The cost of shipping is a major competitive differentiator in ecommerce. Shoppers will quickly abandon a cart or buy from a competitor if it means they will save money on shipping. To reduce shipping charges for your customers, you'll need to go beyond investing in cheaper dunnage or renegotiating with carriers for better rates. In addition to those strategies, here are some more holistic considerations for improving the cost efficiency and customer-friendliness of your packing and shipping operations.
Evaluate current packing materials and processes
From material and labor costs, to DIM weight optimization and customer experience – you may find there's a lot to "unpack" by doing a comprehensive review of your current approach to packing and shipping. Some useful questions to ask during this process include:
- How do factors such as total weight, dimensional weight, oversize charges, special handling, and the number of packages shipped per order affect your total average shipping expenses?
- What do your customer service and operations reports show about damages from improper packing or packing materials?
- What is the average labor cost on oversized items requiring special labor and materials to pack?
Consider the potential benefits of branding
Stylized packaging helps to create a memorable, positive experience for customers. When done well, customized packaging can improve your brand perception and boost your marketing reach through word-of-mouth and social media. Besides adding your brand messaging to packaging materials, interactive packaging inserts with social media instructions (“follow us at…”), post recommendations (“take a picture and tell us how excited you are to start using this product”), and hashtag suggestions are an inexpensive way to get more ROI from stylized packaging.
Right-sized packaging & kitting
Customizing your packaging to an optimal size and level of protection can save you money on shipping costs over the long-term. Right-sizing the cartons for each order will help get you the best DIM shipping rate every time. Customized dunnage that is lighter and less voluminous dunnage also contributes to getting better shipping rates. Depending on the level of variation in your typical order sizes, the best solution could range from onsite box-making equipment, to custom packaging and kitting services.
So, you've decided to partner with a third-party logistics provider. Compared to trying to juggle 100% of fulfillment duties in-house, you've most likely seen several KPI improvements since contracting outside help. However, do you have a methodology in place to more objectively evaluate your 3PL's performance – and make a case for either renewing that partnership or seeking out a new one? Although every ecommerce business has different goals and priorities, you can use these broad considerations to help determine whether the terms of your current 3PL partnership should be reevaluated:
If your company has grown significantly, it may have reached the point where in-house fulfillment management is finally viable. Or perhaps you may find that your current provider lacks the flexible space and staffing required to handle fluctuations in sales volume or product offerings.
For many e-tailers, fulfillment has become quite complex. You might decide to seek out a new 3PL in order to access strategically located distribution centers, better warehouse technology, or new customization capabilities to improve your fulfillment operations.
If warehouse space, labor, and/or shipping costs are having a disproportionate impact on your bottom line, it may be time to find a 3PL that can reduce your overhead in some or all of these areas.
Ensuring a positive experience for the customer should be your 3PL’s top priority. Inventory issues, inaccurate orders, and delivery delays are signals that you need a 3PL that does a better job of adhering to your expectations for customer service.
As your ecommerce business grows, the pressure increases to obtain more SKUs, staff, and facility upgrades. There are two paths you can take to invest in your growth: in-house managed expansion, or outsourced expansion through a third-party logistics provider (3PL).
Generally, your available resources, immediate needs, and planned rate of growth all factor in to deciding which path offers the better ROI. Since each strategy has its pros and cons, choosing between the two can be harder than it sounds. To help you decide which expansion path is best for your business and long-term strategy, you should consider the following areas.
Packaging & kitting considerations
Do your orders require simple packaging that can be prepared inexpensively in bulk quantities, or do they demand a more complex packaging procedure? If an intricate package is part of your product’s appeal or branding strategy, it may be worth keeping production in-house to maintain close control over the process and/or avoid transitional hiccups. But, if you have no such customization concerns, a 3PL may be a more cost-effective option. Although, depending on your customization needs and the 3PL’s capabilities, outsourcing may still be a good choice. For example, at Fulfillment Works, we have lots of resources to design and produce custom packaging for our clients at minimal cost.
Human capital considerations
3PL providers usually have all the resources needed to help clients start expanding right away. If you have a small staff or your executive team lacks the experience or availability to execute on growth initiatives in a timely manner, outsourcing is typically the better path for expansion.
Technology & equipment considerations
Upgrading to a new WMS or adding new equipment to distribution facility requires a sufficient budget and an integration strategy that minimizes operational disruption. The more complicated your expansion needs are, the more difficult they will be to accomplish entirely in-house. Since 3PL providers already have the technology and equipment in place, they may be the better choice for businesses that need rapid expansion of facilities or operational capabilities.
Ecommerce companies with high volumes of small orders need to be extremely efficient so that profits are not eroded by operational costs. If you can get through the initial pains of the implementation process, warehouse automation is a great operational advantage in this regard. But, you may find the ROI of automation to be underwhelming if it’s not completely integrated with your WMS. After all, since your WMS tracks and manages everything going on in the warehouse, it should also be facilitating the overall direction of your automated processes. When your WMS is synergized with strong automation strategies, you can significantly improve operational efficiency in the following areas:
Efficient automation will cut back on manual steps in the fulfillment process, allowing you to process more orders with less staff. However, a WMS with built-in labor management features will be required to orchestrate, schedule, measure productivity, and track labor costs across all operations.
As mentioned above, automation will speed up order fulfillment in general. A WMS will give you visibility into the production line and processes behind incoming product, put-away, picking, shipping, and returns. Together, you get the data needed to plan for the best use of your automated systems – pushing efficiency even further.
Warehouses that rely more on manual processes than software or automation may have an order accuracy rate of 98% or lower. The day-to-day revenue loss may seems small, but it builds over time. With a WMS providing direction and automation taking action, you can expect to maintain 99.99% order accuracy.
Automation uses and provides inventory data while WMS provides data tracking, reporting, and planning features. Combined, they give you the necessary tools to enable real-time processing, eliminate errors with inventory locations, and make that information available to personnel in and outside of the warehouse.
At some point, every ecommerce business asks itself, "is it time to partner with a 3PL provider?" The answer depends on several variables such as your long-term business goals, availability of internal resources, and your level of operational efficiency. Every business has different needs and priorities, so 3PL partnerships aren't the best answer for everyone. However, if you find yourself dealing with any of the following challenges on a regular basis, it may be time to bring in a 3PL provider.
Third-party logistics and fulfillment providers are among the best strategic options for helping ecommerce retailers (especially new ones) efficiently set the stage for rapid growth and/or improvement of services. Since 3PL providers already have robust distribution networks established, they can often help clients ship products to more customers, faster and at reduced cost.
In some cases, partnering with a 3PL provider is a better alternative than investing in new facilities or technology. For example, upgrading to a new order processing system or adding new equipment to an already-full warehouse may require enormous amounts of time and capital to implement properly. However, 3PLs have already gone through those processes – and fine-tuned the results to accommodate the needs and demands of their clients.
Order fulfillment is a complex and demanding aspect of ecommerce. If you find yourself already stretched thin with marketing, merchandizing, customer service, and other initiatives that are critical to the success of your business, outsourcing to a 3PL provider can help you keep your focus on those areas rather than managing fulfillment.