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Supply Chain Management

The Evolving E-Commerce Value Proposition

By | Supply Chain Management

Online merchants, e-marketplaces,  parcel carriers, and technology advancements each impact the e-commerce value proposition. In simple terms, that value proposition is still based on an innovative service offering: one with multiple features and benefits that make e-commerce attractive to the consumer and drive purchasing behavior. Some of the primary components of that value proposition include:

  • Product speed-to-market
  • Free shipping
  • Easy on-line order process
  • Product availability
  • Simple returns process
  • Subscription service benefits

Component Parts of the E-Commerce Value Proposition

Let us take a deeper dive to better understand these component parts of the e-commerce value proposition:

Easy online order process

The internet changed everything, and as technology advances, it continuously becomes easier for the consumer to order products online. This saves time for the consumer and is a huge benefit in today’s fast-paced social environment.

Product speed to market

Twenty years ago, it might have taken legacy catalog retailers up to two weeks to deliver products to the consumer. Modern online retailers like Amazon saw an opportunity to differentiate their retail service offering and started delivering products faster, between 5 and 7 days, and other online retailers followed. Delivery service commitments have since morphed to 2-days for preferred subscription members and we are now seeing next-day and same-day delivery in select markets. In most cases, consumers did not demand faster transit times, it was the merchants that drove faster transit times as they realized it allowed them to differential their service offering. In the end, the consumer benefitted.

Free shipping

First of all, there is no such thing as free shipping; merchants simply bury the cost of shipping in the sale price of the product. However, there is no turning back and the merchants must now offer a free shipping option to remain competitive. In many cases, strings are attached to free shipping, like fee-based subscription memberships. Once again, the consumer has benefited.

Product availability

Merchants have realized that limited product availability turns off the consumer and turns off sales. As a result, we are seeing giant fulfillment centers constructed, that supports greater product availability, which is a wonderful thing for the consumer.

Simple returns process

The returns process for on-line purchased products was once a nightmare, and in many cases, the consumer had to pay to return products. Today, technology is making the returns process easy; it is usually free and there are thousands of access points where you can drop off a product return.

Subscription memberships

In most cases, these types of fee-based, membership relationships help to make all the new added value, e-commerce services possible, and usually offer additional benefits, so the consumer wins again.

How the Value Proposition Has Evolved

The e-commerce consumer has never had it so good, with merchants adding value at every turn via seemingly free and improved service enhancements. Allow me to detail and take a look at how the value proposition has changed and is benefitting the consumer.

Delivery, Returns and Store Pickup

  • Weekend and appointment delivery, making it easier for the consumer to directly receive their purchased product while at home, without shipment release that can result in loss due to theft.
  • Thousands of new access points make it easier for the consumer to pick-up order or drop-off returns at conveniently located retail locations.
  • Consumers can now request direct-ship from a merchant to an access point.
  • UPS and FedEx offer robust delivery apps that permit the recipient to redirect their deliveries, while in transit.
  • Parcel lockers that offer 24/7 access, are slowly becoming a pick-up and drop off option across the US.
  • The growth of forward-stocking micro-fulfillment centers is making it easier for merchants, both national and local, to offer same-day and next-day delivery, via on-demand delivery solutions.
  • Click and Collect store pick-up is now a widely available option, for the recipient that prefers this solution.
  • Electronic messaging keeps the recipient informed of shipment status.
  • Transit times continuously improve.

On-Liner Purchasing/Returns Process

  • More reliable and faster internet connectivity allows consumers to process purchase transactions in seconds, versus minutes.
  • Purchasing apps can search product cost and availability across multiple merchants, making the shopping and purchasing process faster and easier.
  • Numerous electronic payment options are now available.
  • Mobile device shopping/purchasing functionality now permits near-instant purchasing capability for the consumer, no matter where they are.
  • Tech supported returns capability is making it easier to process a returns transaction and receive near-instantaneous credits to your electronic payment platform, which may not be a credit card.
  • Electronic messaging advises the consumer of order status.
  • The growth of electronic retail marketplaces offers improved product selection options.
  • Free returns and an unencumbered returns process are now a requirement if the merchant chooses to be competitive in the marketplace.

Product Cost

  • E-commerce continues to drive an improved, and nearly seamless electronic shopping solution, which in turn drives price competition and the lowest cost possible for the consumer.
  • E-commerce, on-line purchasing models and supporting technology are creating smarter consumers, that demand competitive pricing. Retail store price gouging, with 40-50 percent profit margins, is a doomed retail model.

