In our last blog post, we looked at common operational mistakes that retailers and manufacturers make when establishing an infrastructure for eCommerce fulfillment. In this week's post, we'll examine that same topic, but focus more on how marketing decisions can impact ecommerce fulfillment costs.
Let's look at some common mistakes that can inflate logistics costs and, therefore, erode the profitability of an online sale.
- Offering an overly large selection of products. Offering more and more products on the web requires a lot more inventory and will lead to obsolescence or deep discounts to liquidate products. The temptation is there to continue to expand product selection to add incremental sales, but each item needs to pay for itself.
- Failure to combine products strategically. Adding items to a shipping cart is a great way to drive more revenue per sale. But retailers need to be mindful of added delivery costs. The item that tips the shipment into two boxes or two pallets is a costly one and will inflate eCommerce fulfillment costs.
- Failure to quantify the cost of inventory obsolescence. Companies allocate inventory to the online channel in the hope of better margins. But if the inventory doesn't sell it will require increasing carrying costs and increasing discounts to make it move. Companies keep a very close eye on online sales of the "hot products," but are not as diligent at quantifying the cost of a clogged distribution channel as poor sellers accumulate in the system. If they were better at this, then retail merchandising managers would be less aggressive with inventory allocations.
- Poor carton selection. Shipping carton selection should always be a supply chain responsibility and must include input from logistics practitioners. But this doesn't always happen. As a result, many packaging decisions are based on keeping packaging costs down but ignore the impact on warehousing and freight efficiency and overall eCommerce fulfillment costs. Larger-than-needed cartons equate to less than optimal trailer utilization. Cheaper, but poorer-quality cartons lead to damage and the related return freight costs and unhappy customers.
Inflated eCommerce fulfillment costs are often the result of decisions made further up the supply chain from logistics. But companies would be wise to consider the impact on logistics costs of decisions related to their online channels, such as what products to offer online and how much inventory to allocate.