Ecommerce Fulfillment

Ecommerce is exploding, and with it shopper expectations of their ecommerce fulfillment experience. Consumers expect a seamless, no hassle ecommerce transaction – often finishing with same-day, 1-day or 2-day delivery of their order. While fast, and often free, delivery may be great for your customer’s shopping experience, it can be tough on your bottom line. For more than a decade, we’ve talked to thousands of ecommerce brands, retailers and other sellers about how to address tough ecommerce fulfillment challenges. As a result of these conversations, we’ve learned a lot about how brands and retailers can meet shopper demands for 1-2 day delivery while also protecting thin ecommerce margins.

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We’ve broken what we’ve found down into three core areas to consider when designing an effective – and profitable – 1-2 day ecommerce fulfillment strategy.

Ecommerce Fulfillment: A New Approach

• Why 1-2 Day Ecommerce Fulfillment Matters
• The 1-2 Day Delivery Challenge
• Yield Management: Thinking Differently About Ecommerce Fulfillment

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5 Tools for Developing Your Ecommerce Fulfillment Toolkit

• Distributed Inventory Management
• Dynamic Pricing
• Dynamic Publishing
• Distributed Order Management
• Distributed Inventory Forecasting

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Implementing A Profitable 1-2 day Ecommerce Fulfillment Strategy

• Getting Started on Your 1-2 Day Ecommerce Fulfillment Strategy
• 1-2 Day Ecommerce Fulfillment Checklist

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Ecommerce Fulfillment: Taking A New Approach

Why 1-2 Day Ecommerce Fulfillment Matters

Fast delivery is the new normal in ecommerce

Like many things in ecommerce, it all starts with Amazon.

Since its introduction in 2005, Amazon Prime has set the bar for customer expectations regarding delivery time. Some 65% of Amazon US shoppers are Prime members – that’s 147 million people. [2] Free delivery, often in 1-2 days, continues to rank as a top reason for joining Prime and paying its $119 annual membership fee.

To remain competitive, Walmart, eBay and other marketplaces introduced their own 1-2 day guaranteed delivery programs. And, like Amazon, they favored sellers who participated in their programs with better placement in search results and “buy box” wins. So Amazon customers became conditioned to expecting fast, free delivery as the norm.

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Now more than 67% of U.S. consumers expect same-, next- or two day delivery of their ecommerce orders. [4] What they don’t expect is to pay for faster shipping; a Deloitte survey of ecommerce shoppers showed most consumers would pay only a minimal amount to get their orders faster. [5] In fact, studies show that 39% of US shoppers expect 2-day shipping to be free and 29% have backed out of a purchase because 2-day shipping wasn’t free. [6]

The news isn’t all bad for sellers. Getting the 1-2 day delivery “badge” often has a huge payoff. Walmart, for example, reports a 50% conversion increase for products with 2-day badging. [7] On other platforms, sellers have reported 300% increases in conversion after implementing 2-day delivery. [8]

For brands selling on their own website storefront, sellers who have implemented 2-day shipping programs have seen shopping cart conversions increase by up to 25%. [9] Plus multiple studies have shown shoppers will add items to their shopping cart to hit free and accelerated shipping thresholds. A Harvard University study, for example, showed shoppers spent 9.4% more to meet a shipping threshold. [10]

But despite topline revenue growth driven by accelerated delivery, a big part of making these programs profitable comes through savvy operational planning and execution.

The strategy for doing that is laid out in this guide.

One of the fastest growing areas of accelerated delivery doesn’t involve delivery at all: shoppers come to your location to pick up their goods. The popularity of curbside and buy-online-pickup in store (BOPIS) fulfillment grew dramatically as a result of the COVID pandemic. A Deloitte study showed that 27% of shoppers chose curbside delivery as their preferred delivery option – more than double the previous year – while 45% preferred BOPIS or store locker pickup. [12]

For sellers, implementing BOPIS or other pick up options may be worth it. Shopify found that on average, online shoppers who chose in-store pickup or delivery spent 23% more and had a 25% higher cart size. They also had a 13% higher conversion rate. [13]

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Of course, BOPIS and other micro and last-mile fulfillment options creates their own order, inventory and forecasting challenges. The strategies we’ll outline to meet the 1-2 day delivery challenge will also help you profitably grow your BOPIS and other omnichannel shopping strategies.

