By Eric Brown
Fulfilltopia.com
So, you have a product you now want to sell online? Having a great e-commerce site and shopping cart is an important first step in online business success, but to remain viable for the long term, you must have a well-developed plan for managing inventory and shipping products to your customers. Many business owners have high aspirations of building a great business through E-commerce, but too often, they fail to plan for these essential activities. In an effort to bring in online customers, businesses focus a great deal of attention and money on sales and marketing, and look for the cheapest way to get the product to the customer. While this may seem like a reasonable choice, a hard-learned lesson often follows: trying to save a few cents can cost your business dollars and time if you sacrifice quality of customer service.
As you begin to develop your e-commerce business model, take time to consider the elements of fulfullment.
Managing the Supply Chain
There are two key types of online sellers: manufacturers and resellers. Whether you are a manufacturer or a reseller, you must decide how you will manage your inventory by first determining what kinds of products you must store and how much of your product must be kept on hand at any given time. These factors are also interrelated—the shelf-life or obsolescence of your product will affect how much you should have in stock. As a reseller, you may find that you get a good price on a product if purchasing large quantities, but what seemed like a good price simply will be a great cost if you find yourself holding a warehouse full of unsold product. This balancing act is determined by projected sales based on your product and market demand for it. Let’s face it, product sitting on a shelf costs you money and can affect cash flow if the product does not sell.
A suggestion for resellers: Try drop-shipping orders when possible. Rather than buying the product from the manufacturer and storing in your facility, consider having the manufacturer ship it directly to your customer for you. This does not work in all cases, but it is a great strategy if your products include high-ticket items or items that are ordered in bulk by the consumer. If you have customers who order individual items or multiple miscellaneous items, storing products and shipping them from your own facility is a more appropriate strategy, especially if you have a consistent volume of orders.
Manufacturers must plan shipping carefully if outsourcing their production of items to another company or country. Most factories require large orders of a product in order to go into production, which will affect the amount of storage space you will require. If your product is coming to you from another country, be sure to plan for shipping time, including the time it will take your product to go through customs. Transporting your product via ship may take longer, but it is the cheapest method of moving your product across the ocean. If time is important, air freight is definitely a faster choice; however, it is also far more expensive. If you have high markup in your product and high turnover, air freight might be a good short-term strategy, but planning ahead and taking advantage of slower shipping methods when reasonable will help keep your costs under control.
Managing Inventory and Storage
Once you have product in your facility, keeping track of inventory can be a great challenge, and the more products you have, the more complicated managing it gets. If your products have expiration dates or become obsolete quickly, apply a strategy of “first in, first out” (FIFO) to prevent being stuck with inventory that can no longer be sold. When managing a wide variety of products, it is important to invest in a reliable warehouse management system (WMS) that will help you keep track of when the product was received in your facility, how much of it you have on hand, and where in your facility it is stored.
Cost is another factor to be considered when deciding how to store and manage your product. For a business that chooses to store its own products, a major expense will include securing an appropriate amount of warehouse space either by purchasing or leasing such space. Additional costs such as insurance, a security system, building operating expenses and utilities, and labor to manage the inventory should be weighed against potential cost if your product is damaged, lost, or stolen due to poor facility managment. When selecting a space for your storage needs, also keep in mind that most leases are a minimum of three years, and as your business grows or contracts during that time, you may have to invest even more money to acquire additional space or buy out of a lease in order to move.
Another solution to the question of storage and management of your product is to outsource this function to a fulfillment company. Using a fulfillment company enables you to securely store your product without taking on the burden of a lease and related expenses for storage space. Additionally, your business will have more flexibility to increase or decrease the amount of storage required for your product without having to change your storage location. Fulfillment companies also provide the service of managing your inventory, so while you are paying them for the service, you will not be bothered with other expenses associated with labor such as health care and other benefits.
Weighing the cost of managing your inventory is just as important as considering how much space you need to store your product. Failure to plan for both the cost of storage and the cost of managing inventory can result in much lower profit margins for a company even when product sales are strong.
Managing Orders: Print, Pick and Pack
Of course, the real purpose of having on online business is selling your product and getting it to your customers. Although the customers place their orders electronically, fulfilling the orders will typically include printing some type of order ticket specifying what item was ordered by whom along with the mode of shipping and destination. Such a document is usually referred to as the “Pick” ticket and it often serves as the Packing List as well. Whether the packing list and the delivery information are one one document or two is simply a matter of preference, and they are either generated from the E-commerce site, a shopping cart system, or through integration with a fulfillment center (when outsourcing fulfillment).
Once orders have been received and the products pulled from inventory, the items must be packaged for delivery. As simple as it may sound, packaging the product can be your biggest source of headaches if it’s not done properly. Using the appropriate boxes and packing materials–which both protect the product and make a positive impression on the customer receiving it is paramount. While the right materials can be expensive, one can also spend a fortune on filler materials (such as shipping peanuts or airbags) when the wrong the box is selected. Of course, protecting the product during shipping is essential. If care isn’t taken, you can expect damaged products and upset customers.
