As retailers regroup for the next phase of growth, fulfillment strategy has surfaced as a pivotal operational pillar for many executive teams.
To accommodate growing digital order demand – while grappling with frontline labor shortages – retailers are evaluating their fulfillment networks. Their goal? To prepare for the next phase of growth while reducing the cost to serve customers at the same time.
With so many retailers reassessing their fulfillment strategy, we often encounter several risks that can undermine successful attainment of goals and long-term customer satisfaction.
Here are a few significant ones to consider as you evaluate your fulfillment strategy.
Mistake #1: Siloed or separate considerations for fulfillment network strategy and inventory planning and allocation
A common pitfall is the assessment of the fulfillment network strategy – including locations, operations, automation, etc. – without a comprehensive analysis of inventory planning and allocation practices.
Such functional siloes often stem from internal team dynamics; for instance, when the inventory planning and allocation team does not fall under the same management team as the supply chain or fulfillment team.
Regardless of how retailers structure their internal teams, it’s inefficient to make decisions on customer fulfillment speed or the addition of fulfillment sites without first reviewing historical item availability and identifying which items require fast fulfillment for customers.
In many instances, you can boost your fulfillment speed without adding more sites by just improving your inventory allocation.
The Three Ss – Sites, Systems, and Staff – are a way to evaluate the many angles of your fulfillment strategy
Said another way, fulfillment sites and an optimized order pick process are only valuable if you have inventory available to customers in the right place at the right time.
Mistake #2: Ignoring last-mile delivery costs in the fulfillment equation
Another common risk in the network fulfillment strategy is disregarding last-mile delivery costs as part of your cost equation.
This oversight may be due to several reasons. For example, last-mile delivery might be managed through a third-party (e.g., less “controllable” in your network), or there may be varying rates for orders, or the costs may accrue to a cost center with many other similar costs so it’s not easy to discern.
However, delivery costs are often the most significant portion of an individual order’s cost to serve customers and should, therefore, be included as part of the overarching strategy, especially since customers only perceive their order as fulfilled only once it’s in their hands.
Last-mile delivery costs are an important consideration when evaluating order fulfillment for your various service options
Neglecting delivery costs also eliminates the chance to assess the benefits of digital services that don’t involve a delivery component, such as curbside pickup or BOPIS, or store-based fulfillment where inventory is closer to customers and may result in reduced last-mile costs.
In some instances, if your inventory is close enough to customers, using a third-party service, like DoorDash or Uber might be as cost-effective as using FedEx or UPS for delivery, and it could also expedite delivery to customers.
Regardless of the internal challenges or ingrained viewpoints, it’s essential to consider last-mile delivery costs as part of your cost evaluation. This way, you’ll make more informed decisions for your customers while discovering new solutions to increase speed or cut costs.
Mistake #3: Optimizing the fulfillment network for costs above all
Lastly, a critical error is prioritizing cost optimization in the fulfillment network over everything else.
In many scenarios, a concentration on cost-cutting offers temporary relief for margins, but over the long haul, it may pose a risk by resulting in a network that doesn’t deliver to customers quickly enough – leading to a long-term loss in sales and market share.
Of course, cost optimization will always be a focus, but it should be considered within the broader perspective of meeting the customer’s needs and demands, and then working backwards from there. Amazon is expanding its same-day and next-day delivery for customers after setting the standard with two-day shipping.
If your focus is solely on costs, you risk falling short of the next shift in customer expectations.