As we’ve seen, consumers now expect fast, same-1-2 day delivery or pick-up of their orders. But even if you are not convinced you need to offer accelerated shipping, note this: free shipping is no longer optional. Once upon a time, free shipping was a competitive point of difference. Those days are gone. Now 75% of consumers expect delivery to be free even on orders under $50. [14]

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Consumer expectations for free shipping also have grown. Consumers now expect to wait only a maximum of 3.3 days for orders sent with free shipping, down 40% from 5.5 days in 2012. So even if you aren’t able to offer 1-2 day delivery, you will need to deliver more quickly than you have in the past just to remain competitive. [15]

Of course, there is no such thing as “free” shipping. You pay for it out of your profit margins. But the strategies outlined in this guide will help you minimize the financial impact of free shipping and boost your bottom line even if you decide not to offer a 1-2 delivery option to your shoppers.

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The 1-2 Day Delivery Challenge

Traditional fulfillment strategies fall short

Traditional ecommerce fulfillment “solves” for the 1-2 day delivery challenge with a fairly straightforward, linear approach.

• Forecast demand
• Make a bet on how much inventory to order and where to put it
• Establish the best shipping rates you can
• Take orders
• Ship

Being wrong about your forecast bet has three expensive outcomes:

• You pay for expedited shipping when needed to meet customer or marketplace delivery expectations (also known as “wrapping orders in dollar bills”)
• Your old or stale inventory gets sold or liquidated at a discount
• You oversell your inventory and face potential stock-out penalties from marketplaces or the risk of disappointing customers who are ordering from you directly

More advanced ecommerce fulfillment operations may disperse their inventory across several locations such as their own warehouses or distribution centers, or fulfillment partners like 3PLs. This helps cut shipping time and expense by placing inventory closer to the customer. But it also increases the complexity of forecasting, inventory replenishment and order management.

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Yield Management

Thinking Differently About Ecommerce Fulfillment

It’s time to think differently about ecommerce fulfillment.

That means taking a yield management approach.

Yield management was originally developed by the airline and hotel industries to price assets like airline seats or room vacancies. These are fixed resources with a time-limit for their use. They expire. Once that time has passed, the resource has no value. By juggling price and product features, strategists are able to maximize profitability from the inventory they have available on-hand, to shoppers who are buying right now.

So what does airline seat pricing or hotel room promotion have to teach us about ecommerce fulfillment?

Yield management is an inventory-driven approach to ecommerce fulfillment.

Yield management involves the strategic control of inventory in order to

• Sell the right product
• To the right customer
• At the right time
• For the right price

At its heart, yield management is about maximizing profitability on the inventory you have available to sell to customers who are shopping right now.

The means selling…

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The Right Product

Focus on selling the inventory you have available. That sounds obvious. But without the right tools, it’s very easy to oversell your inventory and take orders for products you no longer have on available.

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To The Right Customer

Sell that inventory only to customers who are located near enough to the stocking location so 1-2 day shipping is affordable. It’s OK not to sell to all potential customers. With a yield management approach, the point isn’t just to make it a sale. The point is only to make profitable sales.

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At The Right Time

The right time to make a sale is right now, while the customer is shopping online. Again, that seems obvious. But consider the customer’s shopping experience. Shoppers usually view a product listing before deciding the click the “buy” button. Most savvy ecommerce sellers use pricing software to modify the price shown as part of a pricing or competitive repricing strategy. But they treat the listing and its content as static. Yield management treats the listing as a dynamic, real-time offer between the seller and the customer – changing the content shown to each individual shopper based on factors such as inventory availability, fulfillment cost, and shopper characteristics like shopper location or Prime membership.

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For The Right Price

Pricing strategy in a yield management approach goes far beyond the simple pricing and repricing tools used by most online sellers. Using yield management tools, individual shoppers are shown a price based on the total delivered cost of the product, including the cost of fulfillment.

