7 Operational Strategies to Remain Competitive and Efficient

As you conduct strategic planning for fulfillment, what are the operational strategies you should consider to remain competitive and be efficient in the future? To consider this topic, we looked at trends that are shaping the operations in multichannel companies. Here is our list:

Continual Development of New Product/Service Offerings

Trend: The single most important thing every company must do to remain competitive is to develop new products and services. We believe it applies just as much to IT, inventory control and operations as it does to merchandising. For example, multichannel companies selling products in a new channel such as wholesale to big-box retailers know that meeting vendor compliance standards is extremely difficult. Big-7-300x200

Strategic Direction: Recognize that other channels and customers may have order profiles and requirements that are radically different from your primary channel. You can’t just sell product through different channels without flexibility in systems and operations. These internal processes may radically change your internal procedures and systems.

Optimize the Supply Chain

  • Trend: Over the past 20+ years, product sourcing has relied heavily on overseas markets for manufacturing. Rather than viewing operations as just as warehousing, improve your inbound and outbound supply chain to gain advantages and realize cost savings. This is especially critical today as the entire supply chain — from origin to port, to distribution and fulfillment center, to the last mile and the customer’s door — has become severely backlogged in the pandemic era.

Strategic Direction:

Inbound

  • Push value-added services (i.e., ticketing, packaging, etc.) and quality inspection up the supply chain. This should reduce costs and minimize rework and delays in getting products to customers.
  • Establishing and enforcing vendor compliance policies.
  • Gain visibility into inbound shipments through EDI or ASN.
  • Establish vendor portals to exchange information about purchase orders, deliveries, invoices, etc.

Outbound

  • Over the last 10 years, outbound shipping has exceeded the total of all other costs, including management, labor, occupancy and packing. This will require continual renegotiation with carriers and strategic changes in positioning inventory closer to customers.
  • Address how time-to-customer and shipping costs can be decreased by multi-FC strategies; zone skipping; last mile delivery options and potentially third-party fulfillment to get packages to customers faster.

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Increased Labor Cost, Decreased Availability

Trend: Labor represents 50%-70% of the cost of a processed order, excluding outbound shipping and employee benefits. During the 2007-2008 recession, qualified labor was available in most areas. Today, labor quality and availability in many areas has diminished. For example, in our home town of Richmond VA, the unemployment rate was 3.1% as of June 2022, and just 2.8% for the state. Wage rates are also on the rise. The federal minimum wage is inching toward $15 an hour. In some companies and regions, it’s already past that, with a 15%-25% benefit rate. 

Strategic direction:

  • To increase productivity, develop reporting by person and department. Increase feedback to employees so they can understand your goals.
  • Develop career path planning with employees to reduce turnover and costs of hiring new employees.
  • Consider implementing an incentive system to increase output.

Bridging the Manager Talent Gap

Trend: Over the past 15 years or more, as we assist clients in recruiting new managers, we continually find there are a limited number of experienced multichannel managers for operations, inventory, IT, etc.

Strategic direction: Develop your current managers and retain them. Work out what each one needs to become effective and find local and online educational resources. Develop internal company-based topics in areas like inventory, accounting, productivity, and employee management.

Managing Inventory

Trend: Historically inventory has been the largest balance sheet asset in most companies. Shipping from multiple fulfillment centers and stores requires significant increases in inventory levels to service multichannel customers while reducing backorders and overstocks. 

Strategic direction: For omnichannel retailers to make money, they must be able to fulfill ecommerce and store orders efficiently just as direct businesses do. This means more efficient use of labor, customer-facing inventory systems and cost-effective outbound shipping.

Cloud and Subscription Software Models

Trend: Companies have been slow to replace OMS, ERP and WMS systems because of the investment required. Cloud and subscription-based systems provide the opportunity to change without the investment in on-premise software. 

Strategic direction: Consider how cloud-based systems can increase your flexibility and fit into your overall plans to improve productivity, track FC inventory and manage labor more effectively. They also allow you to eliminate IT operations responsibilities and monthly costs are based on usage. This gives companies far more opportunities to replace systems.

Finally, Adopt Continuous Process Improvement

Trend: For more than 10 years, getting more productivity and cost savings has been the mantra of multichannel retailers and vendors. Many companies are running so lean they can’t adopt good ideas they’re presented with. Like butterflies we flit from one good idea or concept to another.

Strategic direction: Most companies know the importance of continuous improvement objectives and teams. Continually review and set objectives for system improvement, capacity increases, application of material handling, improved work flow and cost reduction.

If you concentrate on these 7 strategies, your operations will remain competitive and be efficient now and in the future.

This post originally appeared in 2019 and has been updated

Curt Barry is Founder and Partner of F. Curtis Barry & Co.

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