Can your fulfillment software strategy handle the unexpected?
Retail consumer demand is difficult to predict.
Businesses are finding increasing difficulty in accurate forecasting. Most are either swimming in surplus or out of stock of key inventory. Consumers are feeling market and financial pressures. In response, many businesses focus on removing waste from their current processes over investing in growth.
From a fundamentals position, this makes sense. You already own these assets; you need to sweat them to maximize ROI and fill the war chest so that you can handle the unexpected.
The mistake is believing that strategic fulfillment software investments must be frozen – or significantly delayed – to make these changes. Most cost reduction initiatives involve rethinking or replanning the business, but they don’t require substantial capital – if any – to deploy.
5 fulfillment cost reduction strategies
There are 5 key areas that any business can tackle today that will deliver immediate fulfillment cost reduction, but scrapping your systems investment shouldn’t be one of them.
#1: Consider the geography of your sites and where products ship from
Physical space – distribution and retail – represents one of the largest fixed costs in any network. Moving or adding sites has serious sunk-cost implications. Maybe you’re not seeing the forest through the trees? A brownfield study will help you look at all your sites and think about using them more efficiently as a whole.
When was the last time you mapped customers, or regions, to these facilities? Over time, settings will naturally become less optimal. This is a common issue that comes from unplanned, organic growth; the inefficiency compounds. Adjusting the alignment of service regions to your fulfillment network can unlock immediate fulfillment cost reductions just by adjusting Origin-Destination pairs.
A full analysis can also incorporate vendors that support drop shipping and the availability of third-party storage and fulfillment options like Amazon or FedEx.
To leverage this requires distributed order management system (DOM) support. It’s not enough to set the rules; activating them needs to be seamless. If using the new fulfillment network is too hard, workers will revert to what is easy – what’s in their building. That’s where you started.
Fulfillment cost savings that can’t be realized invalidate the effort of finding them.
#2: Rationalize the inventory
Once you’ve looked at the structure of your order fulfillment network, owned and accessible, you need to analyze the inventory placed in each location.
Several high-service strategies tie up working capital and make you prone to increasing inefficiencies over time.
Mirroring is a classic high-service strategy where every site has every SKU. The problem is easy to see:
- You pay a large sum for inventory that could be fast-moving in one site and glacial in another
- Your customers change and regions shift over time, creating islands of aging and obsolete inventory
- This leads to high carrying costs from maintaining locations that are non-productive
Your reconsidered fulfillment network needs to lead right into challenging inventory assumptions:
- Think about assortment; should these categories even be in this building or do they introduce process pain?
- Do you need a SKU in every building, or can you ship everything from one location? Sometimes a higher shipping cost is beaten out by focused buildings that process faster.
- Do you need to own this product at all? Can you let the vendor drop ship it or offload it to a 3PL?
- How often should inventory replenishment happen? What is the Economic Order Quantity that balances pricing, order cost, and just-in-time? What is the right service level and safety stock?
Fulfillment software helps get this right, which can lean out inventory quickly, free up working capital, and greatly extend the functional life of your buildings by halting bad practices.
Finally, for those who are cost-conscious, many of these are policy changes that can be allowed to phase in over time through sales and replenishing into the ideal configuration.
Related: Learn how inventory replenishment improves product availability and eliminates costly mistakes.
#3: Streamline your pick-pack-ship processes
Our discipline has been aware of the 8 Lean Wastes for decades. Yet, we keep doing things that consume resources and energy, compounding the poor configuration decisions discussed above.
One of the largest wastes is how we move inventory within the facility itself. The more time your workers spend moving, the less time they spend on value-add activities – classically defined as ‘things the customer would pay me for’.
A great example is slotting optimization, which delivers an estimated 10-30% reduction in pick paths by considering SKU velocity and putting fast-moving SKUs closer to pack stations and slow-moving items in the back. When paired with nesting concepts, you group things that are often picked and shipped together getting things to packing – and your customers – faster.