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The goal? Never show a listing or take an order than can’t be profitably fulfilled.

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5 Tools for Developing Your Ecommerce Fulfillment Toolkit

Distributed Logistics

New tools for a new approach to ecommerce fulfillment

Fulfilling high volumes of orders requiring same, 1- or 2-day delivery requires tools designed specifically for multi-location, multi-channel ecommerce fulfillment aligned with an operations strategy called Distributed Logistics.

What is Distributed Logistics?

Distributed Logistics is a fully integrated and optimized network of two or more fulfillment centers operated in unison to increase sales and customer delivery service levels, which minimizes transportation costs and maximizes inventory optimization.[16]

Positioning the right inventory close to consumers saves on costs and improves delivery lead times. But it requires much more than just operating warehouses or partnering with 3PLs in multiple locations. Given the requirements of multiple sales channels, high volumes of orders and demands for mistake-free rapid shipping, Distributed Logistics relies on several tools that are integrated, automated and coordinated with the seller’s other business systems. Here’s an overview of the tools you’ll need.

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1. Distributed Inventory Management

Distributed inventory management (DIM) is the primary method used by sellers to ensure that they can offer a fast, affordable delivery option to their customers.

Distributed inventory refers to putting products into multiple warehouses and other fulfillment centers such as 3PLs. Moving the product closer to consumers cuts delivery time and expense.

Managing multiple fulfillment locations presents challenges to ensure the right inventory in the right quantity is in the right place at the right time. But rather than focusing on forecasting to ensure product is in stock, distributed inventory management emphasizes replenishment driven by market-based demand signals. Using predictive analytics and purchase history, sellers can plan how to best restock inventory based on quantity and location. Because orders for these goods have not been placed, the replenishment inventory can be sent by slower, less expensive routes to the fulfillment centers.

While many inventory management systems can handle inventory visibility, allocations and availability, the key to a successful, profitable 1-2 day shipping strategy lies in understanding the true cost to fulfill an order in real time, by location.

That allows sellers to protect their margins by displaying pricing to individual customers based on a bottoms-up accounting of all variable costs. And that brings us to our next tool: Dynamic Pricing.

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2. Dynamic Pricing

Pricing software is often one of the first automation tools implemented by ecommerce sellers.

Sellers use pricing software to track competitive offers, avoid channel conflict, and manage pricing policies and strategies across multiple marketplaces and other online retail channels.

In most cases, pricing software is driven by preset rules or algorithms although some systems have advanced to leveraging AI and machine learning. But while all pricing software packages can dynamically change the price shown to shoppers, most miss including a critical element in their calculation.

That element is accounting for actual cost of fulfilling that specific order for that specific customer based on their specific delivery expectation. It’s the only way to ensure profitability in the ecommerce world of razor-thin margins.

Recall that profit is the point of yield management: yield management is about making the most profit possible in real time from the inventory on-hand right now. A big part of maximizing that profit comes from understanding true costs including:

• Product cost
• Shipping cost by location–including location-specific negotiated shipping rates
• Sales channel commissions
• Picking, packaging and other overhead costs

And the pricing software has to be able to react to trigger events and make changes in real-time. Common trigger events include:

• Regional inventory availability
• Cost changes
• Competitive changes
• Velocity targets
• Stock age
• Other metrics such as buy-box status

In a yield management approach, pricing software accounts for all these variables on a per shopper basis – automatically adjusting the price to ensure profitability on each potential order.

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3. Dynamic Publishing

All ecommerce sales channels require five basic touch points:

• Listing content - What is it that you have to sell?
• Inventory availability – How many do you have available to sell?
• Price – How much will you sell it for?
• Order – A system for capturing customer and payment information
• Tracking – A system for uploading fulfillment and shipping confirmation

We’ve seen how dynamic pricing software adjusts the price shown to individual customers in order to protect margins.

Dynamic publishing capabilities adjust the listing content shown to individual shoppers based on inventory availability and location.

For example, at a very basic level, if the item is temporarily out-of-stock, no listing for the product will be shown on any sales channel until inventory is replenished. That way you won’t disappoint customers– or incur marketplace penalties – for displaying a listing for a product you can’t fulfill.

