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Dean Maciuba

Dec 09
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Moving Smaller Merchants Towards 3PL Multi-Point Ecommerce Order Fulfillment

By Uncategorized

There are still many small to medium sized ecommerce merchants that struggle with the decision to embrace multiple fulfillment center locations to drive faster delivery transit times, potential transportation savings and an overall better experience for their customers. In most cases, these smaller merchants would be dependent on 3PL ecommerce order fulfilment service providers as the merchants lack the volume and scale to develop and manage their own dedicated fulfillment networks… it would just cost too much.

Numerous considerations and factors are impacting those small to medium sized merchants that have still not embraced multi-point ecommerce order fulfillment via a 3PL, to include:

  • Faster Delivery Not Recognized as a Priority
  • Undercapitalized to Fund Required Support Technology
  • Lacking Tech Prowess
  • Not Trusting of 3PL Order Fulfillment Management Solutions
  • Failure to Embrace the Amazon Marketplace/Fulfillment by Amazon Option.
  • Multi-Point Fulfillment Complicate Order Fulfillment Management
  • Priority Mail is Still an Affordable 2-3 Day Delivery Solution… sort of
  • Not Recognizing the Consumer’s Desire for Faster Delivery
  • Availability of Low-Cost Deferred Ground Delivery Solutions
  • Desire to Remain Small and Keep Things Simple

The question also begs, do the 3PL order fulfillment service providers even want the small merchant’s business?  In many cases not, and this would be why:

  • Small merchants tend to have a disproportionately higher number of issues/problems than larger merchants.
  • Credit worthiness and slow pay can be a bigger problem with smaller merchants.
  • The technology interface with the 3PL can be more difficult with the smaller client and require more hand-holding

However, our slowing economy may very well drive more interest in the small merchant by the 3PL order fulfillment service providers as legacy large customer revenue declines in a slow economy and some large merchants fail.  Additionally, smaller shippers are being disproportionately impacted by carrier rate increases and may very well experience lower transportation cost via a 3PL fulfillment relationship, whose carrier volume drives significant discounts.  And finally, revenue streams from new, but smaller merchants will help 3PL’s meet carrier revenue requirements that drive their discounts.

It will be interesting to see how this plays out and whether declining economic conditions open the door for small merchants to embrace 3PL based, multi-point order fulfillment solutions that result in an overall improved service experience for their customers.

Dec 09
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Managing Parcel Carrier Minimum Revenue Requirements

By Uncategorized

In recent years and especially since COVID, nearly all the integrated national and regional parcel carriers have been updating their pricing agreements to include a stronger emphasis on minimum revenue requirements.  These changes in parcel carrier pricing behavior are partially driven by both direct-ship retail merchants and ecommerce order fulfillment service providers aggressively pursuing updated and more aggressive discounts from the parcel carriers to drive reduced shipping costs. Inflation, increased labor expense and capacity constraints are driving up operating costs for the carriers and those costs are being passed on to ecommerce shippers via rate increases.

Additionally, other market changes and conditions are impacting the national integrated and regional carriers:

  • Quick commerce, forward stocking distribution solutions that support same-day delivery and that also siphon away shipments away from the legacy parcel distribution models.
  • Declining ecommerce growth trends.
  • Carrier diversification initiatives are gaining traction and driving some business away from the legacy integrated carriers to the regional parcel carriers.
  • The growth of Buy On-Line/Pick-Up in Store, (BOPIS/click & collect) out-of-home consumer pick-up solutions that bypasses the legacy parcel carrier’s home delivery.

5 Shipper Tips for Managing Parcel Carrier Minimum Revenue Requirements

  • If negotiating with a parcel carrier, shippers must realize that minimum shipping revenue requirements and related verbiage defining those terms is complicated. They must take the time to fully understand the impact of failing to meet minimum shipping requirements and should negotiate more favorable terms and conditions as needed.
  • Understand the impact of minimum shipping revenue requirements in the context of all other agreement terms and conditions and exposure via penalties for not attaining the minimum revenue requirement.
  • Remembering that minimum net revenue requirements are based on net transportation spend after discounts, not including surcharge expense.
  • Minimum net revenue spend requirements are not related to earned discount, gross revenue schedules, which drive discounts and are based on list price shipping expense but not including surcharges.
  • A shipper must be prepared to perform the necessary predictive analysis to accurately project future carrier usage across all qualifying services and may require the assistance of a pricing consultant to correctly determine that spend.