The Future: Mostly Good, But Not All Good, E-Commerce Giveth and Taketh Away

There are challenges out there that can and will negatively impact the e-commerce value proposition as we know it today:

  • The integrated carriers like UPS and FedEx will start being more aggressive towards migrating the ugly Home Delivery to an access point pick-up, and they are doing this today by targeting the largest e-commerce merchants with punitive surcharges, specific to the residential delivery.
  • Products that are large and bulky will continue to see additional punitive pricing measures by the carriers as these shipments take up a lot of space, are prone to damage, and difficult to handle. Consumer-based free shipping will likely go away for large and bulky items that still move as a parcel.
  • Consumers that tender a high percentage of returns will need to pay for returns service as the e-commerce merchants realize they need to better manage the bad customer.
  • The carriers will become more aggressive towards redirecting deliveries to access points for pick-up, without the consent of the recipient, as this has already started to occur on a small scale.
  • The growth of micro-fulfillment centers will also result in the increased usage of on-demand delivery services, which probably do not train or vet their drivers as well as the large, integrated carriers do. This could have a negative impact on the overall delivery experience and could be a security concern for the consumer as you have more ununiformed drivers making deliveries via their personal cars.
  • The consumer will have to be enrolled in a fee-based, subscription service with the merchant to realize the benefits of the e-commerce value proposition as we know it today.

The e-commerce value proposition will continue to change over time with an improved service offering and some compromises in the overall value proposition. Pay attention to how the various merchants are treating you and stick with those merchants that demonstrate they value you as a customer. Remember, value is a combination of both price and service.

About the author

Contributing editor Dean Maciuba is Managing Partner of Last Mile Experts, an e-commerce last mile CEP consultancy. He advises clients on e-commerce, last mile, and courier express & parcel matters in the US and Canada.

Micro Fulfillment: The Move to Same-Day and Next-Day Delivery

By | Supply Chain Management

Amazon continues to drive change in the e-commerce arena, aggressively growing their next-day, Prime delivery initiative. Today, it is nearly impossible for most e-commerce merchants to offer the combination of free-shipping and next-day delivery to most of the continental US, without compromising profit using costly Express delivery services. However, by 2022, Amazon is on track to support affordable next-day delivery to most US addresses and, today, offers the largest on-demand, same-day delivery network, Amazon Flex, in North America.

The question begs, what drives Amazon’s speed-to-market, competitive advantage?

  • Over 110 Giant Fulfillment Centers – No other merchant, 3PL, or parcel carrier comes close to the scope and size of Amazon’s fulfillment center network, which allows them to put more product SKU’s closer to the consumer.
  • Amazon’s Growing Last Mile Delivery Network – This network boasts hundreds of local delivery terminals and tens-of-thousands delivery vehicles/drivers, all focused on the e-commerce, home delivery.
  • Amazon Air – Amazon’s exclusive fleet of over 60 wide-body cargo jets, whose sole focus is to support positioning and repositioning of merchandise in support next-day delivery, is a huge competitive advantage.

How 3PL Companies Can Compete Against Amazon

The Amazon fulfillment advantage is overwhelming, but not impossible to compete against.

For example, large big-box merchants like Walmart and Target are using their stores as forward stocking fulfillment centers to support same-day/next-day delivery and in-store pick-up by the consumer. However, this solution is not an option for most e-commerce merchants, that possess no retail footprint. These merchants are still dependent on their existing, 2-day ground delivery model via regional fulfillment centers.

While the 2-day ground model is reliable and cost-efficient, it cannot support same-day and next-day delivery across most markets that are served via this legacy distribution model.

Two-day ground delivery is not dead, but it is old news.  E-commerce merchants and 3d party fulfillment service providers must design and embrace affordable same-day and next-day delivery solutions, if they are to take back Amazon’s speed-to-market delivery advantage.

The Micro Fulfillment Center (MFC) Revolution

This is how the MFC model works:

  • 3rd party fulfillment organizations and only the largest retailers locate smaller fulfillment centers close to or within large metro marketplaces, nearer to the consumer.
  • These forward stocking, micro fulfillment centers can serve multiple merchants, and support same-day and next-day delivery to the consumers in the immediately adjacent metro marketplaces.
  • MFC’s tend to incorporate robotic product pick technology that drives faster order processing and lower operational cost, specific to labor expense.
  • MFC’s support fewer SKU’s versus large fulfilment centers, and usually warehouse products with high turn-over rates.
  • Ideally, replenishment of MFC’s takes place during off-peak traffic periods, and in many cases, during the late evening and early morning hours.