When the order reaches the pack station, are you doing it right the first time? Without fulfillment software to guide this, you’ll struggle with manual errors, rework, and unsatisfied customers. Every correction is a duplicate action; time spent fixing over executing.
Ask yourself, if you could do this over, would you have done it this way? If not, start over and design a process that delivers.
After you’ve done all that, implement a warehouse management system that formalizes the rules, reviews the pick paths, and keeps you optimal. Reducing the decision points in these best-of-class fulfillment software platforms is critical so that you aren’t redoing this exercise next quarter when recidivism creeps in.
#4: Validate your shipment strategies
Zoom out and consider how things enter and leave your fulfillment network.
Transportation spend – FTL, LTL, and Parcel – is one of the largest fulfillment costs in the supply chain after ownership of inventory. When combined with most customer-facing channels that offer discounted or free shipping, it can be harder to recoup this spend through the sales process as a price markup.
Are you bringing in volumes efficiently to reduce fulfillment costs?
- Could you consolidate to truckload instead of LTL or parcel by ordering bigger orders, less frequently?
- Could you create milk runs with your carrier to build multi-stop inbound for smaller vendors?
Are you handling transfers efficiently?
- Does it make sense to send capacity-balancing shipments or cross-dock?
- Could that volume be sent as separate packages to the customer and net out cheaper?
- Are these loads a byproduct of a bad procurement strategy and do you need to look at inbound splits?
Are you fulfilling efficiently?
- Am I using the optimal ship-from location?
- Have I negotiated the best rates I can for the volumes I have?
- Am I leveraging my carrier network to access volume-based optimal rates?
- Could I have incentivized ship-from or pick-up-in-store?
Look at how you transport goods, in and out, and ask if it was necessary or if your execution has changed over time and gotten increasingly out of sync with your rules. This is where a strategic fulfillment software project will outperform any knee-jerk cost optimization project any day of the week.
#5: Choose a partner focused on YOUR value
Finally, if you’re using consulting partners, make sure you are getting value from them.
Many businesses consume way more consulting than they need. It’s not uncommon to see high-dollar research projects just for insights and analytics. This is a byproduct of second-guessing and a belief that external number-checking will derisk an initiative. No changes have been deployed and no new fulfillment systems have been implemented before a large chunk of available funds are consumed.
Focus your advisory spend on improving your supply chain and not allowing it to become unfocused and balloon to areas you were planning to touch. It can be tempting to take a fulfillment software selection and turn it into a full business review.
If a go-to-market study on the benefits of your new WMS software or order management software consumes the dollars for that system, what was the point?
Be strategic about outside resources. Scope the partner and their partners to the problem at hand and control cost overruns. Specifically, there are many firms that specialize in just supply chain, just engineering, just ecommerce. They tend to have a smaller price tag and an incredible depth of knowledge in targeted areas that you are improving.
Apply the same critical eye to the selectors that you do the selection.
Deposco protects your investment
The majority of this list is analytical and policy-based. It’s correcting system settings; it’s making sure the business you run today is the business you designed last year. But a critical issue is that it’s likely your current fulfillment systems, or lack of them, that allow for higher fulfillment costs and profit erosion to occur in the first place.
Modern fulfillment software is not set-and-forget. At Deposco,
- We identify when policies are drifting from optimal and flag when incidents are out of tolerance. You can try to do it yourself, but oversight and polish can only get you so far.
- We don’t assume that the people on the floor are perfectly informed and have integrated operational intelligence.
- We allow for tracking deviations and address them before they create a hole in your budget.
- We also don’t leave critical decisions – ones that require perfect informational awareness – up to the floor team to make order after order. By reducing decision points, our fulfillment software minimizes manual errors and defends the customer experience, always.
Start by not spending money on poor performance using cost optimization. Then roll that savings forward into an advanced fulfillment system that will do the cost reduction for you, rather than continuing to play whack-a-mole. You don’t have the time, and the market won’t let you keep it if you had it.