Supplier Open Forum
Meeting Customer Expectations:
Tools for Supplier Process Improvement
Retail Open Forum
The Value of Compliance Data
2013 Spring Conference
Vendor Compliance: From a 3PL Perspective
By Scott Weiss, Weber Logistics
With the New Year upon us, we are going to review a few distribution resolutions to be considered for the coming year:
- Smart inventory management
- Defined e-commerce fulfillment strategy
- Optimal geographic location
- In-house fulfillment versus outsourcing
What is your strategy to make sure you are managing your inventory as efficiently as possible? Effective inventory management is the single most important tool to improve customer service and reduce operations cost. Very simply, smart inventory management equals lower distribution costs and ultimately higher profit margin.
Inventory management is a collection of interdisciplinary processes that include a full circle, from supply chain management to demand forecasting through inventory control and including reverse logistics. Inventory management starts and ends with supply chain management because many of the opportunities to improve efficiencies start with shortening order to receipt time without incurring additional cost. Different SKU's within a product line can have very different inventory needs. By fine-tuning inventories according to SKU level demand and having the right product at the right place and at the right time, you can increase profits and reduce inventory risks.
What is your e-commerce fulfillment strategy in the coming year? The lasting image of the supply chain in 2012 is one of a consumer with a smartphone engrossed in making an online purchase. Retail supply chains used to be organized in a straight line from supplier to distribution center to stores, then came the internet and the proliferation of gadgets that allow shoppers to buy from home, office or even a competitor's store. Online sales now represent about 10% percent of total retail sales, up from two percent a decade ago. E-tailing is the fastest-growing segment of retail. Forrester Research forecasts online sales will grow more than 10 percent annually during the next five years from $202 billion in 2011 to $327 billion by 2016.1
B2B and B2C order fulfillment are really two different animals. B2B orders are fulfilled picking full pallet or case quantities of multiple line items shipping out by truck while B2C is typically a single SKU set up of a master carton and processed via a small parcel order. Some importers and retailers fulfill both B2B and B2C orders from the same DC while others fulfill from separate DC's. B2B orders often have specific shipping windows and very often collect payment terms where the retailer is responsible for getting product to their stores while a consumer ordering from the internet expects product to arrive within days and the manufacturer typically pays for the freight.
What is your strategy to make sure you are minimizing your inbound and outbound transportation costs while making sure you are satisfying your customer's needs? Studies have shown that logistics costs are between 10 percent and 35 percent of companies' gross revenues. Sixty percent of these logistics costs are for transporting goods.
At the dawn of the import ocean container age, most importers were operating out of a single distribution center, most of the time near their headquarters and sometimes even inside of it so they could "touch and feel" their product. For example, an importer might manufacture product in Asia, move a container all water to New York and distribute from there when they could have just terminated the container at the Port of Entry in Los Angeles and distribute from there reducing inbound transit times by two weeks and inbound transit costs by thousands of dollars.
As e-commerce grows, time to market and outbound shipping costs become critical. Inbound transportation costs represent 6% to 12% of gross sales of imported product while average outbound transportation costs can represent 6% to 8% of the average order. For e-commerce fulfillment, customers are becoming more sensitive to the cost of shipping in their purchasing decisions. Expedited carrier plans have 90+ accessorial charges, which continually increase the shipping costs. Manufacturers are encouraged to continually look at renegotiating contracts. We recommend using USPS and zone skipping where tracking and slower delivery will be acceptable.
Have you considered outsourcing as an option? Management often wants to compare companies based on distribution costs as a percent to net sales. Percent to net sales can be a dangerous measure to compare because of the wide range of average order values in this industry. However, the average company is in the range of 3% to 5% of net sales. There are practical and cost effective reasons to outsource part or all of your business. It may be to deal with a peak, keeping up with technology and ever changing vendor compliance requirements, adding new product categories, or when fulfillment is not a company core competency. It may also help to serve a new market such as the opposite coast or Canada. But the number one reason cited to outsource fulfillment is to reduce costs.
In The Art of War, Sun Tsu teaches that "every battle is won or lost before it is ever fought."2 With many companies coming out of less than perfect fall and holiday seasons and a challenging economic year ahead, there will continue to be an urgent need to increase productivity and reduce costs without having to make major capital purchases to do so.
 "U.S. Online Retail Forecast, 2011 to 2016." Forrester Research. 2/27/12
Scott Weiss is an expert on the Southern California logistics market and has been in the 3PL industry for over 15 years. He is Vice-President of Client Solutions for Weber Logistics. Weber operates 17 distribution centers across the western U.S. and works with many consumer product companies to ensure compliance with retailers' delivery requirements. Scott may be reached at email@example.com.