A strong-performing fulfillment provider can be a valuable business partner, helping to increase efficiency, control costs and improve customer service. A subpar provider, on the other hand, can seriously impact your operations in the opposite direction, taking a toll on your business and your bottom line.
What is the real cost of a poor provider? Tom Patterson, senior vice president of warehouse operations at Saddle Creek Logistics Services, recently shared his insights on this topic with MultiChannel Merchant. Following is an excerpt of the article.
Near-Term Cost Impact
It doesn’t take long for poor fulfillment performance to put a dent in your budget.
Inventory control is one major problem area. If a fulfillment provider does not provide quality inventory control and reporting, they can’t receive or pick properly, and you won’t have the visibility necessary to identify out-of-stocks, lost products or other issues. Inventory costs rise and customer service suffers as a result.
To salvage customer satisfaction, you may need to expedite shipments, thereby incurring increased freight costs as well.
Another short-term impact of poor provider performance is lost time – and time is money, after all. Your time is spent managing exceptions instead of managing your business. You have to figure out how to get products to the DC or to the customer because your fulfillment provider failed to deliver.
Challenges like these become particularly costly during peak sales periods such as the holidays or major promotions. A bad provider doesn’t get better when volume spikes. If they’re struggling in August, their performance will really suffer on Cyber Monday.
Poor service, of course, leads to lost sales, lost customers and, ultimately, the loss of your good reputation.
Long-Term Cost Impact
If poor performance goes unchecked, you’ll begin to experience higher operational costs.
When customers lose confidence in your products/company, it can be costly to win them back. The bar is much higher the second time around.
To ensure that you can meet customer expectations, you’ll need to bolster your safety stock – adding as much as 50 percent for back-up because your fulfillment provider’s inventory reporting is unreliable. Naturally, that requires increased storage space. Inventory costs add up.
You may also need to increase internal staffing– perhaps hiring an inventory planner to compensate for your provider’s poor management abilities. In addition, your own staff may become frustrated and more likely to quit because of the negative, reactionary environment.
With the need to focus on short-term, tactical issues, strategic planning can be difficult. You’re looking one or two weeks out instead of long range. You focus on immediate, near-term challenges instead of the bigger picture. That’s when your business really starts to suffer.
When you lose trust in your fulfillment provider, you’ll find that you can’t place orders, make nimble decisions or make commitments with confidence. Ultimately, the uncertainty prevents business growth.
At this point, you may find yourself incurring yet another cost – that of transitioning to another provider.
To learn about early warning signs and how to safeguard your business from poor performance issues in the first place, read the full article.