Packaging is also an opportunity to further market your company. Beyond any identifying logos or markings on the box itself, how neatly or haphazardly a package is put together can present customers with a positive or negative image of your business. Additionally, packages sent to customers create an opportunity for repeat sales. Take advantage of the chance to promote another product by including a catalog or an incentive offer for your other products. If you chose to have a fulfillment company, you may find it offers advertising through cooperative marketing. For instance, for participating clients, the fulfillment company will include promotional literature in each package shipped to a customer that fits a particular target audience whenever a package is sent.
Managing Delivery: Shipping
When it comes to shipping products, its unlikely that the same shipping method will work for all companies, and even a single company can benefit from having multiple shipping methods available. To determine which shipping method best suits the needs of your company and business, ask these key questions:
- Do you ship to a residence or a business?
- What is the average weight and/or value of an order?
- How quickly do you need the product to reach your customer?
- What range of shipping options do you hope to offer to your customers?
- Do you intend to make a profit on the shipping, too?
- Will your company ship domestically and internationally?
Some shipping carriers may have hidden charges, so a close investigation of their rates is warranted. Beyond the basic rate for shipping your package, some carriers charge higher rates for delivering to residences rather than businesses, and many will include additional charges for shipping to rural areas, surcharges to address fluctuations in fuel prices, and fees if a delivery address is incorrect for whatever reason. For most businesses, having a selection of shipping carriers is the most prudent course of action. Another alternative would be to select a fulfillment center to manage your shipping as well as your storage and packing needs. Not only can the fulfillment center save you the challenge of determining which carrier has the best rate, fulfillment centers usually have developed relationships with multiple carriers and negotiated cheaper shipping rates due to their consistently high shipping volume. Depending on the frequency and volume of your shipping needs, taking advantage of those fulfillment company relationships could save you 10-20% on your shipping costs each year.
Systems to Keep Control
Entering the world of E-commerce can be a fruitful endeavor, but managing your product inventory, storage and shipping is vital to success. Keeping track of it all can be challenging and expensive, but thankfully, many management systems are available to help your business stay on top of the details. Below is a list of the systems that will help your business manage materials and information related to running the e-commerce business:
E-Commerce Website – Beyond an ordinary website, the most successful businesses will have a good shopping cart platform that is search engine friendly, can integrate easily with other systems, and provides reliable, scalable information on sales trends and reports.
Order Management Systems (OMS) – Think of an OMS as the portal that brings the various elements of your business together by integrating the shopping cart, warehouse management system, shipping system, and accounting/financial systems. Some E-commerce websites and shopping carts help manage some of these additional functions, so depending on how you configure these aspects of your business, you may find the OMS is not required to meet your needs.
Warehouse Management System – Using Excel to track your product inventory may seem like a good idea when you begin, but as your business grows, it will only get you so far. A good system warehouse management system will help you manage the supply chain and track inventory in and out of your storage facility.
Shipping Systems – Many shipping carriers will offer free software to help manage shipping; however, the functionality of such programs is limited to that carrier. If you use multiple carriers, which is usually the most economical choice, such free software loses its value. Even if it is necessary to purchase software, a system that integrates with the E-commerce website/shopping cart and your accounting software for reconciliation while allowing you to use multiple carriers will provide more value than a free software that limits your shipping flexibility.
Financial Management Systems – A good financial management system enables your business to track shipping expenses and product valuation for on-hand inventory as well as general accounts receivable and payable. Many startups are able to manage for some time with or without these systems depending on their investment capital on hand, but all thoroughly established E-commerce companies utilize these systems.
Selecting the right management systems requires a significant amount of research and planning. Examine your company’s current and projected needs honestly while considering the cost of various systems individually or in combination. Purchasing these systems separately can cost an established company $100,000 to $200,000. Fulfillment companies can offer your business access to the same technology at a fraction of the cost, because they have already made these investments. Outsourcing fulfillment can save a growing e-commerce business money and time, and it enables you to focus on selling your product and growing your business rather than managing the these important but tedious details.
Fulfilling your customer’s orders for products properly is just as vital as the sale itself. There are many “moving parts” when it comes to successful fulfillment, and careful analysis, planning, and investment of time, money, and other resources to keep those parts moving in harmony is the basis for a sound E-commerce strategy. Careful planning for these behind-the-scenes aspects of your business will allow you and your key managers to stay in the creative mode, which drives growth rather, than being bogged down in the management mode.
Eric Brown, CEO of fulfilltopia and Mobile One Courier & Logistics, provides fulfillment, shipping and supply chain solutions. You can reach him at eric (dot) brown (at) mobileonecourier (dot) com or 757.449.5013.