More advanced dynamic publishing systems utilize regional shipping templates.

Shipping templates are regional shipping maps based on where a seller can deliver a product in 1-2 days at an acceptable cost. Since these templates are based on shipping costs, there would be a template established for each stocking location.

Online marketplaces collect location information from site visitors. In some cases, you may be logged in (such as an Amazon Prime member) or have provided shipping information for previous orders. Or the site may be collecting information in the background such as your IP address or computer location.

Once a shopper’s location is determined, the dynamic publishing system matches them to the regional shipping template for a product. Then the dynamic publishing system works with the dynamic pricing system to alter the listing information shown for that product based on where the shopper is located.

For example,

• If a shopper is located within the 1-2 day regional shipping limits of a location with inventory, the listing will show 1-2 day shipping and a price reflecting the total cost of fulfilling the order.

or

• If a shopper is not located with the boundaries where 1-2 day shipping is affordable, the listing and price will reflect standard shipping.

or

• The product is listed on Amazon Prime, but the shopper is located outside a region where 1-2 day shipping is affordable. Amazon does not allow regional Prime listings. So the listing will reflect 1-2 Prime delivery, but the price will be set higher to capture the extra shipping cost. The customer may not buy, but you’ve met the requirement to maintain your Prime status. And if they do buy, your margins are protected.

Guaranteed shipping programs such as Amazon Prime, Walmart 2-Day and eBay Guaranteed have been shown to boost sales by 25-50% or more. So the ability to participate in these programs while still protecting margin is a major driver for sellers to implement a dynamic publishing system.

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4. Distributed Order Management

As we’ve seen, distributing inventory to many fulfillment locations often is table stakes to offer 1-2 day shipping to more customers while still protecting margins.

In many cases and depending on the product, you can reach more than 90% of the US population with only three or four distribution locations.

But things can get very complex very quickly.

For example, offering a buy-online pickup-in-store BOPIS option at your retail locations might mean coordinating orders and inventory across hundreds of fulfillment nodes.

Or, along with leveraging more traditional warehousing operations such as your distribution centers or 3PLs, you might want to enable fulfillment by distributors, dealers or even product manufacturers or dropship suppliers. That means coordinating orders, inventory and fulfillment with multiple partners whose operating systems and workflows may not match yours.

Enter Distributed Order Management(DOM).

Distributed order management systems route orders dynamically to your various fulfillment options – choosing the option that provides the highest profit (or lowest fulfillment cost) while still meeting the customer’s delivery expectations.

In milliseconds after the order is received, DOM evaluates dozens of factors before routing the order to the best fulfillment option. These factors include:

• Inventory levels
• Locations
• Carriers
• Shipping rates
• Service levels
• Cartonization and packaging savings
• Business rules such as splitting orders or shipping complete

With every order automatically routed to the best fulfillment option, DOM literally helps sellers make money after the sale.

A word of caution. Some DOM systems only work with locations that use their software. A few, like Etail, are designed to work with any WMS, IMS, OMS or other system of record that is already in place. The result is having your entire ecommerce ecosystem networked, managed, automated and optimized from a single, centralized platform.

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5. Distributed Inventory Forecasting

We’ve come full circle.

We’ve seen how distributing inventory to multiple fulfillment locations puts those products closer to the customer, cutting delivery time and expense.

We’ve seen how dynamic pricing and dynamic publishing work in tandem to present listings to shoppers based on inventory availability and total delivered cost – including the cost of fulfillment. Our goal is to never take an order we can’t successfully – and profitably – fulfill.

We’ve seen how distributed order management then routes the order to the optimal location for fulfillment –maximizing profitability on every order.

Now we need to keep our 1-2 day delivery strategy stocked and running.

Distributed Inventory Forecasting (DIF) is about looking ahead and optimizing inventory levels and placement to reduce delivery time and cost.

Rather than reliance on safety stocks, DIF focuses on inventory flow and reading velocity and demand signals to perform location-specific, regional and ideal demand calculations and to set replacement levels, reorder dates and suggested reorder quantities by stocking location.