It is important to understand that the integrated carriers are normally open to granting a shipper additional discount, but only in return for higher revenue.  However, they are only going to improve pricing discounts with a commitment from the shipper that volume/revenue will not be shifted to another carrier.  These types of terms and conditions tend to drive near exclusive carrier usage and the carriers will not be open to renegotiating the pricing agreement prior to the stated termination date.

Finally, the most aggressive carrier discount programs will always be accompanied by minimum net revenue requirements.  This condition tends to benefit 3PL order fulfillment shippers and their customers as a 3PL can consolidate shipment volume/revenue across multiple customers, and we know it’s volume that drives the best carrier discounts possible.

Oct 18
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The Fulfillment Process Holy Grail: The Fully Automated Pick

By Automated Picking

Ecommerce growth is driving a stampede of investment to support the development and implementation of advanced fulfillment center technology related to the fulfillment process. This is how Forbes recently summarized the condition:

Amazon announced it would invest $1 billion in warehouse automation solutions like robots and AI. To keep pace, Walmart says it will invest $14 billion in warehouse automation and other areas. Other companies are investing hundreds of millions into their own proprietary bots. Even for smaller businesses, the economics of investing in warehouse automation are clear. Robots are reliable and cheaper than humans.

Introducing new technologies in the fulfillment center to control and reduce the cost of the fulfillment process is not new. Some of the technology introduced in recent years to drive efficiency and lower cost include:

Fulfillment Center Technology Examples for a holistic view of your business

  • Autonomous mobile robots: Move products from one location to another.
  • Tech Stack Management Solutions: Stacked technologies that support a single application.
  • Robotic Depalletizing: Automated solution for removing boxes from a pallet.
  • Mobile Inventory Pods: Automated system that moves product containers to human picker (Amazon Kiva Model).
  • Light-directed order fulfillment: Pick-to-light increases productivity and reduces pick errors.
  • Order management software: Software that collectively manages order, product, and customer information to provide an overall view of the order process and drive efficiency.
  • Dimensional sizing workstations: Drives full inner box utilization to reduce shipping costs.

While implementing advanced technology solutions drives efficiency and reduces per-unit processing expense, the cost of advanced technology is still a barrier to smaller fulfillment operations having the ability to implement such solutions.

The Automated Pick Process

Even with technology advancements specific to fulfillment center item processing, fully automating the product pick process remains capital intensive and a technology challenge for the e-commerce fulfillment industry and software developers:

  • Picking multi-SKU products require a high level of mechanical dexterity: Robot dexterity can be defined as a robot’s ability to cope with various objects and actions. It is how robots can interact with and handle multiple different objects and take necessary actions on the objects.
  • The fully automated pick process depends on the development of expensive and highly advanced AI software to drive the robotic pick behavior.
  • It is not likely that a fully automated pick process will ever be developed to replace highly nuanced pick behavior, meaning the technology can only support the human pick process.
  • Most robotic fulfillment models have embraced the Amazon Kiva model, where inventory-laden containers are brought to the human picker via autonomously operated pods. It will be difficult to merge the newer automated pick technology model with these existing, partially automated pick technologies.

There is no holding back the development of item sorting technologies, highly dependent on advanced AI, as investors are supporting this technology, and early adopters are beginning to implement the technology.

We don’t know yet how practical the solutions will be and how dependent the new product-pick solutions will still be on the human-pick component.

 

 

 

 

 

 

 

Sep 30
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Managing Ecommerce Fulfillment During a Recession

By Managing Fulfillment During a Recession

If we are not already into a recession, then that dreaded, severe economic downturn is just around the corner. If you are an e-commerce merchant, the signs of a recession are clearly visible:

  • Big box stores like Walmart and Target are reporting declining sales growth rates.
  • Those same big-box stores are canceling product orders due to an overstock condition.
  • While Amazon’s e-commerce revenue is marginally up, volume is down.
  • FedEx reported horrible earnings and suggests we are already into a recession.
  • Spot quotes for ocean freight out of Asia are down. (https://www.freightwaves.com/news/container-spot-rate-fall-much-steeper-and-less-orderly-than-expected).
  • Prominent economists are saying that a recession is inevitable.

