There’s a perception among eCommerce companies that today’s customers won’t settle for anything less than two-day delivery for online orders. But is that actually true?
Maybe not.
- An Arvato survey found that, while 24% of shoppers abandoned online orders because delivery wasn’t fast enough, 54% did so because delivery costs were too high.
- 50% of participants in a Shippo survey said they would choose slower delivery to qualify for free shipping. And a full 81% said free shipping was their number one concern when checking out.
As these and similar studies suggest, shipping costs are equally or more important than delivery speed for many online shoppers. Still, to remain competitive, most eCommerce companies feel compelled to meet Amazon’s two-day delivery standard for PRIME orders and, if possible, to match their free shipping, as well.
Given the high costs of shipping, how can eCommerce companies afford to do so and still maintain a healthy profit margin? For some, the answer is to expand their distribution network.
Benefits of Additional Distribution Centers
Shipping from only one distribution center (DC) – even if it’s centrally located – makes it virtually impossible to achieve two-day shipping to all zones without incurring expensive, expedited shipping charges. To protect their bottom lines, some companies offset those charges by folding them into the price of their products. Others require a minimum order amount to qualify for free shipping. Both are perfectly valid strategies.
Alternatively, adding one or more DCs to your network cuts shipping costs by putting your goods closer to more of your customer base. That reduces upcharges for high-zone parcel moves, as well as the need for expedited shipping to meet the two-day delivery benchmark. You can pass those savings on to your customers and still preserve your profitability.
As an added benefit, multiple fulfillment warehouses allow your business to keep filling orders if adverse weather, a natural disaster or even a pandemic shuts down operations at one location. Customers may have to wait a little longer for their orders if that happens, but at least you’re still in business.
Is There a Downside to Multiple DCs?
If your company handles its own order fulfillment, the downside to adding a second or third distribution center is incurring duplicate costs for facilities, equipment, staffing, inventory and supplies. You’ll need to do a thorough analysis of your sales and operations to determine whether the reduction in shipping costs will be enough to make those expenses pay off.
A less expensive (and less stressful) option is to work with a third-party logistics (3PL) company that has a national fulfillment warehouse network. That will give you the geographic footprint you need without having to make long-term investments in additional infrastructure, equipment and personnel.
A national 3PL can also negotiate far better parcel rates than you, as an individual shipper, can hope to get because of the sheer size of its aggregate spend. Finally, working with a 3PL relieves you of the enormous time burden associated with in-house order fulfillment, so you and your staff can spend more time focusing on building your business.
In evaluating potential fulfillment partners, look for a 3PL that:
- Has extensive eCommerce fulfillment experience and capabilities
- Can do the analysis work required (ship-to points, order history/patterns, etc.) to recommend the optimal distribution network
- Place your inventory in DC locations that make the most economic sense for your business, rather than one in which they have excess space to fill.
If two-day order delivery is important to your business strategy and you would like to explore the advantages an experienced 3PL can offer, talk to Amware. We have 15 eCommerce fulfillment centers spread across all key US markets and provide one- to two-day ground delivery to 95% of the U.S.
