Fulfilment – Building Scalability and Profitability

The potential problem all online businesses face is, as sales increase, ROI decreases.  This is due to the increase in cost/resource to deliver the orders.  It is fine for online businesses to say they are acquiring 250 + orders per day through the website, but how profitable are they?   The automation of processes reduces cost and builds efficiencies.

The focus on fulfilment is two pronged, building fulfilment processes is critical in both building customer loyalty and in creating a scalable and profitable business.

Building Loyalty

When talking about fulfilment systems and how they affect customer loyalty, it is all about achieving the 3 “R’s”:  getting the right product, to the right place, at the right time.  The customer wants the product they ordered, delivered to their address, at the time it was promised.  This is quite simple when only processing 2 to 3 orders per day, but can this customer requirement be met if the website is delivering 250 + orders per day? 

Building Scalability and Profitability

When creating processes to accommodate scalability it is important to satisfy two primary stakeholder groups:  the customer, and the internal team responsible for Finance, Purchasing, and Inventory control.

The best practice approach to fulfilment requires customer touch points, audit checks, and service level agreements with third party groups i.e. couriers.

The fundamentals and/or minimum requirements for key areas of fulfilment:

Inwards goods.  Managing a containment area and ensuring the integrity of this area until products are properly brought into stock ready to be picked for orders.

Picking orders.  Whether you have one or more pickers, the integrity of this process is in the SKU identification and BIN location consistency. 

Despatch orders.  The process is reliant on the audit checks in place to confirm picking is accurate; the management of order trace references, and meeting daily courier deadlines.
 
Back Order management.  Back orders equal operational cost, therefore, margin degradation results for every order where stock outs apply.  A combination of processes for Inwards, Picking, and Despatch plus Inventory management and software tools will minimise and streamline the back order management function.  The proper management of Back Orders is one of the most common areas where online businesses fail to deliver to a high standard.

Things to consider when managing back orders:

What are the processes for flagging incoming stock for orders waiting to be shipped?

At what stage does the process indentify a product is out of stock?  Is it the picker? The software?  If the answer is “software”, then the accuracy of inventory must be extremely high.  This then leads to the question of how inventory is managed, and the processes behind this function. 

If orders are held, what standard of containment is in place to secure the partial orders?  With the stock that is partially picked and held, is it taken out of stock?  How is it partitioned in the inventory system?

What is the process for purchasing back ordered products?  Is it cyclical, or can ad hoc orders be placed?  Who conducts the ad hoc orders and what are the processes for this to work?

How is the customer communicated to during this process?

Fulfilment Software – having the technical tools

There is software to manage your inventory, your customer database, and your accounts, but it is very rare to find an online business which has an effective tool to manage the fulfilment of new online orders. 

The Cart before the Horse.  Many businesses feel the right fulfilment software will solve all operational problems and automate the entire business by dictating processes and work flows.  This is not the case and leads to a very common question:  “What comes first the software or the processes?”  Processes are the guide that keeps work flow moving in the right direction, and must be created first; however, the proper fulfilment software will simplify and automate these processes.
   
Process comes first because it supports business strengths, business philosophy, and business requirements.  Once a business has defined the rules and steps, only then can the selection of the software take place. 

Fulfilment software is meant to compliment and enhance the integrity of processes.  This is why in today’s world, successful fulfilment software is highly “configurable” (flexible).  It needs to have all the fundamentals in place as a base, then configured to match the process requirements of businesses.

This article is not meant to provide all the answers, it is meant to highlight a best practice philosophy, and identify key questions which must be asked and answered in order to build a scalable operation which is delivering a promise to your customers and a profit to you.

The best place to start when looking for answers is to find a team of Online Experts to coach you on fulfilment and eCommerce.

Good luck.