Our nasty economic condition further exacerbates the challenge of peak season planning for both the merchants and e-commerce-specific supply chain service providers:

  • Should merchants that are sitting on an overstock condition discount early?
  • How many temporary, seasonal employees should the carriers hire?
  • For e-commerce merchants, decreased peak-season shipping revenue could lower their carrier-based earned discounts.
  • Lower than usual peak season shipping revenue can also drive severe, carrier-based financial penalties if the merchant does meet minimum net revenue requirements, depending on how the shipping agreement is structured.

The 3PL e-commerce order fulfillment service providers may face the most difficult challenges as they must now manage the potential of a peak season shipping decline across the multiple merchants they service.  What can these fulfillment service providers do to manage recession-driven, lower business and volume during the peak shipping season and beyond?

  • Communicate early on and often with their merchant clients and understand the impact of downward adjusted volume on your operations.
  • Talk to their parcel carrier sales professionals early and ask if there is any flexibility on reducing revenue requirements that drive earned discounts and minimum net revenue spend requirements for the whole year, not just Q4.
  • Be conservative with temporary hiring and be prepared to reduce labor hours if merchant-driven shipping is softer than expected, even after being adjusted downward in anticipation of a recession.
  • Track down those merchants you previously could not support during the holidays and offer them a discount for coming on board now in return for sticking with you for a one-year commitment.
  • Make sure legacy customers understand that you may be able to accept higher holiday-related volume than previously indicated.
  • Look into targeted digital marketing campaigns to drive new business if you have not already done so.
  • Take on smaller clients that previously did not necessarily fit within your customer profile.
  • Get C-level management in front of business prospects, which is impactful when trying to close new business.
  • Recessions drive increased competition. Talk to your carrier about rate reductions in targeted areas.
  • Take a 2nd look at the non-profile product you previously declined because it is hard to handle.

Finally, expect the worst and assume we could enter a multi-year recession, so start planning for 2-3 years of negative growth and down revenue.

Sep 08
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How to Calculate Order Fulfillment Costs

By Shipping

In recent years, parcel carrier pricing programs have grown more complex, with numerous surcharges applying to the base transportation cost. To some extent, the same phenomenon is taking place on the fulfillment side of the e-commerce distribution solution, which can make it difficult to calculate fully landed fulfillment costs. This can be a pain point for the merchant and exacerbates the complexity of identifying projected costs when trying to determine that cost across multiple quotes and service providers.

Fulfillment costs can include:

Receiving:

  • Per Pallet Trailer:  The charge will apply to a single pallet, 48x40x72, full or partial.  There may also be a higher charge or extra-large pallets.
  • Full Trailer, Pallets: This charge can be driven via the established per-pallet charge, or there may be a lower truckload charge.
  • Partial or Full Trailer, Lose Loaded: An hourly rate per worker is normally assigned to the task.
  • Small/Large Container Pallets: Trailer pallet rate should apply, although some service providers will look to container off-load as an opportunity for a premium charge.  Also, container storage charges may apply per day until the container is picked up.
  • Inventory Receipt: SP may charge to provide this electronic notification specific to the receiving function.

Storage:

  • Pallet Charge Per Month:  Applies to space standard pallet occupies, whether full or partially full. A higher charge will apply to oversized pallets.
  • Volumetric Storage: Monthly fees assigned to square footage product occupies. Visual estimation can assign this rate or calculate it electronically via on-record product dimensions.
  • Mixed Product Pallet: Surcharge may apply if the occupied cube cannot be calculated electronically.
  • Lose Product Storage: Will normally be subject to a higher storage rate pallet charge.
  • Large Item Surcharge: This May apply to large or oddly shaped products that cannot be housed on a standard pallet.
  • Reserve Pallet Charge: Higher charge may apply to reserved pallet space, whether occupied or not.

