In 2020, the third-party solutions available to small and mid-sized merchants for optimizing their logistics and fulfillment workflows are as accessible and affordable as they’ve ever been. As advancements in technology are coupled with the introduction of new service models by providers within the logistics realm, merchants are finding that, with the right partner and the right data, they are able to outsource their fulfillment operations and achieve 1- to 2-day order delivery speeds in a cost-effective manner. This represents a massive advantage in today’s competitive landscape, especially as customer expectations for faster and cheaper delivery become more demanding.
However, for these new-age logistics models to function as they’re intended from the start, merchants must provide data related to their product set, sales channels and order volumes. By capturing and providing these data sets, merchants enable their third-party logistics (3PL) provider to determine exactly where their products should be stored, how much inventory should be stocked, how often new inventory should be restocked and what the most efficient delivery options are.
Ultimately, capturing this data will enable merchants to lower their transportation and inventory carry costs to improve profitability while simultaneously driving higher customer satisfaction through the provision of faster and cheaper delivery options. It will also help merchants determine which 3PL provider can offer the most effective service for their unique product set and customer base.
Here are five data sets needed to optimize 3PL and fulfillment options in 2020:
1. The geographical locations of customers.
As opposed to brick-and-mortar storefronts that require a customer’s physical presence, the rise of e-commerce has enabled buyers to effortlessly search for and purchase items online from virtually any brand in the country, continent or even world. For merchants, this means that many of the traditional barriers associated with gaining broad market exposure have been eliminated. However, e-commerce has also added new challenges for merchants, such as that of having to quickly deliver goods to customers that are spread across the globe.
As e-commerce merchants increasingly recognize that their sales are coming from customers in numerous regions, many are transitioning toward fulfillment structures that offer a distributed warehouse network. This allows them to store portions of inventory in multiple locations. However, in order to leverage this type of network effectively, merchants must know where the bulk of their customers are located, so they know exactly where to place their inventory. In practice, this type of strategic analysis can enable merchants to rely on just three warehouses to reach their entire U.S. customer base in 1-2 days through standard ground shipping options. And, with numerous 3PL and 4PL providers that offer distributed warehouse networks, knowing where their customers are located enables merchants to shop for the network that gives them the best coverage.
2. The volume of new orders by season.
For merchants with distinct busy seasons, understanding how order volumes rise and wane throughout the year is essential for optimizing third-party fulfillment. In some industries, it is common for 30-40% of order volumes to occur within a 1- to 2-month period, such as the November-December holiday season. And, because most warehouses will charge storage fees based on the amount of pallet space used throughout the year, the ability to reduce inventory capacity during the slow season and then ramp up in time for the busy season enables merchants to save significantly on inventory carry costs. However, it is imperative that accurate data is gathered here, as stock outages caused by unforeseen demand or unanticipated order spikes will do more harm than the costs of carrying extra inventory. It’s also important to ensure that a merchant’s selected warehousing provider will allow inventory to be scaled up or down throughout the year in this fashion. Reason being, some warehouses require year-long contracts with pre-specified inventory parameters that can prove restrictive for merchants that try to implement a seasonal approach to inventory management.
3. The volume of new orders by product.
Just as important as understanding a business’s general seasonality is understanding the specific level of demand for each unique product. Although some businesses may choose to stock equal amounts of inventory across all their products, this can lead to unforeseen costs as slow-moving SKUs stay on the shelves longer and rack up additional storage fees. This approach can also complicate the restocking process, as varying demand levels for different SKUs will likely necessitate different restock amounts and cadences. Instead, analyzing demand for each unique product throughout the year enables merchants to determine how much of each SKU should be stored at any one time, how much is needed for restocking and how often each should be restocked. This will ultimately allow them to reduce the carry costs associated with each product without running the risk of stock outages.
4. The type and size of orders submitted by customers.
When it comes to selecting the transportation methods used to deliver orders, there are several elements to focus on. For instance, if merchants are selling to other businesses (particularly retailers and wholesalers), goods are typically bought in bulk. But for individual consumers, products are commonly bought as single units. Ergo, if merchants are selling to both businesses and consumers, they’ll likely need to leverage multiple transportation methods, including small parcel delivery services for customer orders all as well as LTL and FTL freight options for wholesale orders. Getting a handle on the range of order types and volumes that will occur is very important because different carriers offer different rates depending on the size of the shipment and who the end recipient is (i.e. a business or consumer). For this reason, identifying the type of delivery options needed and the frequency with which each type is needed will help merchants select the best carrier(s) to service their business.
5. The dimensions, weights and handling requirements of all products.
Across the full landscape of fulfillment providers and shipping carriers, the charges associated with handling products of various weights and sizes can vary broadly. For example, some warehouses might specialize in storing heavy or bulky items (i.e. products over 50 pounds) and charge much less than their competitors, while others may only handle small retail goods and will charge hefty premiums for items over a certain weight or width. The same goes for shipping providers, who may charge premiums to ship items over 10 pounds or with dimensions exceeding 3-4 feet. Taking this a step further, products that require refrigeration or kitting or that are classified as hazardous materials are much more expensive to store and ship, and many providers may choose not to handle these types of items at all. So, if merchants are to truly optimize the costs associated with their fulfillment process, documenting these types of product specifications is a crucial step. This will ensure that across their full portfolio of SKUs, the warehousing and shipping partners selected can provide effective service.
Next steps for selecting or refining an outsourced logistics and fulfillment structure
For small and mid-sized merchants that are serious about competing in today’s fast-paced business environment, capturing the above data sets is essential for achieving 1- to 2-day delivery speeds in a cost-effective manner. Although few small- and medium-sized merchants can afford to build and maintain their own distribution networks, making sure the appropriate data is being captured internally is the first step towards selecting and then refining their use of an outsourced provider. Once there is a process in place to capture this data, merchants can then begin evaluating the landscape of third-party offerings to determine which is best equipped to manage their operations.
