The online shopping trend has been an experiential revolution. All the vendors and retailers have adopted e-commerce technology to reach out to their customers for sales. The primary area of concern in this industry is the cost of shipping and delivery. On the customer's end, there are high expectations in terms of delivery of an order in minimal time with minimal charges. A report from Statista suggests that 63% of the customers abandoned their cart orders due to high shipping costs. While on the vendor's end, the e-commerce fulfillment costs account for 70% of an average order value.
Consequently, what has provided a convenient shopping experience to customers of buying anything from anywhere, has significantly affected the vendor’s business models. The vendors or online retailers, to ensure their sales and revenue generation, elicit the competitive logistics facility to customers. Additionally, to retain competitive advantage and uniqueness, they offer customers options like COD(cash-on-delivery) and return or exchange of orders. These e-commerce fulfillment costs are likely to be feasting on the profit margins of the vendors or online retailers.
To bridge this gap between customer expectations and vendor surplus charges, we discuss the 6 ways to reduce costs in e-commerce fulfillment logistics. But before that, we discuss what comprises the costs involved in the order fulfillment logistics.
Costs involved in E-commerce Fulfillment Logistics
The e-commerce fulfillment logistics consists of all the processes involved from the point a seller gets an order until it is delivered to the customer. Now zoom out this situation to get a bigger picture. There are hundreds and thousands of orders that a seller receives from across the state or country and has to deliver to its customer in minimal possible time and shipping charges; this task tops the checklist for critical costing factors involved in each process.
- E-commerce Inventory Costs: These costs consist of stocking a product to meet the unusual user demand based on statistical forecasts. The inventory costs are a calculative summation of ordering costs, purchase costs, holding costs, and shortage costs.
- E-commerce Return Costs: These costs account for the delivery and shipping charges involved when a customer returns an order after receiving it or cancels the order mid-way.
- Warehouse Outbound Cost: These costs include all warehouse outbound operations like order picking, packaging, sorting, and shipping followed by delivery at the doorstep of the customer.
A Statista report suggests that the inventory distortion (that is, the imbalance between supply and demand registered) resulted in $580 billion losses in US stores, in 2020. If the aforementioned cost factors are not addressed rightly, it will consume the profit margins or even succumb to unnoticed and unforeseen losses for the sellers.
6 Ways to reduce E-commerce Fulfillment Costs
The best way to sustain the profit margins for online retailers or vendors is to formulate a plan that reduces costs and enhances efficiency in order fulfillment. Let’s see the 6 ways to reduce e-commerce fulfillment costs:
#1 Inventory Management
Managing your stock in real-time with a wide range of SKUs is a tedious task. Inventory management is a tree that harbors the essential elements of the supply chain. The main costing factors include:
- Choice of location (a warehouse or a fulfillment center)
- Smart AI data analytic tools (to forecast sales)
- Smart Inventory Management (inclusive of real-time stock tracking & visibility, low stock/stock-out alerts, item-level RFIDs, and FEFO (First-Expire-First-Out) compliance)
A report by the McKinsey & Company states that reducing stock-outs and overstocks can lower the inventory costs by 10%. Similarly, a smart inventory drastically reduces the false data scenario and dead-lock situations with no scope for human errors. While the FEFO compliance reduces costs involved in product wastage and workload associated with order returns due to product expiry.
The US retail businesses show only 63% of inventory accuracy which owes to a lot of losses in the entire supply chain. For this reason, it is also estimated that about 72% of businesses plan to adopt a smart inventory management system that enables real-time inventory visibility and revamps their supply chain to reduce costs or overhead losses.
#2 Packaging Tacts
Packaging is a crucial aspect that results in indirect costs if neglected. An inappropriate packaging may lead to events of product damage, theft, returns, or product discarding. It can ruin the customer shopping experience and brand experience. Therefore, adapting smart packaging techniques or even integrating automation in it can help reduce costs in order fulfillment logistics.
Additionally, packaging contributes to one-third of the 1.6 million tonnes of domestic waste. (For 2018 as stated by Open Government Products). Plastic packaging wastes account for a major chunk that harms the earth’s ecosystem. This factor, therefore, gets primary notice to reduce or recycle the materials and reduce the costs involved in the process.
#3 Optimise Shipping Costs
The global giant Amazon also learned to optimize the shipping costs a hard way by clocking a whopping loss of $7.2 billion owing to shipping costs in the year 2016 (Data: amazon.com). E-commerce shipping costs take many variables into account like the quantity, size, weight, type, and criticality of the products. This significantly affects the fulfillment logistic costs. The best way is to associate with centers that provide multiple carrier options. In addition, the right balance of delivery time and rates can also owe to reduce costs.
#4 Strategise Order Returns
The best strategy for order returns is to avoid them. This begins with providing right pictures and detailed product descriptions on e-commerce online platforms. In fulfillment centers, it should be achieved by error-free order picking, efficient packaging, timely shipping, and tracking of products. If even then a product is returned, it should have a well-defined operational channel to receive the order, approve based on quality check and discard or put-away in the inventory as per the designated standards of each product. Curbing the order returns reduces costs or profit depletion in fulfillment logistic processes.
#5 Smart Automation
A smart automation integration replaces repetitive and standard tasks that are vulnerable to product damage, data distortion, human safety and errors. Each fulfillment center has its own need for automation depending on the types of products and range of SKUs. Hardware integrations like robotic arm pickers or order sorting channels ensure safety and reduce human efforts. Software automation solutions provide for consolidated omnichannel order and inventory tracking. Automation is a worthy investment that accounts for speed and accuracy in the order fulfillment experience. This further saves time, money and monotonous laborious efforts in the entire supply chain.
#6 Workforce Count & Training
Workforce training is the most commonly neglected factor and investment in fulfillment centers. A well-trained and well-informed staff can make necessary amendments in their code of conduct to impart product outcomes of their knowledge and skills throughout. Training expedites the manpower adaptability to deliver various tasks with better efficiency in less time. Parallel to an updated workforce, tracking the count of workforce required at a particular center also helps combat the logistic costs.
Hopstack – One Stop Solution
The best way to reduce costs in fulfillment logistics is by using an end-to-end warehouse automation and optimization software like Hopstack. There are proprietary algorithms that provide an optimal solution for all the processes involved in the logistics cycle. For example, the picking algorithm is powered with artificial intelligence that sequences the order pick-up, the route and segregates the order batches to contribute to an energy-savvy and time-savvy approach. The real-time multichannel algorithm replaces the manual spreadsheets for data entries and analysis. Schedule a free demo today to know more about such algorithms like cartonization, order management, etc. in a single product.
High growth and low profit perfectly define the current e-commerce trends and predictions. To succumb to these challenges and sustain profit margins in the supply chain, the best way is to reduce the fulfillment logistic costs by adopting the right combination of technology and workforce that can help track the primary areas of a fulfillment center like inventory management, packaging and shipping, order tracking and returns and other related operations. An even better way is to adopt an omnichannel operating system as provided by Hopstack which shall take care of the entire center in a single entity.