Shipment Processing/Pick Charges:

  • Order Charge: Per individual order, regardless of the number of individual items.
  • Item Fee Parcel: Individual piece charges per order.
  • Item Fee Pallet: Pallet pick charge.
  • Shipment Processing-Label charge per piece.
  • Additional Handling Charge: Extra charge for large, bulky, odd-shaped boxes or items not in a box.
  • Packing Slip-Attached to outside of box/item, listing contents.
  • Rush Order-Items requested to be immediately picked up upon receipt of order and made available for special pick-up.

PACKAGING:

  • Service Charge: This applies to all packaged items.
  • Materials: Outer Box charges which usually include inner packing materials.
  • Inserts: (samples, brochures, gifts, etc.)
  • Miscellaneous: Certifications, inspection, disposal (products or packaging), WMS license, TMS platform carrier rates.

Returns:

  • Inbound Receiving: Receiving returned shipment.
  • Item Processing/Restock: Return placed back into inventory to include inventory update.
  • Flat Rate Returns Handling: Flat rate for all returns handling except reshipping (pick/shipping) charges.

Miscellaneous Charges:

  • Stock Removal (Pallet): Normally, the pallet-based stock is picked for shipment to 3rd party for return to the shipper.
  • Stock Removal (Parcel): Parcels being picked for reshipment. Same as pick/shipment processing charges.
  • Stock Removal (Pallet):  Pallets being picked for reshipment. Same as pick/shipment processing charges.
  • Technology Set-Up: Per written contractual guidelines.
  • Technology Platform Charges: (Monthly)
  • New SKU: Updating inventory system for new items.
  • Utilities Surcharge: (Monthly)
  • Common Area Maintenance: (Monthly)
  • Account Charge: (Monthly)
  • Customer Service Inquiry Charge: (Per request)
  • Special Labor Charge: (Per hour per worker)
  • Inventory Reporting Charge: (Monthly)
  • IT Integration Support/Problem Solving: (Hourly)
  • FC Carrier Account Usage: Per item or Order.

Yes, there is a lot to digest here, but fortunately, not all these services/costs apply to every 3PL e-commerce order fulfillment solution.  However, it is critically important that a merchant understand their cost per package/order for both fulfillment processing and transportation.

 

 

Aug 25
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What Does Process Driven Logistics Look Like?

By Shipping

What does process driven logistics look like? The top performing 3PLs succeed because they employ the best processes to manage their organizations and guide/direct their people.  Organizations that go wrong do so not because they lack process; they fail because they employ a process that doesn’t fit, or they execute a good process poorly.

Do note that too much process will strangle a company’s potential for success. At worst, a bad process forces the best talent to flee the company in search for an organization whose processes do not stifle creativity and professional growth.

Read More

Aug 23
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Signs That the West Coast Supply Chain Bottleneck is Subsiding

By Supply Chain

While global supply chains remain badly broken, there are signs that US-based ocean freight bottlenecks, driven by broader global supply chain problems and capacity constraints, are subsiding. As a leading e-commerce fulfillment company, we keep our eyes closely trained on these trends. Understanding the following conditions will help to explain reduced US port delays:

Container Spot Quotes are Down

Bloomberg is reporting that long-term ocean freight rates between China and the US West Coast are higher than spot prices for the first time since April 2020.  Shipping costs on transpacific routes are easing but are still above pre-pandemic levels.

Falling spot quote rates indicate available capacity and potentially fewer ocean shipments to the US which should further ease port congestion this holiday-Shipping-Season.

Shipping Delays are Down

The pictured Morningstar graphic gives us a snapshot of global supply chain disruptions and indicates a 7- day delay at California ports, double the pre-pandemic level.  However, CNBC reports that the queue of vessels waiting to unload goods at the Port of Los Angeles, North America’s busiest container port, has fallen 80 percent since the start of the year, so we are seeing an improvement in port delays at the Los Angeles-Long Beach complex.

California Ports Operations/Process and Technology Improvements

The Golden State continues to fund operational and technology improvements, allowing the port authority to manage goods movement more efficiently and improve operational process management. 

