Reducing Expenses by Streamlining Your Ecommerce Supply Chain

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Supply chain management (SCM) includes all the business processes, systems and services needed to move raw materials and finished product from manufacturer to retailer, distributors and customers. And any chain is only as strong as its weakest link.

There are many opportunities to make your SCM more efficient, reduce costs and provide higher service levels to customers. A typical ecommerce supply chain including sourcing, storage, fulfillment, distribution, IT and transportation has these services and functions:

  • Merchandising planning, inventory management and analyses of product assortments for initial purchases and reorders; liquidation of slow selling and overstocks;
  • Electronic and manual processes of placing purchase orders for product through vendor and customer portals (advanced shipping notices and EDI);
  • Inbound freight services, consolidation, and routing/carrier management; real-time inbound visibility; and dock scheduling;
  • Receipt of customer orders from websites, portals, contact centers, and salespeople;
  • Four walls warehouse operation for processes and warehouse management systems (WMS) including: Merchandise receiving; marking and packaging product to requirements (retail, ecommerce, etc.); pick, pack, and shipping of customer orders; stock put away and forward stock replenishment; value-added services (such as kitting and monogramming); DC inventory control, inventory audit trail, and cycle counting; return processing of customer credits/refunds, and merchandise disposition.
  • Reverse logistics transportation services to return product from customer to DC
  • Outbound transportation services to the end users and customers according to the customer’s expectations of delivery time and cost. Various shipping modes, including small parcel, palletized LTL, and partial or full TL.

Recommendations for Improvement

Here are four major ecommerce supply chain areas that can be streamlined to reduce your overall fulfillment costs:

Dock-to-Stock Processes and Systems

As you investigate the inbound side of the ecommerce supply chain, you should have these objectives.

  • Use EDI and Advanced Shipping Notices (ASNs): These will improve vendor-customer IT and standards. Implement vendor-customer IT protocols to process purchase orders, ASNs, invoices and many other electronic documents. Benefits include greater visibility of inbound shipments, a significant reduction in errors, better timeliness, improved truck scheduling and better planning of receiving labor.
  • Increase throughput and order cycle time: Product arrives ready to fill orders or be put away immediately eliminating stock delays and congestion.
  • Process improvement: Identify processes which can be pushed up the supply chain to the manufacturer or wholesaler, reducing delays and expense (i.e. inspection, unit marking at lower cost).
  • Barcoding: Achieve 100% barcode or UPC reading of all products, cartons and pallets shipped. This allows you to implement scanning and things like voice technology, sortation systems and MHE, improving accuracy, timeliness and online data collection.
  • Vendor compliance policies: These include a transportation routing guide, product specifications, barcoding, EDI and ASN use, packaging and carton specs and marking and paperwork requirements.

For more on this this topic, an earlier post lists 11 major ways these processes can be improved to deliver benefits. 

Optimize Inventory Management

Your suppliers are a vital part of SCM, and inventory is one of your largest balance sheet assets. Having items in stock a high percentage of the time an order arrives is a continual challenge.

The efficiency of this aspect of planning, purchasing and managing inventory has a major effect on FC capacity and storage from overstocks, as well as your order fill rates.

Merchants will also have a major say in adopting vendor compliance policies and enforcing the standards. They are also the key to communication with the vendors on purchase order delivery dates. Changing mode of inbound transportation as an example from ship to air freight not only destroys gross margin but often is part of the delay in receiving and shipping orders.

In a previous post we provided 10 considerations for improving inventory strategy.

Reduce Time-to-Customer and Shipping Costs

Since Amazon can now ship to 72% of the U.S. population in one day, ecommerce companies are scrambling to find ways to efficiently shorten order delivery time, and FC network expansion is one approach. Having enough nodes in the right places, handling inventory planning and management by location, and having order fulfillment logic to ship from the node closest to the customer are all challenges for multi-FC processing environments.

If you have only one facility, how could multiple FCs reduce time to customer and shipping costs? What additional costs are tied to implementing this strategy? This previous post addresses 8 major considerations for pursuing a multiple FC strategy.

Evaluate, Reduce Outbound Freight Costs

In our work with ecommerce and omnichannel companies, we have found that outbound freight exceeds all other fulfillment costs combined, including labor, facilities, software, MHE and automation, software and packaging. It can range from 6% to 8% of the average order value on the low side to much higher for larger items. Customers also expect free or low-cost shipping, a major factor in checkout decisions.

As you look for ways to reduce costs on the outbound side of your ecommerce supply chain, here are some options:

  • Understand your shipping profile and expenses (i.e. the number of packages, carrier, weight, zone, etc.). For example, expedited carrier plans have can have ow can they be reduced? Which of your products are driving added costs?
  • Least-cost routing and multi-carrier software that chooses the most cost-effective transportation options.
  • Use the USPS and zone skipping when tracking and slower delivery times are acceptable.

Consider investing in an enterprise shipping system to gain data access, control package shipping costs throughout your network, reducing paperwork and maintaining rates both domestically and internationally.

A supply chain assessment is a great starting point to determine ways to reduce fulfillment expenses by streamlining SCM processes and systems. You can leverage not only your company’s leadership but your suppliers and service providers as well.

Brian Barry is president of F. Curtis Barry & Co.

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