When it comes to DIF you need to know at any given time which products, and how many of each, need to be in transit to and on hand at every node in your Distributed Logistics network.

To understand this, you need a solution that:

• Connects to each of your sales listings on all your channels, normalizes and aggregates the data, and then ties it back to your Distributed Inventory Management system
• Records all the sales that occurred
• Records when inventory was actually published to those sales channels through Dynamic Publishing
• Understands where that demand occurred and where the orders were routed using Distributed Order Management, and
• Calculates true SKU velocity by location.

Using that data and providing it back to the user in an understandable way is the key to making wise forward-stocking decisions in a D2C ecommerce business.

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Implementing A Profitable 1-2 Day Delivery Strategy

Getting Started on Your 1-2 Day Ecommerce Fulfillment Strategy

Creating a profitable 1-2 day delivery strategy can seem overwhelming. But let’s keep things in perspective: The Pareto 80/20 Principle is alive and well when it comes to inventory planning.

• 80% of your sales will come from 20% of your SKUs
• Not all your products should be available via 1–2-day shipping
• Keep it simple. Focus on solutions for your “A” items first and then iterate from there as it makes sense

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Creating Your Strategy

Designing a 1-2 day ecommerce fulfillment strategy should be an iterative process. Here’s how to get started:

• Understand all of your possible inventory locations that could ship products.
• Explore non-traditional options like BOPIS, drop shipping or 3PL networks like Etail Distribute
• Remember – not all items “deserve” to be delivered in 1-2-days. Get started with your top selling items that meet most carriers’ standard shipping requirements
• Understand which marketplaces “reward” vendors offering 1-2-day fulfillment with better placement. That will help increase conversions
• Determine a strategy to publish to those sale channels with regional availability
• Validate you can route orders to the correct fulfillment locations efficiently
• Start shipping – then test, analyze, and refine

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1-2 Day Ecommerce Fulfillment Checklist

Here’s a reminder of the tools you’ll need to get started on creating and implementing your 1-2 day delivery strategy. Use it to help evaluate your various software options. Distributed logistics can be a complex, highly data intensive process. While various standalone software packages can be utilized, we’ve seen the most success with customers using an integrated, automated approach.

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Next Steps

We hope you found this approach to meeting the 1-2 Day Ecommerce Fulfillment Challenge helpful. Now that you understand the tools needed to meet customer demands for free, fast shipping – and protecting your bottom line – we want to make sure you have all the information you need to understand if Etail Solutions is the right ecommerce fulfilment solution for your needs.

Please feel free to book a consultation with one of our ecommerce fulfillment experts if you are interested in learning more about:

• Pricing options
• Fulfillment tools and automation
• Our 3PL ecommerce fulfillment partners and network
• How we compare to against other vendors you might be considering
• Or any other questions you may have or advice we can offer on starting and optimizing your 1-2 day fulfillment program. [#sources][#sources]

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Sources

1. Deloitte, 2019 Deloitte Holiday Survey
2. Statista.com. “Amazon Prime-Statistics & Facts
3. National Retail Federation, Consumer View. Winter 2020
4. Deloitte, 2019 Deloitte Holiday Survey
5. Deloitte, 2019 Deloitte Holiday Survey
6. National Retail Federation. Consumer View. Winter 2020
7. EcommerceBytes “How to Get a 2-Day Delivery Badge on Walmart”
8. Deliverr.com, “Huggaroo Case Study”
9. Ware2Go “Faster Shipping to Drive a Competitive Advantage for Merchants”
10. Harvard Business School Working Knowledge, “How to Use Free Shipping as a Competitive Weapon”
11. PwC, PwC’s June 2021 Global Consumer Insights Pulse Survey
12. Deloitte, 2020 Deloitte Holiday Survey
13. Shopify, “Ecommerce Fulfillment, Free Shipping & Two-Day Delivery”
14. National Retail Federation. Consumer View. Winter 2020
15. AlixPartners, Home Delivery Survey, 2012 to 2021
16. Ashcroft, Jeff, “Discovering the Power of Distributed Logistics”
17. Retail Info Systems, 31st Annual Retail Technology Survey

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