With the post-Covid rise in online shopping, e-retailers are battling for the minds and wallets of a larger-than-ever market. Chief among the weapons these combatants are using are claims of fast shipping, typically 2-day fulfillment or less from order to delivery. Can your shipping speed keep up with your competitors’ offerings? A better question to ask may be: does it need to? In this article, we’ll look at 2-day fulfillment, examine if it’s necessary for your brand, and tell you how to get set up a nationwide fulfillment network to achieve 2-day ground shipping.
Just how important is 2-day fulfillment?
A Retail Wire study found that cost was the most important shipping factor to 64.3% of online customers, while delivery speed was the most important factor to 18.7%. But the number of people to whom speed is most important is increasing. The widespread adoption of Amazon Prime and its promise of fast delivery, including same-day and next-day delivery on many items, has altered consumer expectations, putting pressure on online sellers to emphasize speed. Many customers today equate delivery speed with customer service. Their view of your brand could be influenced by how quickly you can deliver.
Many factors can help determine how important shipping speed is to your specific business.
For instance, shipping speed may be less important if you have a well-established brand with a loyal customer base. Similarly, if you’re selling products that consumers can’t buy elsewhere, consumers will wait since they can’t get the same items quicker anywhere else.
If, however, you’re selling products that consumers can easily purchase from your competitors, speed becomes more of a factor. Putting yourself in the customer’s shoes, if you can buy the same item from 10 different sellers, you’re likely going to buy from the one that offers the cheapest and quickest shipping option. If your business falls into this category, 2-day fulfillment becomes a necessity to retain business and grow your customer base. If you can’t deliver on the promise of 2-day fulfillment, on the other hand, customers will look elsewhere – that includes canceling orders or abandoning carts when they see how long the fulfillment process will take.
Making 2-day fulfillment a reality for your company
Let’s say your company determines that 2-day nationwide shipping is important. Let’s also assume that you are currently fulfilling eCommerce orders from a single warehouse. You have two basic options:
- Keep one fulfillment center but pay for expedited service for parcels heading to zones outside a 2-day reach with standard shipping.
- Expand your fulfillment center network to two or more facilities.
For most companies, the first option isn’t viable. The larger transportation costs associated with this model are prohibitive.
That leaves us with option #2: expanding your warehouse fulfillment network. You can add an additional fulfillment center (or more than one) in a new location(s) that can deliver within 2 days to customers that are currently outside of your 2-day ground window. Your optimal network size (i.e., number of fulfillment centers) will depend on a number of factors, chief among them the location of your customers. Putting inventory closer to your customer lets you ship fast without charging them a premium.
If, even after expansion, your fulfillment network is struggling to reach the 5% of US consumers that live in far-flung areas, it may not be worth it to add more warehouses to achieve universal 2-day shipping. Folks in those hard-to-reach places understand that parcel networks struggle to profitably serve some rural areas.
Once you expand your fulfillment network, you will have higher inventory costs as you need to spread out your products across multiple facilities. For example, let’s say you sell 1,000 units of Item X each month from your current location. Once you add a new facility, you’ll need to increase that inventory to 1,100 or 1,200 and spread it out over both facilities to ensure that you have adequate stock to handle orders coming into each. Once you multiply this increased inventory by your total SKU count, the costs add up. So, it’s important that you have the order volumes to justify expanding your network.
Even with the increased inventory costs, however, network expansion can be a very cost-effective move. In our experience, the parcel savings associated with a second facility − minus added facility, inventory and labor costs − can result in a 5%–10% net savings. Adding a third facility can bring even more savings because of the reduced parcel costs from being closer to customers. Your goods will take shorter trips, fulfilling orders from a zone that is near to the customer, so they simply will cost less to move.
These reduced costs depend, in part, on analyzing where your customers are concentrated and where your products are made to strategically choose facility locations that will reduce travel time. A key question to efficiently managing multiple fulfillment centers is understanding where in the country certain SKUs move quickly and where they don’t. This can become particularly complex if you have a large number of SKUs. For instance, a clothing company with lots of sizes and colors of items will need accurate data and strong forecasting to balance inventory effectively among various facilities.
Without an intelligent approach to managing inventory across multiple facilities, inefficiencies will arise that will cut into the cost advantages of shorter shipping routes – and even threaten your 2-day fulfillment goals. The right fulfillment partner can assist you in analyzing your supply chain and determining the optimal size of your fulfillment warehouse network, including identifying where it makes sense to move inventory to line up with product demand.
Crucially, multiple shipping fulfillment centers mitigates risk. A range of causes – from a pandemic to weather-related disruptions to fire – can shut down a facility and prevent you from shipping orders. Can your business survive a week or more of no orders going out? With multiple facilities, orders can be re-routed from the “down” facility to other DCs.
If you do decide to expand your network to achieve 2-day fulfillment, you’ll need to decide whether you’re going to build or lease the new facility yourself or partner with a third-party logistics (3PL) provider that is located where you want to be.
With the DIY model, you’ll need to choose your new region, find a building, negotiate a lease, buy racking and material handling equipment, hire workers, enhance your systems, and get everything up and running. Are you ready to take on this work while still serving your expanding customer base?
As the answer to this question is often “no,” most brands choose to engage with a 3PL. An asset-based 3PL will have the necessary infrastructure, technology and people already in place. This enables you to avoid capital investments in these items yourself. It also enables you to get up and running (and shipping) quickly as your operation basically plugs in to your 3PL’s existing infrastructure.
A 3PL can offer you access to warehouses already located in and around key shipping hubs to keep ground shipping costs under control. Two-day fulfillment is not just about shorter shipping distances. It’s also about efficiency in the warehouse itself. The right 3PL will have the expertise to process orders efficiently, avoiding delays that might undermine your efforts to meet the 2-day fulfillment goal.
Perhaps best of all, many 3PLs have pricing models where costs grow during peak shipping times but then ratchet back as volumes level off. In this way, your fulfillment costs parallel your revenue stream.
Amware Fulfillment is one of those fulfillment provides that can offer a flexible fulfillment solution. We have a network of fulfillment centers in 6 major markets across the US, with a reach that enables 1-2 day fulfillment to 95% of the US population. To learn more about our fulfillment services and how we can help you expand your operations, contact us today.