Cutting costs on shipping and order fulfillment can be an effective way to boost profits for merchants, but it can also be a dangerous minefield. Customers expect fast shipping, effective packaging, and low prices. Cost cutting without a careful plan can backfire by undermining customer confidence. Plus, outsourcing order fulfillment to the lowest bidder often results in expensive hassles and poor customer outcomes.
However, most companies can save significantly on shipping and fulfillment if they go about it the right way. Here are four smart approaches to cutting costs.
1. LEVERAGE SHIPPING VOLUME
Unless you are one of the largest retailers in the country, it’s likely that you are not accessing the lowest available shipping rates. UPS, FedEx and other shippers routinely charge different rates based on volume.
But you don’t have to wait until your organization is as big as Amazon to begin accessing enterprise rates. Look for an order fulfillment company that routinely ships significant volume, and ask them to share their shipping rates with you. A good shipping logistics partner can negotiate extremely aggressive rates with the major shippers, and can share those savings with your organization, leading to potentially massive overall cost reduction.
2. LOWER YOUR AVERAGE ZONE
Due to the complexity of measuring exact distances, all the major shipping carriers tier their rates based on zones. The lowest tier rates can be as much as 25% cheaper than the highest tier. This means that for companies based on the coast or in one of the corner states--Florida or Oregon, for instance--the cost of shipping can be higher than it has to be, which can impact sales as well as profitability to states on the opposite coast or corner.
One simple solution to this problem is to move your distribution center to a more favorable location. A centralized location such as Dallas ensures that inside the U.S., you’re never shipping more than five or six zones away, rather than the 8 zones from Florida to Seattle. Additionally, such a move significantly reduces the average number of zones. These shipping cost savings often far outweigh the cost of transferring product and securing a new distribution center location.
3. CREATE A MULTI-DC MODEL
What’s better than never shipping more than six zones away? Never shipping more than four zones away, of course! An order fulfillment company with a significant warehousing footprint may be able to offer a multi-distribution center model. By locating your inventory in California, Texas, and Virginia, for example, you can always ship from the nearest zone, translating to even greater savings.
4. MANAGE CUSTOMER EXPECTATIONS
Most often, we think of customer expectations in terms of wanting to meet or exceed them. But when it comes to shipping and logistics, sometimes exceeding customer expectations can be a poor value proposition.
Understanding exactly how quickly customers want and expect certain types of shipments allows you to tailor shipment offerings and can dramatically lower your overall cost. A service like UPS SurePost, where UPS picks up and sorts but USPS executes the miles and delivery, can reduce shipping costs by as much as 50% without significantly extending the delivery time.
IS IT REALLY WORTH IT?
Hiring an outsourced order fulfillment company, adding distribution centers, and analyzing customer expectations all represent opportunity for growth. To know whether it’s worthwhile to pursue these options, it’s important to start with an analysis of current spending. If you don’t know what you’re currently spending and how, you won’t know whether your efforts are effective.
You can perform the cost analysis yourself, or find a quality order fulfillment company to do it for you. An experienced logistics provider with a national footprint and portfolio can guide you to the right investments and provide data analysis to ensure you’re comparing apples to apples and accurately measuring your savings. Ask for a bottom line savings calculation—your provider should be able to give you an accurate ballpark monthly figure that you will save with their services.
Shipping and fulfillment are the lynchpins in balancing customer expectation and cost of doing business. By carefully addressing the items above and partnering well, your company can realize significant bottom line results.
For more information, industry updates, and news you can use on order fulfillment and shipping, bookmark this blog. Contact one of our order fulfillment experts to find out how much you can save this year.