The Port of Los Angeles has also seen a 77 percent reduction of containers dwelling nine days or more since the end of October 2021. The Port of Long Beach also has a corresponding 56 percent reduction. This totals a combined reduction of 68 percent.

A Slowing Economy: Fewer Port Delays

Finally, a slowing US economy is the primary reason why west coast port congestion is down and should continue to trend downward this holiday-shipping season on a year-over-year basis. Walmart and Target have been very public about their excess inventory problems. The two big-box retailers have recently announced the cancelation of booked product orders totaling billions of dollars. That’s billions of dollars of product inventory that will not now have to pass through LA and Long Beach ports.

The global supply chain condition is still a mess. However, US west coast port congestion is easing.

Aug 09
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How 3PLs Adapt to Merchants’ Changing Inventory Needs

By Supply Chain Management

Competition is fierce among ecommerce order fulfillment 3PLs. As a result, 3PL companies must proactively support two initiatives to remain viable in the marketplace: 1.) Protect and retain their existing customer base; 2.) Aggressively pursue new business opportunities.

These two initiatives become more important as we see the growth of ecommerce slowing and inflation eating away at profit margins.  While the service providers must continue to do what they do best, they must also adjust to changing inventory/customer needs of both existing and new customers. In its simplest form, survival in the marketplace for an order fulfillment 3PL is about managing the inventory and adapting to customer’s inventory needs to keep and grow the business.

Read More

Jun 24
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Reverse Logistics: The Ecommerce Returns Challenge

By Shipping

As a formal logistics term, reverse logistics covers all operations related to the reuse of products and materials. However, the growth of ecommerce has driven a focus on the consumer-based returns process in support of online purchased products.

The ecommerce understanding of reverse logistics is so important that, according to a recent survey, 96% of consumers were more likely to purchase from an online retailer if it offered free returns. Additionally, 91% of consumers said the ease of returns impacts their decision to shop with that retailer again.

Other consumer perks and preferences with respect to merchant returns policies include:

  • Home pickup which is subject to an added charge.
  • Conveniently located access points where a returns order can be easily dropped off.
  • Receipt confirmation for dropping off a return order at an access point.
  • Near immediate credit card adjustment on returned items.

Ecommerce related returns are on the rise with CNBC reporting that up to 16% of all online purchases were returned during 2021, totaling over $750 billion in merchandise cost.

Why Are Returns Problematic for Merchants?

Consumer driven returns are a huge problem for both traditional retailers and on-line merchants. However, the cost of managing and processing returns is much higher for the ecommerce merchant versus the traditional retailer:

  • Returns tend to be lower for store purchased products as the consumer can feel and see the product prior to purchasing.
  • Traditional store retail purchases tend to be directly returned to the store and do not usually result an individually shipped return item to an ecommerce merchant or 3rd party processing center.
  • Consumers purchasing apparel on-line are more inclined to order multiple items so they can choose from a selection of items and then return the unwanted items.

Reducing the Cost of Returns

So, how can an online merchant reduce the number of returned orders and lower the cost of managing and processing customer returns?

  • Identify bad customers that have a high number of returns and charge those customers for excessive product returns or simply fire such customers as not all customers are good customers.
  • Reward customers with a history of fewer returned orders.
  • Negotiate the lowest possible shipment rate for return transportation with your parcel carriers and link the overall carrier business relationship to aggressive returns shipment rates.
  • Look to 3PL’s with a focus on returns shipments to manage the returns process.
  • Consider a 3PL based consolidated returns process that may extend the returns timeframe, but also reduce transportation expense.
  • Institute a modest sustainability returns charge to the consumer and link that charge to an overall sustainability strategy, which environmentally conscious customers will understand.

As we face a slowing economy and possible recession, ecommerce merchants need to prepare for possibly flat or even negative growth.  In such an economic environment, all costs must be evaluated for reduction, and reducing the overall cost of managing the returns process must be a priority for all online merchants.

Is reverse logistics a pain point for your ecommerce operation? Newegg Logistics RMA team is on hand to manage your customers’ return items for you. Tell us your needs, and we will customize a cost-effective reverse logistics solution tailored to your business.

