How an Order Management System Lowers Fulfillment Costs

The eCommerce revolution has turned retail on its ear. Brands are now managing exponential increases in sales and communication channels. Simultaneously, their customer base demands total convenience, up-to-the-minute information, and ever-faster delivery.

This upheaval has forced the need for logistical innovation. Many merchants have answered the call by implementing management software to optimize and automate their backend operations. The resultant benefits have been dramatic: improved accuracy, operational efficiency, and a significant reduction in the costs of fulfillment.

Many other merchants, however, still rely on manual fulfillment or outdated/misaligned software. At SkuNexus, we frequently see the negative outcomes of these decisions, such as:

• Warehouse communication breakdowns,
• Inaccurate inventory snafus,
• Disorganized pick, pack, and ship,
• You name it.

The problems mount and rising fulfillment costs immediately follow.

eCommerce fulfillment is a field where every second and every penny counts. It is critical to grasp the total impact that management software and automation can have on your bottom line. Here, we will discuss how an order management software (like SkuNexus) can lower order fulfillment costs, optimize productivity, and maximize ROI for your eCommerce business.

Employee Time

Time is money. It may be a cliché, but in the context of eCommerce fulfillment costs and employee productivity, nothing could be more correct. A cohesive, automated management system is the single most effective way to save employee time. It optimizes processes from receiving to delivery.

In this model:

• At receiving, items are scanned into inventory. Warehouse and Inventory Management Systems (WMS/IMS) already know exactly where products are to be placed. No employee spends time making this determination during the putaway process. In turn, dock-to-stock time is drastically reduced. 
• Scanning also reduces the burden of other tasks. Employees will not have to manually count items or locate the purchase order (which can be brought up when scanned).
• When a purchase is made on a merchant’s eCommerce platform, related inventory is immediately deducted from the IMS. The OMS (Order Management System) sends the order to the appropriate fulfillment location for processing.
• The WMS produces a pick list of items necessary to fulfill the order. It can also issue specific instructions for the best route to take through the warehouse to pick them. The picker is not required to look up item locations or self-navigate through vast aisles, shelves, and bins.
• Once the picker brings the completed order to packing, automated packing instructions begin. The packer knows precisely what size parcel is needed. He or she is also told specific amounts of packing materials (from bubble wrap to dry ice) to include. 
• The order, now packed, does not need anyone to make decisions re: shipping. The Shipping Management System has already executed and generated a shipping label that need only be affixed to the parcel. The order is ready to ship.
• If the item does get returned, an automated system of reverse logistics begins. This process can return products to inventory as quickly and efficiently as possible.

If manual fulfillment decisions and actions were used throughout the above, time would be added to every step of the process. Factor that out for every order your brand receives and it becomes clear. Small increments of time here and there quickly add up.

The optimized order accuracy and throughput produced by this integrated system of automated fulfillment have secondary time savings as well. 

• A brand’s customer service agents will spend less time addressing questions caused by things like incorrect inventory or shipping delays. 
• A Vendor Management System can drastically decrease communication issues with suppliers, dropshippers, and 3PLs.
• Organized warehouse operations are less prone to accidents due to worker error. This can foster safer, healthier, and more content employees who enjoy coming to work.
• Higher across-the-board accuracy provides greater control. This yields easier cycle counts, streamlines accounting, and provides better, highly useful data throughout the company (sales, finance, purchasing, et al).

Overhead Costs (Fulfillment Center)

While eCommerce may have broken the proverbial mold of retail, certain costs of doing business remain (e.g. storage costs) . What has changed, though, is how technology can reduce them, often in less-than-obvious ways. 

Utilities (Electricity/Gas)

A smart management software suite creates fulfillment accuracy and better use of warehouse space. That translates into lower utility costs.

• Disciplined receiving department/loading dock/shipping operations will reduce the collective amount of time exterior doors need to remain open.
• Streamlined pick/pack/ship options (batch, wave, zone, etc.), can lead to fewer shifts and less operating time.
• Sectioning warehouses by temperature keeps products with similar storage needs close together.
• Pickers with accurate pick lists for refrigerated/frozen items will spend less time holding freezer doors open. 
• A packer for the same order will spend less time accessing dry ice.
• This all adds up to less waste, more energy efficiency, and lower utility bills.

Rent 

An effective WMS will help optimize the use of warehouse space. Proper warehouse management is about maximizing the available space to avoid unnecessary labor.

• When adopting a WMS-directed putaway, usable space in the warehouse will increase by 10-20%. 
• WMS allows a merchant to assign storage locations in the warehouse based on item size and sales volume. 
• Any perishable items can be properly stored in a first-in/first-out (FIFO) method. 
• Informed by the organization of its systems, a smart warehouse layout will operate with the least possible required (and unused) space. 
• Maximized use of space = less space needed = lower costs for rent.

