Blog postsAugust 17, 2017
3 Ways to Achieve Business Agility in Your Supply Chain: Test, Learn, and Adapt with On-Demand eCommerce Fulfillment
Logistics plays a big role in the success of an eCommerce retailer. According to the Baymard Institute, 61% of motivated shoppers will abandon their purchase if the extra fees and shipping costs are too high, and another study from Dropoff says 97% of shoppers consider speed of delivery a key part of making a decision.
Clearly, a differentiated delivery promise can make or break a sale. Why do you think Amazon Prime’s free, two-day shipping is so successful?
If you want to offer fast, affordable shipping, you need more fulfillment centers near your customers so you can take advantage of lower outbound costs.
But, increasing your fulfillment footprint has typically meant purchasing physical space and/or entering into long-term contracts. That’s expensive. It also doesn’t leave you with a lot of options or flexibility when demand changes. How do you improve your delivery promise without breaking the bank?
On-demand warehousing and fulfillment is another approach to building out your network. With an on-demand solution, you can access hundreds of warehouse and fulfillment providers across North America and pay only for the space and services you use.
There are multiple strategic benefits to creating a more dynamic supply chain. Here are three:
- Test different markets and size of fulfillment network
- Learn from running regional promotions
- Adapt and scale your network in real-time
Test: A data-driven fulfillment network
Save on outbound costs by adding fulfillment “nodes” closer to your customers. The concept is simple, but where do you start?
On-demand fulfillment is different than traditional warehousing solutions. Instead of investing in fixed assets, long-term leases, or Amazon’s services, you can access a marketplace of already-operating facilities that have excess space and resources for warehousing and fulfillment services. A marketplace model provides a single solution for finding fulfillment services across North America—enabling you to choose from hundreds of providers in the locations you need.
But first, how do you know how many fulfillment centers to add and where to add them?
Don’t worry. You don’t have to throw darts at a map.
Before you add on-demand fulfillment centers, you can get a network analysis that models various outbound scenarios based on your delivery goals for time and cost. For example, if you want to reach 98% of the U.S. with next-day delivery, you can find out how many “nodes” you need to augment your current network and how much you can save in outbound cost depending on the size of your network.
The biggest advantage? You aren’t mired in long-term contracts and leases.
On-demand fulfillment is a flexible, scalable approach to logistics in which you can test different locations, network size, and network configuration to determine the fulfillment network that’s right for your business. You can start with one additional fulfillment node and expand your network as you’re ready ... using real-time data.
Learn: Inventory allocation in a scalable network
Having more fulfillment locations always complicates inventory management and allocation. But with an on-demand network, you can build out your inventory processes as you build out your network.
A few things to consider when planning for inventory are:
- Decentralized network increases uncertainty and variability and can make forecasts harder to pin down
- Regional and local preferences may create a different mix of inventory at each location
- Rebalancing inventory and transshipments between locations may occur
Here are three ways to keep your inventory in check as your grow your network:
- Understand the needs of your customers: What kind of delivery promise are your customers expecting? Analyzing historic inventory backorders can provide a rough understanding of what you’ll need at each location, and performing A/B testing can help quantify the improvements to conversion that’s associated with shorter ship times.
- Start with your top-performing SKUs: Inventory allocation becomes exponentially more complicated when you combine your high- and low-performing SKUs at the regional and local level. As you begin to offer faster ship times, start with your top performers and allocate those by region. Keep it simple.
- Proactively manage your projects and relative inventory: In the early stages, you may need to spend more time managing inventory. Take it slowly and measure every move until you can better predict and proactively manage inventory and its allocation. One way to assert control over your inventory is by running regional promotions to measure demand. Creating campaigns around specific inventory will make it easier for you to plan ahead.
- Find a team that has experience in inventory allocation: Your solution provider should be able to help you build out your inventory allocation and management process. Find a provider that will help you analyze and forecast demand, establish the right mix of A, B, and C SKUs, plan safety stock across the network, and generate different scenarios that iterate on new network designs.
Adapt: Evolving customer trust and delivery promises
Changing your fulfillment strategy will change your delivery promise. Having a larger, dynamic network creates shorter ship times at lower costs. With 61% of shoppers abandoning online shopping carts because of logistics, improving yours will convert more browsers into buyers.
Establishing your delivery promise as faster and more affordable will also give you a competitive advantage against most eCommerce businesses. Unless you’re Amazon or another big-box retailer, it can be hard to create a scalable, cost-effective fulfillment strategy.
Being able to provide a faster delivery promise to your shoppers without absorbing the typically high costs associated with making that happen will set you apart. You can reach more of your market without substantial investments in static networks or having to rely on Amazon to reach your customers for you.
Test, learn, adapt: Business agility in the supply chain
The supply chain isn’t a linear business unit anymore. To meet customer demands and create a strong eCommerce fulfillment network, you need a dynamic solution.
An on-demand fulfillment network gives you the flexibility you need to match supply with demand. You can continually monitor, test, and adapt how your fulfillment strategy affects your bottom line and transform your logistics operations into a strategic asset for your business.