Sourcing Suppliers

How mature is your micro business? supply chain?

Simon Dixon | 13 January 2016 | 8 years ago

Recent growth in ecommerce has seen in large numbers of small etailers enter the market, offering a variety of different products.

Typically, they will have developed an excellent website, be focused on SEO and marketing and have an excellent social media strategy. But product fulfilment, or more accurately end-to-end customer proposition fulfilment, is often seen as an afterthought.

But the customer proposition shouldnt end at the checkout. The micro business supply chain is key in the battle for online customers. As the final component in the relationship etailers have with their customers, the faster and more efficient delivery is, the better.

Research by Royal Mail has shown that delivery factors are responsible for two-thirds of abandoned online shopping carts, costing an estimated 1bn per year in lost sales. Getting this right is therefore key to generating customer loyalty.

The same survey suggested that 90 per cent of home shoppers will buy from an etailer again if they are happy with the delivery so offering a choice of delivery options and an easy returns experience is a huge part of delivering the customer proposition. How your firm can make sure this happens will vary depending on volumes, growth, business model and sector.

There is, however, a typical journey followed by most etailers and understanding where you are on the supply chain progression curve will help you develop a strategy for improving your operation, resulting in reduced costs and a broader customer proposition.

The features of each stage of development may vary according to individual etailers. However, once a few of the important ones are identified, then a business can quickly begin to understand what they need to do to progress towards the next phase in their fulfilment operations. The failure to do so can lead to a significant reduction in the performance of the fulfilment operation and ultimately seriously damage the brand.

The three stages of development that most micro firms will find themselves in are outlined below:

Startup

Small scale

Utilising existing office space/kitchen table/spare bedroom

Manual order management

Spreadsheets managing data

Daily trips to local carrier depot for despatches

Adhoc returns processing

The features of stage will be familiar to most etailers whove started out by utilising the likes of a spare bedroom. Initially this is a cost effective way to start, you remain in control of the process and volumes dictate that significant investment in infrastructure won’t provide a sensible ROI.

If the business continues to grow, etailers will quickly move towards the next stage, where additional resources are needed. It is likely that this will include recruiting some staff to pick and pack orders and probably take on some additional space to house and process stock.

Businesses should seek as much flexibility here as possible when it comes to employment contracts and facilities leases. Volumes will fluctuate, so minimising unnecessary overheads is key.

Heroics

Volume growing

Expanded into small premises

Staff performing heroics to fulfil orders in line with customer proposition

Some technology used to manage orders

Inefficient, poorly designed processes

Wasted time and cost

Picking errors and late deliveries

Carrier collections but at supplier discretion

Carrier rates uncompetitive

Now etailers will begin to develop an understanding of the processes involved in fulfilment and will begin to improve them. The opportunity to improve buying terms with suppliers, particularly carriers and packaging providers, will also occur as order volumes grow.

Staff are likely to be working additional hours to fulfil orders, while inefficiencies and waste could cause a risk to brand and make staff burnout likely. The risk here is that focus can quickly move from core activity such as sales and marketing to just getting it out of the door.

This is the tipping point in fulfilment terms. Business leaders who don’t feel they have the know-how to move the business forward should be seeking advice from external sources, developing an understanding of what their competitors are doing; utilising their network for recommendations and advice; instructing specialist consultants; and visiting similar operations.

Managed

Recognise need to invest in dedicated fulfilment centre or to outsource to experts (failure to do so can result in a significant downturn in performance)

Standard operating processes utilised

Systems implemented to manage orders, inventory and warehouse

Consistent ways of working are defined, deployed and maintained

Regular, but suboptimal carrier collections

Reduced carrier costs

Having invested in an in-house solution or outsourced to a third party, at this stage businesses will have defined and consistent ways of working deployed and maintained. Efficiency benefits will be realised and better commercial and operating terms will be agreed with suppliers.

Now is the time to optimise fulfilment operations to realise the benefit on the cost per order and ultimately the bottom line. This will involve understanding who the industry leaders are and benchmarking against this (a good 3PL provider should be able to provide this data if outsourced).

A clear growth strategy and understanding of the growth plans are essential to developing the optimised fulfilment solution for the business that provides scope for expansion. Process improvement projects will need to be applied in line with this end state vision to drive process efficiencies and realise significant savings. An investment in elements of automation to eliminate wasted hours and resource may also be required.

The increased volume coupled with reduced cost per order will also facilitate the broadening of the customer proposition. Wider and cheaper delivery options can be achieved with a variety of carriers (free standard delivery is fast becoming the norm as demonstrated by the likes of Amazon and ASOS) to improve conversion rates and average order values.

Whatever stage your business is at, to arrive at a clear understanding it is good practice to assess the costs, benefits and risks of releasing these step changes. This will typically involve evaluating the savings to be made through improved productivities, the sales benefits from a broader choice and more convenient customer proposition, the costs of investment in infrastructure and systems and the ability of the organisation to manage the change and subsequent operation.

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