Flexibility with inventory is key to maximizing sales in today’s economy, but a variety of challenges prevent multichannel businesses with direct fulfillment centers and retail stores from maximizing the inventory they have. For instance, e-commerce, catalog and retail have different planning methods, and different accuracy issues; it’s one thing to get the size distribution right for a region and store, and another to plan for the way colors sell. Many e-commerce sites will not take an order if the fulfillment center is out of stock or on back order, giving customers the erroneous impression that the item isn’t available from your company—even though it may be available in stores. And even if it is available, it may not be in a store nearby. If you’re a retail company, you don’t want inventory riding around on trucks between stores or back to the fulfillment center to fill direct orders. At the same time, if you’re a store manager, you don’t want direct orders to strip your inventory of best selling items if you don’t get credit for the sale. All the channels—retail, web, catalog or wholesale—compete for best sellers.
Although the 2007 holiday season hasn’t ended yet for many multichannel merchants, many of our clients are already preparing for holiday 2008. You should, too, by conducting a post-season audit. This process enables you to challenge your group to find ways to reduce costs and at the same time get critical data and observations to be used for the next holiday season.
In today’s challenging and competitive world, your success can hinge on whether your warehouse operation is productive and effective enough to meet your expectations and those of your customers. One way to gauge how effectively your warehouse operations are meeting these expectations is to conduct a warehouse operations assessment: a systematic review of the warehouse functions looking for possible improvements in efficiency and service. A good operations assessment takes a quantitative and qualitative look at the productivity and service levels of your warehouse operation; it enables you to measure productivity and service and identify patterns and trends; it tells you exactly where you are and what you need to do to meet your goals. It also allows you to compare your measurements with your own in-house goals as well as industry benchmarks.
In the next few weeks, all the carriers will complete their 2008 pricing announcements. As we look at the future, it’s probably a good bet that these carriers’ rates aren’t going down any more than the cost of oil. So what’s the impact and action plan for your business? Given the size of the increases that have been announced so far, multichannel companies need to look at all the options open to them and develop short and long-term strategies to reduce the impact.
For most multichannel merchants, transportation of goods is the highest operational expense. Inbound freight costs for domestically sourced product typically range from 2%-4% of gross sales, while for imported product, inbound freight costs 6% to 12% of gross sales. Outbound transportation costs typically average 6% to 8% of net sales.
Question: I am the operations manager of a large multichannel hardgoods and apparel merchant. My rough shipping and processing calculations for our company in Q4 this year would have been: 1) $70 million - $72 million gross revenue collected from shipping and processing, 2) $52 million - $54 million outbound shipping expenses, and 3) $18 million - $20 million net profit attributed to shipping and processing.
Promises, promises. All businesses make them, but the best actually deliver what Marketing promises. Now is the time to conduct a post mortem of how well your multichannel business performed this past Holiday and to develop plans for improvement for the coming Holiday Season. Some fourth quarter businesses experience a 10:1 peak to average daily volume in the call and fulfillment centers; that sheer volume means you must be well organized and efficient to stay current.
Many companies see turnover as a necessary cost of doing business, especially in managing a call center or a fulfillment center. However, have you taken a good look recently at your staff turnover levels and the actual dollars this costs your company? Whether it is in fulfillment or in the contact center, the costs are high. Industry turnover averages are hovering around 40%-50%. In many call centers it may unfortunately be as high as 90%-100%. Industry experience is that turnover costs range from $3,000 to $10,000 in people time, training, testing and the ramp-up to full production. This does not include expenses for agencies, ads, etc. which must be added on.