Fulfillment Cost-Cutting: Where, When and Why

E-commerce companies have seen phenomenal growth in the last few years, thanks to the ease of starting a business in the digital sphere and to cost-effective processes that require very little investment.

However, these firms often struggle with order fulfillment, which is a core aspect of business for online merchants.

Customs, duties, shipping expenses, rerouting — these are just a few of the reasons online retailers are losing out on profits while trying to fulfill customer orders. In fact, shipping can account for up to 25 percent of business costs, and some of the biggest carriers — the likes of FedEx and USPS — increase their prices every year.

There is no reason you can’t cut these expenses and strengthen your business in the process.

What Is Order Fulfillment?

This process involves storing, packing and shipping online orders to customers. It requires reliable logistics and distribution centers (DC) for swift delivery.

Setting up an order fulfillment system can be expensive for businesses due to increased operational and maintenance costs.

Then again, letting go of quality logistics also can harm your e-shop in several ways. It can reduce order accuracy, increase shipping costs, result in untimely deliveries and more — all factors that affect customer retention negatively.

Businesses must understand that online shoppers love a good bargain, so they are always on the lookout for lower-priced deliveries and free shipping services. As a seller, you need to keep the costs low, so they keep coming back to buy from you.

Fulfilling orders on time also matters, because for manyshoppers, the speed of delivery is an essential feature of online businesses they patronize.

The problem is that order fulfillment can eat right into your margin if you don’t keep costs in check.

When and Where to Cut Costs in Fulfillment

Managers often are charged with finding ways to reduce fulfillment costs and scale operations, as IBM research notes. Cutting costs in fulfillment can be critical for many e-commerce merchants.

Following are some relatively simple ways to decrease order fulfillment costs.

1. Cut Costs In Shipping

Merchants struggle with timely and accurate deliveries, as shoppers expect them to cover associated costs. In fact, many shoppers abandon a purchase when they see the related shipping costs. The desire to buy something is not worth the additional expenses for them.

That’s why many online sellers offer free shipping — it not only increases the frequency of purchases but also prevents last-minute abandonment of carts.

It might be a good idea to outsource shipping to third-party fulfillment services, as they already have a network in place, which allows them to deliver products worldwide at minimum rates.

Removing the hassle of delivery from your operations spares you time to focus on other core business activities, like marketing and managing orders.

2. Get More Cost-Effective Packaging

Packaging is an essential part of logistics as it helps make sure that products are delivered at the buyer’s doorstep in perfect condition.

Interior packaging, that is, packing peanuts and bubble sheets, etc., keep the item protected inside the box, safeguarding it from scratches and minor dents.

Exterior packaging protects during delivery, loading and unloading. Well-designed outer packing is essential for making an excellent first impression and protecting items during shipment, but it might be possible to spend less on the internal layer.

You can use recycled paper, bubble wraps, newspapers, or even gift paper to pack products and cut costs. Also, try poly mailers in place of boxes to reduce packaging costs and save space.

3. Invest in Economical Software for Filling Orders

Managing new orders can be a monumental task for e-commerce businesses in the growth phase. They are at risk of inefficiencies and order delays that can cause significant issues for the company.

A reliable alternative to managing online orders is an inventory management system that automates the process, enhances the workflows, and moves orders to the next step with precision. Implementing IMS software also reduces the chances of human error, since a large workforce no longer is required to handle orders.

In short, implementing IMS software in your operations will allow you to reduce operational costs while filing orders in the long term.

However, know that the best inventory management software is one that caters to your needs. Your business is unique in many ways, and its processes should reflect that distinctiveness.

4. Use Hybrid Fulfillment Centers

E-commerce operations can use multiple fulfillment solutions and deploy them all at once to reduce costs in different areas of business.

For example, you can rent a local warehouse to store, pack and ship products. In this case, your in-house team will be responsible for packaging and delivery, but depending on the number of orders you ship through your in-house delivery system, you sometimes can save more than what you pay to a third-party logistics firm.

