Blog postsJune 08, 2017
Be a Contender: Top 3 Reasons for On-Demand Fulfillment
How do you compete with Amazon? With its vast distribution network in the United States, Amazon has set a precedent for shipping logistics that’s probably making your team sweat.
However, the “Amazon effect” is not insurmountable—nor is it new. Rethinking your logistics strategy and increasing your number of fulfillment centers has likely been on your list. If not, it should be.
Customer expectations have changed. We’re all consumers in our own right and our expectations have evolved as eCommerce has. It wasn’t long ago that five-to-seven business days was an acceptable timeframe for delivery, but now we’re conditioned to find what we need when we need it and get it delivered in one or two days.
Fulfillment strategies have to change, too. The backbone of Amazon’s success is its fulfillment network. Its footprint is what enables it to reach more of its customers faster. But most retailers can’t afford Amazon’s network. And even though more locations means shortening the last mile of delivery and reducing shipping times and costs, procuring space has traditionally been a clunky and expensive endeavor that leaves you stuck in long-term lease commitments and with more space than you need throughout the year.
For many, the solution has been to use Fulfillment by Amazon (FBA). It has the capacity and the services that many don’t. However, the convenience comes at a price—both literally and figuratively. When you sell through Amazon, you give it access to your product, customer, and sales data. That’s extremely risky when you’re trying to keep your product differentiated, and if your product does well in the Amazon marketplace, you’re likely going to find Amazon being both your distributor and your new competitor.
For eCommerce retailers not selling through Amazon, keeping up with evolving consumer expectations is putting a strain on operations and infrastructure. You’re either investing time and money into innovating and expanding your fulfillment network or you’re relying on your current solution to fulfill orders at a slower pace.
Below, we take a look at what that means for eCommerce retailers trying to compete and the top three ways an on-demand fulfillment solution can help.
So, how do you compete?
Competing with or gaining independence from Amazon comes down to your logistics. But, your solution has to be cost-effective for both you and your customers. Ground delivery is the most affordable option, but that means having your inventory in more locations and closer to your customers.
By adding fulfillment centers to your network, you can shorten the last leg of delivery and its associated costs. That’s what makes Amazon so successful—it has a massive network of locations that does just that. Shortening the last leg between warehouse and customers reduces the number of shipping zones through which packages must travel, decreases delivery times, and lowers overall shipping rates.
Amazon’s network also enables it to offer better shipping prices—and for Prime members that usually means free two-day shipping. However, for those of you out there that don’t have billions to spend on an in-house fulfillment network, there are other ways in which you can compete.
The old ways won’t work
Traditional means of building a larger fulfillment network have meant:
- Investing in your own warehouse locations that require long-term leases and full-time staff
- Outsourcing to 3PLs that also require long-term commitments and have varying agreements depending how many you work with
In either case, these networks are often static and designed to accommodate consistent, expected inventory volumes.
But, even the most optimized network can exceed its limitations in situations when there’s unexpectedly high volume, when growth rates differ from the original forecast, or when there’s an initiative to expand into new markets.
In fact, even Amazon isn’t immune to classic warehousing challenges. During the 2015 holiday season, Amazon ran out of warehouse space in the U.S.—causing an increase in fulfillment costs and a decrease in profits. To offset it happening in 2016, Amazon raised its warehouse storage fees for sellers. The goal was to motivate sellers to be more selective in the amount of inventory they stored at Amazon facilities during the busy season.
If you find yourself stuck in this situation, you’re either jamming your own buildings full of inventory, signing up with more 3PLs, or procuring short-term warehousing leases to get the extra space and fulfillment services you need. None of the scenarios are ideal, and more often than not, “short-term” commitments aren’t that short, the terms are rarely favorable, and negotiations can take a long time to close.
If you’re a high-growth eCommerce retailer, a static supply chain won’t work. You need a solution that can accommodate variable demand and nimbly solve for both peaks and valleys throughout the year.
That’s where on-demand fulfillment comes in. Adding locations—when and where you need them—introduces an unprecedented elasticity to your fulfillment strategy. It creates a dynamic network that makes the unexpected easier to tackle with greater agility while removing costly commitments from the equation.
Why you should be using on-demand fulfillment
On-demand fulfillment is a flexible solution that gives you more agility in your supply chains. It connects retailers in need of warehousing and fulfillment services with warehouse operators that have it through a SaaS-based marketplace.
With an on-demand solution, there are no long-term lease commitments. You just pay for the space and services you need. Being able to scale your fulfillment network up or down makes it possible for you to test and adapt your footprint to match demand.
The top three reasons to implement an on-demand solution have everything to do with modernizing your logistics to meet today’s market.
1. Grow your brand: It’s all about your customers
Though operations may be a little easier with FBA, when you sell through Amazon, your packages are bought through an Amazon interface, next to “similar” products that may be your competitors, and they arrive in an Amazon box. There’s very little control over the customer experience, yet they’re paying for your products.
On-demand fulfillment can help you meet customer expectations for delivery and service without sacrificing your brand and the overall customer experience.
2. Cut costs: Warehouses are expensive
But, you need a lot of them to deliver the fast, inexpensive shipping that Amazon has conditioned customers to expect.
An on-demand solution lets you take advantage of the warehouse space you need without the upfront and fixed costs typically associated with traditional 3PL solutions. You can add fulfillment centers as needed and reduce shipping time and cost by placing your inventory closer to your customers.
3. Reduce risk: Add agility while nurturing your brand promise
Traditional logistics networks are massive investments and outsourcing logistics to Amazon cedes control. Both are risky.
Instead, you can use an on-demand solution to avoid long-term capital commitments while controlling your own brand experience—not to mention, keeping your customer and sales data safe.
What’s next? Next-day delivery.
As you grow your network with an on-demand solution, you’ll find that your reach will start to rival Amazon’s. With more locations it becomes easier to fulfill more orders with next-day ground delivery.
More and more retailers will be able to contend with Amazon and update their delivery promise to offer fast, cheap shipping to customers.
Though logistics is a complicated business, with the right solution it's possible to create an agile, adaptable network that makes your supply chain your secret weapon.
If you’re considering how to improve your delivery promise, here are the top five things to know about a next-day delivery fulfillment network with FLEXE:
- Managing seasonality—all months of the year
- Identifying the right fulfillment locations
- Allocating and managing inventory
- Integrating dynamic order routing
- Evolving customer delivery promises
Want to know even more? Find out how many fulfillment centers it would take to reach 98% of the U.S. with next-day delivery. And, of course, don’t hesitate to get in touch if you have any questions.