We all know that being closer to the customer is the place to be, especially according to ebay, Amazon, Google, Walmart and other retailers that are touting same day delivery as the next best thing since sliced bread.
A recent interview with a nutraceutical company reveals that leveraging strategic fulfillment locations led to dramatic savings, increased speed of delivery, and better customer service.
In industry speak, this can be referred to as logistics network optimization. It means getting as close to the customer as possible in order to leverage faster and cheaper shipping and optimized order sourcing.
It also means ensuring that customers are getting their product as fast as possible, but that you as a retailer are leveraging the delivery network and optimizing profitability.
However, this can be difficult to do for many retailers who have a lack of infrastructure to support it. A survey by Multichannel Merchant of 654 retailers in April 2012 found that 75% of online/multichannel retailers operate only one warehouse which makes it very difficult to optimize their network or increase speed of delivery.
One nutraceutical company decided to use the Webgistix SmartShip service – which runs network analysis using things like order history and product weight to determine optimal distribution networks leveraging Webgistix warehouses – and was able to determine that by placing inventory in three strategically placed warehouses instead of one, it would be extremely advantageous for his company.
-This company was able reduce costs by approximately $2.72 per order or shipping costs
–This saved over $31,500 in a 3 month period
-In addition, customers received their products an average of one day faster, which increases customer satisfaction and loyalty
Pretty incredible stuff.
How can you too leverage logistics network optimization to improve customer service?
-Understand where your current customers are.
-Understand your product profile: depending on volume/ SKU counts etc., it may be prohibitive to split inventory across multiple locations.
- For example, in apparel this can be difficult if you have multiple styles, colors, sizes and unpredictable demand.
-Understand the demand of your customers: in many cases you are using order history to see where your volume is coming from, but future demand can change dramatically. There are sophisticated demand forecasting and sensing tools that can help.
- For example: New product introductions, increasing your geographical reach, etc. will influence future demand
-Know that this is not a one-time exercise – understand when to re-evaluate: Edward Frazelle, founding director of Georgia Institute of Technology’s The Logistics Institute has stated that companies used to evaluate their networks once every 5 or 10 years, but “that’s no longer the case as the issues affecting the network configuration are changing so fast that they have to be monitored much more frequently.”
- For example: A retailer that is adding a product line that is heavier (hard copy vs. soft copy books) and will affect shipping costs
-Work with people that know how to do this analysis. In house resources, outsourced resources, consultative services and network design technology offerings are all options.
The payoff: Optimal network design can minimize inventory carrying, warehousing, and transportation costs while satisfying customer response-time requirements and lead to increase customer loyalty.
And an extra $31K isn’t bad either.