When running an ecommerce business, boosting your net profit often means finding ways to cut costs wherever you can, without losing high quality standards of production. And cutting costs doesn’t have to be cutting corners. There are many areas of production that can be streamlined in order to create efficiencies, which will lead to overall savings—some of these include warehouse space, inventory stock, order processing, and others. If you are looking to create more cost savings or streamline your supply chain, consider the tips below.
Automation
Using the latest automating processes within your warehouse can be a great step towards getting your supply costs under control. This will usually require a third party consultant to visit your fulfillment center and assess your warehousing operations. They will be able to determine if there are any areas that it can be helped by automating to help it run more efficiently and effectively which can help cut costs. By partnering with a third-party, you’ll likely benefit from the most state-of-the-art technology tools, as well as the newest industry standards.
Inventory Management
Making sure that you maintain proper inventory levels is a huge part of operating any ecommerce business. When you have too much inventory, you will pay more for storage. Too little inventory could leave you out of stock when your customers come to order, and that might cut into your sales. One of the ways you can achieve large cost-savings is by implementing a Just-In-Time (JIT) inventory management system. JIT systems allow you to order and receive inventory as you require it rather than storing large amounts of unused stock. This reduces your carrying fees, and eliminates overhead stemming from excess inventory costs.
Customer Demand
Regularly analyzing and monitoring demand for your products can help you adjust your product purchasing flow. Some products will sell more, and some just won’t. By focusing on the popular ones you can allocate more resources to them, and create leaner systems for the ones that don’t have a high demand. Although this may not seem like a direct cost savings initially, it will put more power in the money you do spend on those high-performing products. Additionally if you notice patterns change each month or by season, you can use this information to order supplies or hire more labor more accurately.
Space Utilization
Making sure the space in your warehouse or fulfillment center is optimized can mean your dollars-spent are working to their maximum capacity. Storing inventory and supplies comes at a cost, so it is a great idea to assess what you are doing with the space you have available. If you evaluate your space allocation and notice you are paying too much for the space you have, consider downsizing to a smaller warehouse that provides cost reductions. With a smaller space, you’ll likely also reduce the amount of time it takes to find products, which might increase customer satisfaction (from faster order fulfillment). If you find that your inventory fills the space appropriately, you can also make adjustments to product placement within the warehouse. Making sure they are in the best possible place, grouping them with similar products that often sell in combination with each other, will make your space utilization more efficient.
Order Processing
Evaluating your order processing system to ensure that it is as efficient and cost effective as possible is critical to ensuring your supply chain operation is running as smoothly as possible. Using a single software system to complete your purchases will prevent you from dealing with the frustration of employees using different applications and ordering too many products or supplies. Implementing an approval process can also prevent any product from being ordered without the consent of designated officials.
Improve Packaging
By right-sizing the packaging of your products you can find savings in both supplies as well as shipping costs. You might find that you are shipping products in boxes that are too large for your items which will cause your shipping costs to go up. It could also be costing you more in supplies since larger boxes are more expensive than small ones. You might consider re-evaluating your carrier in order to to get your products into your customer’s hands quicker and cheaper.
Sales and Operation Planning
By taking the time to plan your yearly sales (and all operational costs that go with them) you can find many ways to reduce your ecommerce supply chain cost. If you can accurately forecast demand for your products you can better prepare your strategy for inventory, labor, transportation costs, marketing, and many other areas of your business. Planning for potential delays or changes in market conditions will ensure you are ready to meet whatever hurdles come your way. This can help you avoid potential delays or interruptions in your operations and production.
Perform a Cost Analysis of Your Operations
Another technique that you can use to reduce the cost of your supply chain is to simply analyze the total cost. There are many variables that contribute to the total supply chain cost that you can’t control, like taxes, insurance, and handling fees. Once you understand the total cost of your operation you can focus on the expenses that you can control.
You may need to look at last-mile delivery or fulfillment costs that you can reduce if demand shrinks. Logistics-related expenses account for a huge portion of supply chain costs, so it’s definitely worth looking into. You might find more opportunities to save than you think.
Conduct a Performance Analysis
Reviewing the metrics of your supply chain strategy on a regular basis is a critical step to maximize efficiency. This is a valuable way to gain a deeper understanding of your entire business. A proper performance review will give you insights into each individual process and highlight the places that need improvement.
Consider Outsourcing to a Third-Party Logistics Provider (3PL)
A third-party logistics provider (3PL) is an expert in all aspects of supply chain management. It might seem at first glance that outsourcing your supply chain management will increase your logistics costs. But there are innumerable expenses to keep in mind that add up quickly when managing your supply chain in-house. Some areas that a 3PL can help with your supply chain are: providing warehouse storage space, handling packing and shipping, allowing your to keep your focus on other aspects of running your business, utilizing their advanced technology to increase shipping speed, leveraging carrier relationships and bulk transportation to cut overall costs. To keep up with today’s global marketplace, product companies must rely on many partners to help streamline their supply chain.
Bottom Line
It’s imperative to review the many aspects of supply chain management on a regular basis, in order to find significant savings and improved efficiencies. It will help ensure that your business is as profitable and as successful as possible.
If you’re looking for help with managing your supply chain costs, send us a note to connect about how we can help your company grow. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support.
Tags: Fulfillment Costs, Packaging