Delivery Service Options

  • Same-Day Delivery – The MFC model is ideally suited to be supported via a same-day, on-demand delivery solution, which matches up well with Amazon’s same-day delivery service offering, Amazon Flex.
  • Next-Day Delivery – This service option allows for the bundling of multiple delivery stops within a route and the ability to make scheduled delivery stops, which drives efficiency and reduced cost per stop. Numerous carriers offer next-day, same market delivery, to include small local delivery companies and UPS/FedEx.

MFC’s Barriers to Success

  • Land Acquisition Expense – Property within or adjacent to major metro markets is expensive.
  • Robotic Product Pick Functionality – While robotics displaces human labor costs over time, upfront cost is high.
  • On-Demand, Same-Day Delivery – This service can be costly if needed to support unbundled delivery stop routing, point-to-point deliveries.
  • Middle Sized/Small Market Support – The MFC model only works well in large metro markets and struggles in smaller markets where it is difficult to achieve any reasonable kind of delivery stop density.

The 2-day ground fulfillment model is still relevant as there is much that the MFC cannot support and the MFC fulfillment model may only be suitable for smaller SKU’s. However, while the challenges to designing and implementing low-cost micro fulfillment solutions are numerous, they must be overcome if e-commerce merchants are to successfully compete against Amazon’s free shipping, same-day/next-day, Prime value proposition.

Survival in the marketplace is a great motivator towards overcoming barriers to success, so expect MFC fulfillment models to evolve and become viable e-commerce fulfillment solutions.

About the author

Contributing editor Dean Maciuba is Managing Partner of Last Mile Experts, an e-commerce last mile CEP consultancy. He advises clients on e-commerce, last mile, and courier express & parcel matters in the US and Canada.

Understanding the Market Conditions Behind Inventory Shortages

By | Supply Chain Management

Understanding the current market conditions sets your business up for growth. When market conditions surge in either direction, companies need to make sure they can keep up with trends and remain solvent in an evolving market. Inventory management remains crucial for both traditional and eCommerce businesses amid fluctuations in the economy and supply chains. A careful analysis of supply chain availability helps businesses predict and prevent inventory shortages during periods when supply does not meet the demands of consumers.

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Order Fulfillment Terminology & Fees

By | Supply Chain Management

The order fulfillment process includes all of the steps a company takes between receiving a new order and delivering it to the customer. An effective order fulfillment strategy is key to ensuring impeccable client service, which builds a good brand reputation for your e-commerce business. About 38% of online customers say that a negative delivery experience will deter them from shopping at that online store again. To prevent such an adverse outcome for your online business, you must manage and implement key steps in the order fulfillment process. Here are some important order fulfillment terms and related pricing.

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Order Fulfillment: What It Is and Why Getting It Right Is Essential for Your Business

By | Shipping, Supply Chain Management
Order fulfillment includes the entire process of receiving, processing, picking, packing and shipping orders to your customers. Without a good order fulfillment strategy in place, customers may never receive their product, or have the wrong items shipped. When either of these occurs, the likelihood of a customer choosing to continue using your company is slim. Understanding the processes and using them correctly for both in-house and e-commerce order fulfillment will help your business retain customers.

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Things That Could Go Wrong with In-House Fulfillment

By | Shipping, Supply Chain Management
Whether you run a small business or a large corporation, in-house fulfillment mistakes can happen. With the many moving parts that go into storing, packaging and shipping products to your customers, these processes offer plenty of room for error. While most orders ship out correctly, the ones that are delayed or even incorrect can have a major impact on your revenue and brand image, even if it something out of your control. From a traditional warehouse setting to e-commerce fulfillment services, the following mistakes can happen for a number of reasons. The key is knowing how to avoid them and keep your business running smoothly.

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What Should I Look for in a 3PL Provider?

By | Shipping, Supply Chain Management
Finding the right 3PL provider takes a lot of analysis and consideration. There are so many different options that it can be hard to know which one is the best one for your business, or will fulfill your current logistical needs, and can scale into the future. In this article, we cover some things that any online business can use to evaluate 3PL services and decide which one is best for their current fulfillment needs.

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