still remaining profitable is a difficult ask.

Strategies to Manage Fulfillment Costs

Match Carriers to Customer Requirements and Business Objectives

Use data and analytics tools to identify customers that form the most profitable market for your offerings. Align your fulfillment systems to best meet their needs; it may not be necessary to promise delivery within the same day, or couple of days. Once you know which market is most critical to your business, optimize your supply chain and shipment network to support these operations driving down costs alongside.

Stay Lean

Many businesses make the mistake of keeping excess inventory at distribution centers to compensate for demand fluctuations. While stock-outs can have adverse affects on your business’s reputation and prompt higher last-minute supply costs, holding excess inventory brings its own disadvantages. It drives up operational expenses including labor and equipment costs to account for the increased load. Rather a balance must be struck between holding too little, and too much stock.

Instead companies must ensure that they invest in a scalable workforce and storage facility which can deal with a sudden rise or fall in demand. This may mean that your firm has to enlist the help of demand planning experts that can analyze historical trends and market data to ensure your workforce planning is appropriate.

Get Your Packaging Right

Shipping carriers want your packages to be compact and heavy, and they prefer them to be delivered to destinations that are already part of their delivery routes. Unfortunately online retailers often ship to incredibly diverse geographic locations, and because items can differ so greatly; packaging is often inconsistent too. Because of these issues carriers now charge based on dimension, as well as weight.

Instead of boxes, see if you can deliver your goods safely using plastic or paper bags; as many fashion retailers are doing. If you have to use boxes try and opt for corrugated ones, rather than more costly inserts. Make sure that you have multiple sized boxes to fit the requirements of your product; ungainly oversized boxes will bring unnecessary shipping expenses. This may entail investment in customized boxes, especially if you have a unique and varied product range, however the ultimate savings you’ll get will more than compensate for the up-front investment.

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