Taxes

• Utility taxes are a function of the bills themselves. So, any reduction in use of gas/electricity will see a reduction in taxes, by definition. 
• If a merchant owns its warehouse, property taxes can be a significant cost. A warehouse that is properly configured and efficient will allow taxes to be offset by greater sales.

Equipment

Paper/Printers/Ink

• A major advantage of the management system/automation model is the reduction of paperwork. The potential to go almost completely paperless is a realistic goal. 
• Moving to a paperless order management system will decrease or eliminate the need for papers, printers and ink. It will also make logistics and operations processes more efficient. 
• The ability to change, edit, and update information more quickly will allow your team to communicate more effectively. Updates will be sent and received in real-time.

Computers

• Issuance of inexpensive tablets to fulfillment employees can eliminate fixed-location computer terminals on the warehouse floor.
• Time formerly spent walking to and from these terminals can now be spent more productively.
• The reduction of computer costs goes hand-in-hand with reducing the need for printers/ink and paperwork.
• SkuNexus is mobile-compatible and fits seamlessly into this fixed-location computer/paper reduction model.

Barcode Scanners

• Their use greatly lessens the cumulative time spent walking back and forth between various areas to input data, print labels, etc. 
• When combined with inexpensive tablets, barcode scanners create an agile, mobile warehouse staff without the need for CPUs.

Forklifts/Transportation

• The organization provided by automation also means less wear and tear on vehicles. 
• Vehicles (just like employees) will also be directed by a WMS to follow more efficient routes through the warehouse.

Packing Materials

Smart shipping management takes all the manual guesswork out of the packing process. It delivers exact information for materials needed, eliminates waste, and saves you money. 

Boxes

• A parcel size can be standardized or pre-determined by SkuNexus Shipping Option Mapping. Or the decision can be made on an order-by-order basis within the Shipping Management System. In either case, the most cost-effective box will be selected.
• Orders going to the same customer can be combined for less shipping materials. 
• Increased accuracy throughout the fulfillment process equates to fewer errors. Less rework means less material used or wasted.

Envelopes/Poly Mailers

• Whenever appropriate, less expensive envelopes and poly mailers will be used instead of boxes.

Bubble Wrap/Packing Peanuts

• Automated pack lists will include specific instructions on what types and quantities of insulating materials to include inside the parcel.

Tape and Adhesives

• Similarly controlled directions can be placed on tape and adhesives. Employees will use just the right amount, no more or less.

Shipping/Returns

Management software provides a range of cost-cutting measures all the way through the fulfillment process, including shipping and returns. While customer returns are inevitable, management software will drastically reduce those made due to errors (wrong item, missing item, wrong size/color, damage due to improper packing materials, etc.).

Shipping Rates

• Shipping management can employ rate shopping to constantly monitor shipping rates across a vast database of carriers.
• To reduce postage costs, order management can combine orders to the same customer.
• An OMS will also cut shipping costs by routing orders to the fulfillment location nearest the delivery address.

Return Shipping

• Fewer returns mean less money spent on return shipping.

Customer Service Time

• As previously mentioned, your customer service agents will spend less time dealing with issues that arise out of fulfillment mistakes. 

Re-pick/Re-pack/Re-Ship

• First, returns need to be processed and brought back into inventory. Plus, the original order will have to be corrected and the pick, pack, and ship process will be repeated.

Lost Customer Trust

This may be the most profound cost of manual fulfillment. Customers want to purchase from brands that inspire confidence. The ripple effects of breakdowns caused by inaccuracy, poor communication, disorganization, etc., can be enormous.

Immediate Loss of Sale

• Visitors to a brand’s eCommerce site expect factual information about inventory, product availability, expected delivery, et al.
• Lack of disciplined fulfillment management will result in misinformation.
• Misinformation breeds distrust and a lack of confidence.
• Skeptical customers will abandon carts, cancel orders, and shop elsewhere.

Loss of Future Sales and Related Organic Growth

• Continued manual fulfillment will only extend the problems over time.
• Word-of-mouth referrals will diminish and online reviews will inevitably highlight customers’ negative experiences with your brand.
• Decreased revenues and business contraction will result.

Retail eCommerce is a demanding, unforgiving, ultra-competitive space. Merchants who are able to see and exploit the opportunities that others do not will separate themselves from peers.

Backend operations are an area ripe with optimization opportunity. The potential to cut fulfillment costs in so many different ways through the use of management software like SkuNexus is massive. Brands that fail to consider, and act on, this are at a great disadvantage.

To learn more about how SkuNexus can help your eCommerce business achieve its goals, schedule a demo today.