Did you know that, according to Bloomberg, 80% of eCommerce businesses fail within the first 18 months?
One reason is a lack of focus on product fulfillment operations – the invisible function that gets orders out the door accurately and on time. Here are some common causes of eCommerce supply chain failures and how to avoid them.
Mistake #1: Failure to map out fulfillment solutions early on
To most eCommerce companies, the launch phase is all about demand creation – namely driving traffic to their website, and making sure said website is sexy enough to convert prospects into customers. Product fulfillment, on the other hand, is regarded as a necessary evil that attracts focus only when products begin to gain traction in the market.
While entrepreneurs don’t necessarily have to be 100% hands-on with fulfillment operations, you at least need to ensure you’ve engaged a project manager or fulfillment 3PL who is:
- as passionate about fulfillment as you are about brand development and growing the business
- a true fulfillment operations expert
Just as important, you need to be confident these individuals or partners have all of the large and small details under control. If not, those details could get out of hand pretty quickly.
Mistake #2: Getting Too Big (or Small) for Your Britches
At some point, a business needs to determine how much fulfillment warehouse space and labor is needed to store, pick, and ship its products to meet demand. In making these decisions, there are a number of traps you can fall into.
OVERBUILDING. Some companies, flush with investment money, build large, automated distribution centers in anticipation of rapid growth. That happened at an energy drink marketer a few years back when the company sunk millions of investor dollars into building fulfillment operations. Unfortunately, sales were well below forecast and the company folded under its debt.
UNDERBUILDING. Bootstrappers may need to handle fulfillment on their own at the start, but some wait too long to seek the help of eCommerce supply chain experts. That happened at a clothing marketer that used its owner’s basement as both company headquarters and fulfillment center. When product demand took off thanks to some good PR, the company was slow to react and order-to-delivery time quickly went from 3 days to 16. Customers shared their disappointment on social media, and the company lost hundreds of otherwise happy customers – not to mention lots of potential new business.
FAILING TO PLAN FOR DEMAND SPIKES. Few online businesses have uniform order volumes throughout the year. Without a plan to handle volume spikes, you’re asking for trouble. Like the jewelry company that failed to anticipate the 35% spike in orders it experienced just prior to the holidays. With no contingency plan in place, orders were delivered after Christmas, disappointing customers and slowing company growth by 10%.
The right solution to each of these problems above could be a third-party fulfillment partner. These fulfillment experts offer an existing infrastructure that can provide the space and labor you need for normal operations, while easily expanding to accommodate short- or long-term volume spikes. Best of all they offer a variable cost model where your fulfillment costs rise and fall with company revenue.
Mistake #3: Setting Unrealistic Expectations
Not too long ago, the CEO of a growing marketer of jewelry wanted to move the company’s fulfillment operations from the Southeast to Dallas. The move didn’t make a lot of sense in terms of speed-to-customer, and the timeline was aggressive given that peak season was approaching. However, the marketer’s 3PL didn’t want to rock the boat by articulating its concerns. Instead, it did its best to please the determined CEO. In the end, major issues surfaced with inventory and order accuracy at the new facility, and the planned move was cut short – as was the CEO’s employment.
Who was to blame in this scenario? The CEO? Actually, no. While the boss had a firm understanding of what he wanted to do and why, it was the 3PL that better understood the HOW. As operations experts, they knew that plan had a huge potential for failure and should have raised the red flag early and developed an alternate plan.
Mistake #4: Avoiding tough discussions with fulfillment partners
When etailers first sign up with a fulfillment partner, it’s rare that the two companies talk in detail about what happens should things go wrong. But actually, your business’s long-term prospects will be better if you’re willing to ask questions like the following up-front – or as soon in the game as possible:
- What levels of performance acceptable on key metrics like order accuracy?
- Who owns responsibility for correcting mistakes?
- What actions should be taken to remediate problems?
- Who will be liable financially?
Will addressing these issues be comfortable? No. But it beats the uncomfortable alternative of trying to resolve operational issues on the fly – and when emotions and pressures are high.
Get your eCommerce supply chain right, from the start
Online sales offer a very lucrative business opportunity. But as it becomes more and more difficult to achieve market differentiation based on product quality and price, success will increasingly depend on a well-oiled eCommerce supply chain.
Invest time and resources to get it right from the start, or pay the price later.