Furthermore, you can deal with shipping companies or local carriers to receive discounts on your logistics, thereby saving costs associated with fulfillment.

5. Measure Warehousing Capacity

The wrong warehousing solution can drive up costs, especially if outsourced fulfillment services are managing most of your inventory.

You can reduce costs by ensuring that your warehouse is not empty for any significant amount of time. Either upscale your local deliveries through marketing efforts to bring down prices, or move to a smaller warehouse that suits the needs of your business.

Moreover, get a storage area that’s close to your hottest geographic points to reduce delivery costs — your drivers will use less fuel and transport, which will reduce related expenses. While selecting a warehouse, you need to cater to areas where most of your customers live and set up a warehouse nearby.

This also will allow you to expedite deliveries, improve customer satisfaction, and create a significant influx of orders, thereby enabling you to scale your ecommerce business.

Why Do I Need to Cut Costs in Fulfillment?

Businesses must ensure customer satisfaction to scale operations. Lower costs translate into better experiences for them.

Here is how it impacts customers — and consequently, your e-commerce business.

1. Boost Retention Rate

Cutting costs in fulfillment doesn’t just offer immediate savings. It also allows e-stores to satisfy their customers more expansively. This leads to a higher customer retention rate, thanks to timely deliveries, free shipping and better packaging, all of which make a positive impression on buyers.

2. Deploy Powerful IT Infrastructures

As your e-commerce business cuts cost on logistics, you can invest the savings into creating a robust IT infrastructure, which can be costly. You also can invest in software for planning, monitoring and administering operations for wide-scale expansion down the road.

3. Acquire Positive Reviews

Customer feedback can have a significant impact on the survival of any business. Prospective buyers trust reviews more than they believe marketing materials and advertising messages. In other words, positive online reviews can attract more customers to purchase from your online store, consequently increasing your market share.

4. Improve Brand Image

Did you know that more than 30 percent of buyers prefer receiving their orders on the same day?

Entrepreneurs need to realize that by cutting costs to improve fulfillment and expedite delivery, they are meeting or sometimes exceeding the demands of the end consumer. This can help establish your business as trustworthy and reliable.

5. Reduce Costs Of Errors

Managing fulfillment on your own can be a hassle, since it involves packaging, warehousing and shipping, etc., all handled by you. When you cut fulfillment costs by outsourcing this part of your business to experts, order errors are drastically reduced.

Fulfillment companies have dedicated resources to handle all aspects of order fulfillment for you. They also have dedicated units for packaging to ensure consistency across orders. Since they are doing this on a large scale, they can keep costs low and help you truly serve your customers.

6. Avoid Impact of Fluctuations

Economic fluctuations, like a change in the price of fuel, can affect your e-commerce revenues, especially if you’re managing your logistics for delivery. When you plan on cutting costs by outsourcing fulfillment, you free your business from the direct impact of these fluctuations.

Outsourcing fulfillment will allow you to save costs in warehouse rents, shipping and payroll, as your fulfillment service provider manages these areas.

In Conclusion

Fast and affordable order fulfillment is a reality for online businesses that take the time to look for the right opportunities.

It is crucial to invest in order fulfillment processes and solutions — whether in-house or outsourcing the job — because making the customers wait can be expensive and detrimental to your long-term business plans.

There is no denying the fact that it is a tedious and challenging aspect of selling online — but order fulfillment doesn’t have to make it expensive for etailers to remain competitive.

It is why a lot of e-commerce merchants prefer to outsource this part of the business to professional services in order to capitalize on their expertise, save costs and scale operations.

Will Schneider is the founder of insightQuote, a match-making service for B2B services. He writes informative posts about fulfillment services at Schneider is passionate about helping businesses find the right solutions to improve their operations. When not working, Will enjoys coaching youth basketball.

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