As we develop strategic plans for our clients’ businesses, customers and competition are two major forces shaping the products and services companies offer. From the customer’s perspective, the internet has leveled the playing field, spawning new competitors and many more choices for the products and services companies offer.
If your fulfillment is unchanged in the past five years, chances are your DTC competitors are changing systems, increasing productivity and lowering costs.
Here are 5 ways your competitors are planning to beat you this year.
Companies are doing in-depth assessments of freight revenue and loss from the past year, as everyone competes with Amazon Prime, but it’s a costly proposition. Your competitors are considering what order value thresholds make the most sense for free freight, and whether acquired customers become loyal. They’re evaluating business rules to maximize lightweight shipments through alternative carriers while not sacrificing time in transit. Your competitors are sharpening their freight programs to be more attractive to customers, and you must, too.
Multi-DCs and Strategic Use of Third-Party Logistics
According to a recent Business Insider article, over 35% of online shopping carts are abandoned once shipping costs are known. Single DC companies are considering how a strategically placed 3PL can help them reduce time in transit and reduce freight costs. For instance, east coast companies are paying a premium to reach customers the other coast, and may be losing sales to competitors.
Multi-DC decisions aren’t “free” either, adding 30% or more in inventory, facilities, labor and management costs. Companies will find that a 12-month contract with a qualified 3PL can be far cheaper than a new DC. 3PLs allow you to test scenarios and assumptions without having to make a long-term commitment.
We have one client that built a $100 million business solely using 3PLs. Another client reaches 93% of the U.S. population in one-day ground using a 3PL.
If you aren’t strategically planning how to reach the vast majority of your customers within a two-day ship window, you’re already behind.
Increasing Labor Productivity
These days everyone is struggling to find qualified labor willing to perform warehouse tasks. Competition and increasing minimum wages are forcing companies to pay more for labor without necessarily improving throughput and efficiency. What’s worse is having employees working to the workload instead of an engineered labor standard. Your competitors are streamlining costs and maximize labor leading to increased profitability. Go back and look at your operational records – how has productivity increased in five years? A reasonable percentage of companies can’t answer that because they aren’t measuring productivity.
Warehouse Management Systems
Your competitors are evaluating how to improve efficiencies and maximize labor through the use of a WMS integrated into their OMS/ERP. The entry-level cost of a WMS used to be at least $1 million. Now companies can find a wide array of strong solutions that are cloud and SaaS-based at a fraction of this cost.
These systems offer slotting and bin management, productivity reporting for all functional areas, directed putaway, kitting and assembly functions and labor management that an OMS or ERP system can’t come close to. Your competitors are finding operational efficiencies to gain a competitive advantage in hopes of winning over your customer base.
While you’re fretting over whether vendors will adopt a compliance program, your competition has tapped into it. In many cases they’ve piggybacked on what other retailers are doing with the same vendors. The debate about chargebacks, and whether your vendors will accept them, is keeping you from moving forward. The reality is that even small businesses are seeing the advantages of a good vendor compliance program.
Here are a few common arguments we hear regarding vendor compliance:
- I’m a small retailer and my vendors won’t stand for these kinds of things. These same vendors are more than likely being forced into strict compliance programs by larger retailers. The key is how to work with them to mirror what they’re doing for large retailers.
- If I want my vendor to barcode every item, I’m going to have to pay for it. Chances are the price per label is cheaper or the same as what you pay internally. Either way it’s one less time-consuming task you must handle. Having the vendor do it decreases your dock-to-stock time.
- I’m pretty sure my vendor won’t accept chargebacks. Two points. First, using transportation routing guides will avoid unnecessary vendor charges and any margin they build into transportation. Second, you don’t know unless you ask. Even if you don’t plan to implement chargebacks you should track compliance costs internally for when it comes time to negotiate price or terms. Two small multichannel businesses told us recently that when they approached their vendor they were willing to provide better terms and pricing by not participating in a compliance program. In the end, the terms and pricing worked in favor of both companies.
You can’t continue to ignore problem vendors and think that you’re too small. Vendor compliance for small companies isn’t the same as for large companies like Walmart or Amazon, but it is strategic if you limit it those that cause the most pain and expense. What leverage have you given up that your competitors are taking advantage of?
All of these topics and more will be addressed by your peers at the Executive Operations Forum at Operations Summit on March 28 in Pittsburgh. Come on out and gain lots of insights that will give you a leg up on your competition, and keep you from kissing the canvas!
Curt Barry is Founder & President of F. Curtis Barry & Company