Online sales are growing 15% a year. Unfortunately, eCommerce fulfillment costs are growing even faster at 18.8%, according to a recent study issued by Armstrong & Associates.
We’re logisticians here, not accountants, but we’re pretty sure that when expenses grow faster than revenue, that’s a bad thing. The only answer is to attack the expense line. To help, we’ve developed this A–Z guide, with 26 ideas to cut your fulfillment costs so top-line growth delivers more bottom-line profits.
Let’s see, where to start…. Oh yeah, with A.
Automate. Embrace technology like a voice picking system or bagging and labeling equipment as appropriate. The former can improve warehouse productivity by 40% to 50%, while the latter could result in an immediate two-to-threefold productivity improvement.
Bags instead of boxes. One of the easiest ways to reduce the size or weight (and hence the cost) of a parcel is by switching to a different packaging type. For small, durable products, going from a box to a polybag mailer can knock anywhere from four to six ounces off the total weight of a package and reduce fulfillment costs significantly.
Combine the U.S. Postal Service with UPS, FedEx or DHL to eliminate residential delivery surcharges. Hybrid services like SurePost, SmartPost, or Smartmail rely on parcel carriers to ship packages most of the way, while leaving final mile delivery to the USPS. This combination could potentially shave 30-40% off your total delivery expense.
Dim-weight pricing formulas aren’t necessarily etched in stone. The dimensional factor used in such formulas can heavily impact your costs when dim weight pricing applies. An experienced parcel freight expert can examine the dim factor used and ensure it is accurate.
Establish a positive and trusting relationship with your parcel carrier account managers as early in the game as possible. These individuals often have the ability to provide you with discounts, waive certain fees, or offer financial incentives that aren’t reflected on any their employers’ rate sheets.
Familiarize yourself with carriers’ accessorial charges. At the end of the day, these charges (which are often hidden in the fine print) could be adding a lot more to your overall expenses than you might imagine.
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Geography counts. Pick warehouse locations that minimize your transportation costs. A network optimization analysis can determine the ideal locations for your fulfillment centers based on current ship-to points.
Home delivery surcharges – hold out for a better price. This area of most contracts is rife with cost-cutting potential. If you can get a carrier to reduce this surcharge by 20% – which isn’t unrealistic – it could have a huge impact on per-package shipping costs.
Invoice audits ensure parcel carriers are holding up their end of the contractual bargain. You may discover that your company is eligible for more refunds or financial concessions than you’re currently collecting.
Just say “no” to overpackaging. It adds to shipment size, weight and cost. Unless you sell highly-fragile products or your customers expect an elaborate unboxing experience, there’s very little to be gained from too-big boxes or too much dunnage. Smaller, lighter packages could save hundreds of thousands of dollars in eCommerce fulfillment costs.
Keep your eggs in more than one basket. When you spread your shipping business across multiple carriers, it serves as a powerful reminder that there’s more of your business to be gained and that you have other trusted partners that you can divert business to if you aren’t happy with the terms you’ve been offered. This gives you leverage.
Location expansion can reduce transportation costs. Now that even USPS First Class packages have gone to zone-based pricing, it’s often advantageous to expand your fulfillment warehouse network to put your products closer to customers. While doing this will increase your company’s inventory carrying and operational costs, those costs will usually be more than offset by the shipping savings.
Move to a less expensive warehouse location. For example, a warehouse in Phoenix is within a half day’s drive of 34 million consumers, including residents of Southern California, yet its operational costs are about 32% less than a warehouse in SoCal.
Never assume that carriers’ published rates are their final rates. If your company’s shipping volumes are high enough, carriers will reduce rates in order to earn or keep your business.
Outsource shipping and fulfillment operations. In addition to allowing you to reduce capital costs (by using a 3PL’s facilities instead of yours), outsourcing eCommerce fulfillment will enable you to share overhead expenses with other companies, assuming you are in a multi-client warehouse. The right 3PL also can help you leverage other ideas to reduce eCommerce fulfillment costs.
Piggyback on your 3PL’s parcel rates. Because 3PLs handle large volumes of shipments across many customers, they have a higher aggregate shipping spend and can use this leverage to negotiate better parcel shipping rates on your behalf.
Quit thinking it’s just about shipping rates. Virtually everything else within an individual shipper-carrier service and pricing agreement is negotiable. So even if you aren’t able to get major concessions from carriers in one area of your agreement, you may be able to get economies in another and still achieve a win-win.
Renegotiate contract terms with your parcel carriers if your company’s volumes significantly increase – even if it’s in the middle of your contract period. If the volume uptick is significant enough, they’ll be open to having a new discussion, and your company can start enjoying better terms sooner rather than later.
Shift from Fulfillment By Amazon to Seller Fulfilled Prime. For your Amazon shipments, you’ll still be able to display that highly coveted “Prime” badge. However you’ll also eliminate Amazon’s higher warehousing fees and much of the expense associated with prepping/shipping Amazon orders and managing issues that arise. Depending on your business model, this could yield savings of anywhere from 10% to 25% when you consider both hard and soft costs.
Travel time reduction cuts your biggest warehouse expense – labor. The time order pickers take to move from one warehouse location to another can comprise up to half of your warehouse labor costs. WMS-directed techniques like zone picking, batch picking, cluster picking and wave picking can reduce warehouse travel time for moderate-volume businesses, while automated systems like voice picking and pick-to-light can do the same for high-volume pick environments.
Undo carrier perceptions of your company as a house account. As a rule, parcel carriers tend to work harder to offer good deals when they’re trying to land a company’s business, increase their share of it, or prevent it from being “stolen” by another competitor. Don’t be afraid to periodically put your shipping business out to bid.
Validate shipping addresses. All of the big work that goes into your fulfillment center operation is meaningless if the little address sticker on the package is incorrect, incomplete, or otherwise invalid. By examining your mailing list prior to label printing, Delivery Point Validation (DPV) software can ensure that every field is formatted correctly and that every address actually exists in the USPS database. As a result, you can fix errors on the spot – and shave an additional 1% to 2% off your shipping costs.
Watch out for bundled services. They are not always your friend. When carriers bundle parcel with other services under a single price agreement, it may cost you more than you would have paid if you’d purchased each service à la carte. That’s why it pays to conduct a careful cost analysis before signing on the dotted line.
X out inactive SKUs. Although your warehousing and fulfillment provider may not charge you extra to store product that’s been in its DC for longer than six months (unless your provider is Fulfillment By Amazon), that doesn’t mean these inactive SKUs are not costing you money. Understand your inventory carrying costs and know when it makes sense to cut bait and purge your inventory of poor performers.
Yield to education. The best way to stay abreast of ideas to reduce eCommerce fulfillment costs is to constantly learn. The Resources Section of the Amware Fulfillment website is chock full of helpful eBooks.
Zone skipping can reduce parcel costs. Parcel consolidators can combine your shipments with those of other companies in full truckloads bound for a distant region. With zone skipping, packages then enter the final-mile carrier’s system in the closest delivery zone, avoiding costly high-zone moves.
We’ve got more ideas. Unfortunately, we’ve run out of letters. Amware Fulfillment specializes in efficient B2C fulfillment for rapidly growing businesses with steady order volumes. If you need to scale fulfillment operations to keep pace with growth, let’s talk.