Jun 06
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Ecommerce Transit Times: Faster is Better… Right?

By Shipping

Allow me to take a trip back in time, about 50 years back to be exact, to help put into perspective how consumers transit time expectations have changed.  It was a time when catalog retailers like Sears and JC Penney ruled via their mail-order business models, in addition to their retail store networks: 

Mail-order business, also called direct-mail marketing, was the method of merchandising in which the seller’s offer is made through mass mailing of a circular or catalog or through an advertisement placed in a newspaper or magazine and in which the buyer placed an order by mail. It was not uncommon for delivery to take up to 2 weeks or even longer, as consumer transit time expectations were low. Unbelievably, a small number of legacy retailers still supplement their on-line marketing/purchasing models via mailed catalogs. 

Back in 2016, AT Kearney, surveyed internet users in North America on what the acceptable timeframe was for ecommerce order delivery: 

  • 24% of respondents—also the largest share—said that three days was the acceptable timeframe. 
  • 19% of respondents were happy with 2-day delivery. 
  • 9%, said that four days was the acceptable delivery window. 
  • 16% of respondents said five days was acceptable. 
  • 13% said they preferred same-day delivery. 
  • 12% wanted one day/next-day delivery.
    (Source: eMarketer)

Fast forward to 2021, and we see consumers migrating towards faster delivery transit time expectations, with free 2-day delivery reigning as the most popular delivery option for consumers: 

  • 42% of shoppers expect a 2-day shipping option for every online purchase they make. (Source: Ware2Go)

What are the transit-time delivery options for the consumer? 

Extended Days Delivery (3+ Days): This is still a popular option embraced by both merchants and consumers for the delivery of non-urgent, low value goods. 

2–3-Day Delivery: All the primary integrated carriers and most merchants offer a variation of this service that is fast enough for many consumers and yet easily works for most merchants as a free shipping option for their customers 

2-Day Delivery: We can thank Amazon for making 2-day delivery the most accepted and in demand delivery solution with free shipping in the US.  This has also forced competitors to offer free 2-day delivery, which can be costly for Amazon’s competitors to support. 

One Day/Next Day Delivery:  It was in 2019 that Amazon introduced Prime One-Day, free delivery to select customers.  Today, more than half of all Prime purchases are being delivered in one day.  It has been a challenge for Amazon’s competitors to match this delivery service commitment.  However, merchants are also finding that free 2-day delivery is still satisfactory for most customers. 

Same Day Delivery (2+ Hours): During 2009, Amazon was the first ecommerce retailer to test same-day delivery in select, large market zip codes. Today, free same day delivery is available to Prime members, but only in designated large markets. Statistica had this to say about the size of the same day delivery US market: 

  • In 2019, the same-day-delivery market in the United States amounted to 5.87 billion U.S. dollars. By 2024, this market is forecasted to reach 15.6 billion U.S. dollars. These estimates include grocery and meal delivery.  (Source: Statista)

Quick (Q) Commerce Delivery (Less Than 1 Hour): Also referred to as ‘on-demand delivery’, is e-commerce in its faster form, dependent on the quickest, last mile delivery solutions.  This ultra-fast delivery solution works best with grocery and meal delivery.  Not enough data exists to suggest that less than one-hour delivery for consumer goods is a viable delivery solution. 

The best ecommerce merchants and order fulfillment 3PL’s offer a range of transit time solutions from extended delivery for low value goods to one-day delivery for higher value goods. 

What is the catch for ecommerce merchants?

However, as we move towards faster transit times that absolutely cost more, the ecommerce merchant must now consider the following risk:

  1. The higher cost of faster transit times can erode margin if the merchant chooses to subsidize the related higher transit costs.
  2. Passing on the full cost of faster delivery services to the consumer can be dangerous for a merchant if a competitor is offering the same premium service at a lower cost by absorbing part, or all the added cost.
  3. Are the merchants, specifically Amazon, foisting the one-day delivery commitment onto the consumer when surveys indicate that most consumers are happy with 2-day delivery.

Finally, inflation is just one more factor that could ultimately derail one-day free delivery by driving up the cost of products and ultimately eroding the ecommerce value proposition as we know it today.