Ecommerce Supply Chain Playbook

Reducing Outbound Shipping Costs

After labor and the cost of goods sold (COGS), order fufillment logistics is often the largest bucket of costs for ecommerce retailers. Within that, outbound shipping can be anywhere from 50%-70% of total costs. That’s a lot! Therefore, focusing on thecost reduction of outbound shipping costs is one of the best ways to meaningfully improve margins and cash availability. Fortunately, there is a an excellent play to reduce between 1%-2% on average—arbitrage across carriers.

The following playbook is for operations managers looking to save as much money as possible on their outbound logistics management.

Connecting Pre-Purchase Promise to Shipping Selection

Who is this for?

Read this if you are an operations leader looking for the best way to marry upfront delivery promises before purchase with the processes of fulfillment and shipping after the purchase.

Summary

You know the phrase about the chicken or the egg. In an ecommerce supply chain world, the prompt fits when debating where to pick shipping methods and how to promise the results to customers. The right answer is surprising and provocative, blending what you would expect with curveballs you do not. This play will walk you through the operational side of keeping pre- and post-purchase promises to customers.

The Economics Behind Free Shipping Programs

Who is this for?

Read this if you want to promote a free shipping option to customers that is still financially feasible. Free shipping doesn't have to be simply eating the costs. There are ways to make the margins tenable, which begin with establishing the economics that best fit your business model first.

Summary

We have all seen the industry reports the last couple years, so there is no reason to belabor it: Consumers want their orders quickly; 36% say they will shop elsewhere if it's not available. We previously wrote a play on implementing a profitable 2-day shipping program because of this urgent importance to operators.

But did you know that free shipping is twice as important?

It's true, consumers vastly prefer free shipping over fast shipping if given the two options. 

• Several industry studies publish numbers anywhere between 75% and 80% of consumers will shop elsewhere if free shipping isn't available.
• Offering free shipping was a growth driver for Amazon long before Prime came on the scene. Before Prime, free shipping was regularly the preference for customers over fast shipping.
• Zulily became the fastest growing ecommerce business of all time in small part because the business was oriented around free shipping.

You need a free shipping program to compete. But a strategy that simply eats the costs of shipping is unsustainable as you grow, so you need a smarter plan. This play walks you through the ideas to achieve a profitable shipping program.

How to Decide Packing Sizes & Options Per Fulfillment Center

Shipping accounts for about 75% of supply chain costs on average, according to research by ORTEC.

How to Design an End-to-End Customer Delivery Experience

Who is this for?

Read this if you want to improve both the pre- and post-purchase aspects of your customer buying experience in a way that keeps customers happy while reducing your costs.

Summary

Most companies wait too long to design and optimize the customer delivery experience—the moment a customer clicks “Buy” to when the package arrives at their doorstep. Everything in between is an integrated and intertwined process that can make-or-break both your topline (through repeat purchases and customer loyalty) as well as your bottomline (through improved cost savings). The article will explain how to connect leverage your company has from operations with frontend tools, like your store or customer communication tools, in a way that makes customers happy while reducing your costs. You will learn the correct process, or sequence of events, to implement in order to provide an industry-best fulfillment experience.

Adding a 2-Day Shipping Program

Who is this for?

Read this if you want to add a 2-Day delivery program that is predictable, profitable, and isn't a static "Send everything FedEx overnight" policy.

Summary

No question that consumer preferences have shifted online. The last several years have seen numerous industry reports demonstrating consumers have an expectation around delivery cost, speed, and transparency, mostly due to the push by big players like Amazon and Walmart. One such example comes from The National Retail Federation (NRF) which published a 2019 study that showed 39% of consumers expect free 2-Day shipping. Many will shop elsewhere if they don't get it.

In general, consumers want either free shipping, fast shipping, or both if they can get it. As a baseline, retailers must provide both fast or free shipping because without those two options, the retailer is unnecessarily killing half their potential market. Providing free shipping is different enough from fast shipping that we'll discuss that program in a different article.

Unfortunately, providing fast shipping isn't easy mostly because it isn't cheap. If it was profitable to do so, everyone would simply ship all orders using a Next-Day method from the big national carriers.

But fear not, it is possible to implement a cost-effective 2-Day shipping program, where the savings are passed along to customers as a form of competitive differentiation.

This play will walk you through what to consider at all stages of business growth.

Adding a New Carrier

Who is this for?

Read this if you are adding a new outbound shipping carrier to your distribution mix, whether you are a startup founder adding your first carrier, or an industry veteran adding your tenth. The details below provide value all the same.

Summary

All ecommerce companies by rule need to deliver orders to customers. While some pick-up-from-store and other hybrid options exist, the point of ecommerce is to receive digital orders and deliver physical goods in the hands of customers.

As a result, adding outbound shipping carriers to your operations stack is a near-universal task. But it is complicated.

This play walks you through considerations and strategies when adding a new carrier.

Negotiating Carrier Rates

Who is this for?

Read this if you are in charge of establishing contracts with shipping carriers and want to know the best approach for an ecommerce business to secure the cheapest and best rates.

Summary

If outbound shipping isn’t the top operational expense for ecommerce businesses, then it’s always second or third. Few areas have more meaningful impact on margin and profitability than reducing outbound shipping. There are many tricks to reduce shipping costs (check out our other plays), but carrier contracts are a key contributor. Getting low rates at the onset of the contract is a crucial exercise. This playbook will walk through the best ways for ecommerce operators to negotiate the lowest rates.

Adding a Delivery Promise

Who is this for?

Read this if you are an operations or marketing person looking to increase cart conversion by merchandising delivery dates.

Summary

A delivery promise is an estimated delivery date which online stores show customers before purchase. “Buy it today, get it Thursday!” Communicating a delivery date after purchase is a basic ecommerce interaction. Starting to estimate the delivery date before purchase, in real time, is much more difficult. Large ecommerce companies started to add a delivery promise, and it led to a demonstrative increase in cart conversion percentage.

Adding a Subscription Delivery Program

Who is this for?

Read this if you are going to add a subscription offering for your product where there will be delivery at regular intervals. This play will coach you on how to save the maximum amount of money.

Summary

Some ecommerce businesses choose to sell their products through a subscription model, where a customer signs up to receive an order on a regular basis.

Subscriptions are great for Lifetime Value (LTV) creation and profitability, which is why more companies have looked into the idea. The secret is out that recurring revenue models are the fastest route to profitability.

The idea works better with some types of products more than others. Products that are more one-and-done, like appliances or electronics or high-priced items, aren’t a good fit. Other product types like consumables, replenishables, or regularly used items work very well. This is why ecommerce has exploded with vitamin, hygiene, food, and clothing businesses, among others, featuring a subscription model.

How subscription orders are managed is similar to single purchase orders for the most part, however, there are a few unique differences with fulfillment and delivery worth considering that can influence efficiency, cost, and customer experience.

This playbook will walk you through those considerations.