Fulfillment costs per order rose 31 percent in 2017, according to the NRF’s 2017 State of Retailing Online. Not even ecommerce giants are immune to this trend. Shipping and fulfillment costs represented over 26.4 percent of Amazon’s net sales for 2017, Statista says.
Just how much does order fulfillment cost? That depends on a number of variables, including volume and profile, number of distribution facilities utilized, level of customization, degree of fluctuations and use of technology/automation. Naturally, the more sophisticated the solution, the more expensive it tends to be.
Want to get a handle on increasing costs? One of the best resources might surprise you: your third-party provider.
Fulfillment Costs are Rising: What You Can Do About It
Many companies find that a 3PL can help to keep costs in check. They’re able to help you control costs and reduce capital expenditures in three key areas.
A third-party provider often has a network of facilities, allowing you to locate your operations strategically without committing to a major investment or move.
In a shared-space environment, the provider balances the needs of multiple customers so that they can meet peak requirements every year without having to invest in permanent staff, warehouse space, equipment and technology. With a stable of active customers, an order fulfillment company also offers economies of scale and collective buying power.
2. Continuous Improvement
TQM methodologies such as Lean and Six Sigma can be used to reduce waste and prevent defects, typically resulting in significant cost savings. With proven processes, a 3PL can speed order turnaround times and get products to market faster to shorten the cash-to-cash cycle.
In addition, an effective order fulfillment company is always on the lookout for new ways to drive costs down. For example, if they serve customers with complimentary shipping cycles, they may be able to cross-utilize staff to save on labor costs. When fulfilling orders, they might achieve efficiency by pre-kitting common items and then inserting custom items as a second step in the pick-pack process. Postponement strategies are another effective tool for cost control.
Freight costs typically represent the largest operating cost of a DC, and they’re expected to increase 10 percent in 2018, according to Rich Thompson, who leads JLL’s supply chain and logistics group.
A third-party logistics provider can help you reduce your transportation costs through economies of scale, rate negotiation, optimal DC network configuration, and robust technology systems. To learn more about how a 3PL can help you save on shipping costs, read our recent blog post.
There are a myriad of cost-saving strategies explore. Talk to your order fulfillment company today.