6 Ways to Reduce Fulfilment Center Costs for eCommerce Companies
In this article
According to Statista, the global logistic costs amounted to $9.3 trillion in 2019, with a consistent upward trend. The costs are even higher when we talk about the ecommerce industry considering that the average online merchant spends at least 70% of the average order value on its ecommerce fulfillment process.
In fact, for most ecommerce companies, controlling their fulfillment costs and operations are the costliest part of running their business. But due to the gradual growth of the ecommerce industry, companies need to take the plunge — no holds barred. After all, a positive customer experience can make all the difference.
You might get a customer loyally associated with you for all their future purchases or lose them permanently without a carefully crafted loyalty program.
However, if companies are smart about their strategies, they can significantly smoothen their order fulfillment process and reduce the costs associated with it. Before we discuss the various ways in which ecommerce companies can reduce fulfillment costs, we will look at what the process entails, and the challenges associated with it.
What is ecommerce fulfillment?
Ecommerce fulfillment is a process that includes multiple steps including organizing, processing, and delivering orders. The process comes into effect post-order placement and is a crucial part of the organizational supply chain. ecommerce order fulfillment is the primary process that combines all the steps starting from the seller receiving an order to delivering it to the customer’s doorstep.
These steps include important sub-processes such as inventory management, picking the order items, packaging, and management of returns. Together, these functions are decisive in making the fulfillment process more efficient and faster, which can eventually help render a stellar customer experience. Owing to the low switching costs and numerous alternatives in the eCommerce industry, making your order fulfillment process streamlined is crucial.
Challenges in ecommerce fulfillment
A successful eCommerce fulfillment process requires coordination between multiple teams and departments, and in some cases — organizations.
Some of the common challenges that eCommerce companies face in this area include:
- Shipping delays: Shipping delays can happen due to multiple reasons but regardless of the cause, managing it can be daunting. Consistently great customer experiences can often get derailed as a result of delays in shipping. It could happen at the hands of the courier partners, seller, or delivery executive.
- Fulfillment costs: Fulfillment costs need to be budgeted for and managed right from the beginning, and be constantly monitored. Otherwise, they can sum up to extravagant amounts and even lead to losses for eCommerce companies. Even then, aligning costs with profitability can often get challenging for eCommerce companies.
- Ineffective technological integration: It is easy to purchase and implement technologies — the hard part is utilizing them to your advantage. eCommerce companies often use process automation software but miss the mark when it comes to using all its features effectively.
Considering these challenges, eCommerce companies need to take proactive steps so that their processes remain efficient and profitable. Besides such offline challenges, eCommerce brands running on eCommerce platforms like Shopify and BigCommerce must also leverage the power of SEO and online marketing to be on track for continuous growth.
Ways to reduce fulfillment center costs
Fulfillment costs are one of the most challenging areas to control for any eCommerce company. Some great ways in which you can optimize and reduce your fulfillment center costs are:
#1 Outsourcing to a third-party logistics (3PL) provider
Smaller eCommerce brands would benefit from an option like dropshipping for their logistic operations. But it makes sense for growing companies to outsource their logistic operations to a third-party logistics (3PL) provider. There are multiple advantages of doing so:
- You have a logistic partner who has expertise and experience in the area
- Your accounting becomes uncomplicated as you do not need to consider individual costs associated with fulfillment
- You can benefit from using the most recent technologies and advancements in logistics
What’s more, 3PL providers can help you reduce shipping costs and improve your logistical operations significantly. Plus, higher efficiencies in the order fulfillment process can directly translate into increased revenues and improvement in overall operational profitability.
#2 Automation of Inventory and Order Management
Another important step to consider in the process is the integration of the right technologies for your core processes. It might seem like a huge financial undertaking, but this one-time investment can pay off well for years to come.
Plus, online sellers now opt for a multi-channel strategy as selling on just one platform may not be enough to boost growth. But this strategy can complicate your order fulfillment process. Here, consider having an automated order management software that can handle the inventory, cataloging, and other vital tasks that are crucial to the success of your fulfillment process.
Such software can reduce fulfillment costs, and can make real-time monitoring and management of the process much easier. What’s more, such software also provides a robust inventory forecasting module that can make your process smarter.
#3 Focus on Retaining Associations
This strategy should not be surprising as it is considered to be the general rule of thumb for labor management. If you calculate the total cost of losing a trained associate, you will realize that it can become a big chunk of your budgeted costs. Instead, any cost that you will incur to retain them would be significantly lower.
The same logic applies to your association with fulfillment centers as the costs of partnering up with a vendor are a lot higher than retaining and renewing your association with your current partner. Reducing this churn will help you divert the financial resources towards other important business verticals that might need the funds.
Investing in solidifying these associations will help in managing your operations more efficiently and at much lower costs.
#4 Batching Similar Orders
A proven way to reduce fulfillment costs is to improve the efficiency of the current process that is in place. Errors in picking orders can cost companies between $50-$300 or 11%-13% drain in profitability.
Say, you run an online apparel store and have received ten orders for a specific pair of jeans, it is easier for the fulfillment center to travel once to the warehouse and collect all ten pairs, as opposed to making ten trips to collect each one of them. This process is known as batch-picking. Here, your fulfillment center will identify the common items within your orders and process all the SKUs at the same time.
For a growing ecommerce company, this can save thousands of dollars that they might otherwise pay for the extra labor.
#5 Conduct Regular Training for Staff
We can not stress enough the importance of having highly-trained staff backing your fulfillment processes. Thousands of orders are processed in fulfillment centers every day, and even a couple of errors can trickle down the line and disrupt the processing of several orders.
Just like your process will benefit from regular updates, your staff will benefit from getting training on those updates and more. Ensure your staff is always abreast with the latest technologies and process updates so that they stay included and efficient at all times.
While poorly trained staff can take longer to be fully productive, well-trained staff can be twice as efficient. Yes, even the ones working remotely. It is truly time for companies to see training as an investment instead of seeing it as a cost, as there are many long-term benefits of training your staff regularly.
#6 Make Packaging and Shipping Smarter
Packaging is one of the most important aspects of ecommerce fulfillment operations. According to a study, 10% of consumers consider packaging to be as important as the brand itself.
Your fulfillment processes and staff may be highly productive. But if this is not reflected in your fulfillment costs or returns, you need to find smarter ways of packaging.
Say, you are an online retailer of makeup products and generally ship orders in branded boxes. But for orders that contain just one product such as lipstick or mascara, consider switching to smaller bags. They are lighter, cheaper, and result in lower shipping costs.
You can also consider buying packaging in bulk to save costs, and apply different sized packaging based on the products within the order. When choosing a 3PL provider, opt for ones that have associations with multiple shipping partners so that you get an opportunity to negotiate shipping rates on smaller or less valuable products.
In a Nutshell
To ensure consistent growth, managers need to prioritize factors that can make or break their overall ecommerce operations. Managing fulfillment processes effectively is usually at the top of this list and rightly so, because it is one of the most expensive parts of running an ecommerce business.
By implementing some of the ways mentioned above, you can reduce the costs associated with your order fulfillment process. From finding the right way to facilitate fulfillment operations to optimizing packaging — there is a lot in your control.
Author Bio: Hazel Raoult is a freelance marketing writer and works with PRmention. She has 6+ years of experience in writing about business, entrepreneurship, marketing and all things SaaS. Hazel loves to split her time between writing, editing, and hanging out with her family.