Making the Last Mile Your First Priority – Part Three

By Andy Powell | 19 Jun 2012

In this final instalment on untangling the knotty business of fulfilment strategies, Andy Powell offers some practical tips on planning a great shipping strategy as well as a final note on outsourcing.

When working through these issues and designing operations and commercial arrangements, it pays to get external, independent advice. Listed below are some hints and tips to help you on the journey, based on a decade of experience in developing effective online fulfilment operations for Australian retailers.

Design your fulfilment offer to align with your brand positioning and your customer value proposition.

Why? Because if you don’t, you will under-represent your brand and undermine your customer loyalty.  Take a luxury brand for instance. Branding may dictate the offering of multiple premium delivery services and options. These should fit with the lifestyle of target customer segments – e.g. out-of-hours or weekend deliveries. Cost as a percentage of product value may be lower and so the offer should move closer to the quality end of the delivery cost/quality continuum. External packaging of orders should mirror or at least be broadly consistent with your product packaging, so as not to destroy the overall impact.

Unless or until your infrastructure is overwhelmed or the quality of your fulfilment is threatened, retain pick/pack/ship in-house

Why? Because this control and responsiveness to customers needs is a key differentiator, especially as you continue to build customer base and loyalty. Only give this up if physical fulfilment operations become impractical or constrain growth.

When considering moving to an outsourced provider, ensure you understand exactly how you service orders currently and can accurately represent that in tender documents.

Why? Because this will help to get an operational outcome which fully meets your needs, at a level of cost which can be managed. Outsourcing what you don’t fully understand or what you cannot accurately communicate to potential service providers is a sure fire recipe for poor service, cost blowout and failure. There are a small handful of specialist providers of online order fulfilment services who have built the necessary capabilities to manage these operations effectively and reduce this risk.

Never procure a logistics service provider on the basis of a rate card

Why? Because apart from the obvious need to understand strategic direction, systems, operational capabilities, track record and references of potential service providers, it is unlikely the rate card will give you an accurate picture of true costs. Fuel levies, waiting/demurrage charges, redelivery and returns costs, administration fees; systems usage fees and a host of other costs can apply. The best way to create an accurate picture is to get the providers to cost a recent period’s actual deliveries, and give them as much detail as possible about when they occurred, how they were fulfilled and with what service parameters. A fully costed response can them be compared to actuals for a more accurate evaluation.

As the number and scale of your deliveries increases, consider using an optimiser/aggregator service to get you access to better freight rates and consolidated reporting.

Why? Because it’s unlikely any single provider will have the best rates for every weight parcel you send to every place you deliver and in every timescale you require. Optimiser aggregators have access to multiple rate cards, negotiated on a high volume basis and can automate the best outcome for each shipment. They take a margin on the rates they source, but overall cost savings and simplification benefits make this a strong option.

A closer look at outsourcing

One of the questions I am most frequently asked is “should we outsource our fulfilment?” As retailers grow they will inevitably start to outgrow their initial “back office/garden shed local pick/pack/ship operations. This is typically driven by expansion in range and inventory holding or the extra space required to process increasing order volumes.

Outsourcing fulfilment allows you to access shared infrastructure, operations and systems and thereby potentially lower costs. The risks are that if the operational requirements are not well-understood and the degree of complexity is not accommodated, you will suffer a cost blowout or reduction in service quality. In this case a detailed tender document which includes a high level of operational detail is crucial.

Another potential outsourcing benefit is that it allows you to focus on ‘core’ activities, such as range development, merchandising, marketing and customer service. However, there is a strong argument (made above) that fulfilment is every bit as ‘core’ as these things, and requires close control. That is not so say don’t outsource, just make sure you know exactly why you want to and what you must achieve once you have.

Finally, it’s crucial to ensure a good level of reporting is baked into the arrangement. The danger is that, over time, the provider gets to know far more about the details of your fulfilment requirements, volumes, customer service issues etc. than you do. If this happens, it becomes hard to maintain commercial control or market test/retender, as you lack sufficient operational data to create an apples and apples comparison.

If you haven’t seen it already, read the first instalment in this series on planning out a top-shelf fulfilment strategy with Andy Powell. His forthcoming publication,’Getting online fulfilment right – A buyer’s guide to sourcing the new logistics services’ will be released later this year.

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