Behind the 'Buy Button'

These days, marketers’ attention is focused squarely on that of supply chain and logistics experts. If you are wondering why, consider the iPad2 supply chain situation, in which a perfectly positioned product and a top-of-the-line brand were compromised by the earthquakes and catastrophic radiation leaks that occurred from several of Japan’s nuclear reactors. Due to the shutdown of five necessary suppliers, Apple has lost revenue and profits for its retail channel.

This illustrates two major points: first, everything occurring behind the “buy button” can affect how a marketer’s brand performs – including top line revenue, sales conversions, and bottom line costs.

Secondly, that the primary driver of supply chain decision-making is “customer service”-related. These decisions affect product cost, inventory availability, order to cash cycle time, returns and refunds, merchant account reserves, and a handful of other issues.

As a result of today’s environmental factors, leading supply chain experts recommend that marketers re-evaluate their supply chain strategies and risks annually – and remember that customer service should always be the No. 1 driver in any marketer’s decision-making process.

Here are some other rules to follow:

It bears repeating – customer service is the driver!

I’m not just talking about the customer service agent – I’m talking about the baseline decision any marketer must make about whether or not to invest in the inventory required to quickly meet customer demand. If an inventory position is too lean, customers will not get their orders quickly enough and this can sometimes force companies to ship using more costly methods or from more expensive locations when demand exceeds projections.

The impacts of this are often severe and costly, known as the bullwhip effect in supply chain circles, in which small changes on the retail side have enormous impacts to the marketer’s ability to deliver. For instance, shortages and backorders can spike customer service calls – in some cases by 400 percent or more. Marketers who are prepared pay close attention to sales forecasting and build multiple inventory replenishment models to support product lifecycles and changes in demand.

Determining your distribution network

Determining where to position inventory is key for marketers. Approximately 65 percent of the U.S. population is located east of the Mississippi, but in most cases positioning inventory on both coasts will allow the merchant to reduce shipping costs and reduce “order to cash” cycles. This can also increase customer satisfaction and reduce returns and cancellations by reducing the delivery time frame by as much as 2-3 days. Additionally, the heavier your product, the more you stand to save. Want to know your maximum potential for savings? A simple freight analysis provided by your fulfillment partner will do it for you.

Consider your risk

Transportation costs are on the rise, driven by a scarcity of trailers, a shift in control from shippers to carriers, and federal regulatory changes that affect trucker work hours. Fuel prices remain volatile, and piracy is even being included in new supply chain models. Risk, now more than ever, is playing an important role in supply chain and logistics decision making – and we suggest you identify your major risk factors and develop a contingency plan moving forward.

The look and cost of packaging

There are three hot topics brewing in the area of packaging right now: first, the desire for major retailers to receive goods in retail-ready packaging that would reduce retail store labor and packaging waste – a factor alone that could double your SKUs or give you a leg up with major retailers. Secondly, the recent “shadow increase” in freight costs by UPS and FedEx based on their dimension (DIM) charge calculations. If your fulfillment partner is able to economically manage the amount of packaging used, you could, in some cases, avoid a double-digit increase in shipping charges!

Finally, there is the discussion of marketers becoming more sensitive to shipping costs. When two extra sheets of packing paper can move a package from one weight class to another – resulting in a 5-15 percent increase in shipping costs depending on the shipping method – marketers are more meticulous than ever.

Customers, too, are now more particular than ever – about how their products are packaged and how they are received. And marketers should be, too, because it is a factor that can impact costs, profitability, customer satisfaction, and lifetime customer value.

Behind the buy button

There are a lot of complex issues behind the buy button, and all too often we find ourselves focused too intently on the glamorous marketing and selling side of the equation. To truly succeed it must be remembered that every customer touch point is an opportunity to build a customer relationship, increase average order value and promote lifetime customer value—or , on the flip side, lose a customer based on price, quality or poor delivery issues.

When making the right decisions for their companies, marketers must always keep in mind that customer loyalty is truly earned with each positive customer experience.

About the Author:

Clyde Mount

Clyde Mount is President of 3PL Worldwide, a provider of third party logistics to direct response, e-commerce, and catalog marketers. Based in Milford, CT., with warehouses on both coasts, 3PL Worldwide processes more than half-a-billion dollars in sales orders annually. He can be reached at cmount@3plworldwide.com.

Takeaways:

  • Re-evaluate your supply chain strategies and risks annually
  • Consider your risk
  • Customer loyalty is earned

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