As the worldwide battle against COVID-19 rages on, shippers are striving to strike the right balance to comply with safety requirements, fulfill their customers’ orders, and preserve their bottom lines. The good news is that shipping profitably is an attainable goal, even amid the uncertainty. Meeting your delivery objectives without sacrificing your profitability will require a bit of extra effort, a good logistics partner and the implementation of some best practices.
To understand our current shipping environment, we must first examine how we got here. Reacting quickly to a pandemic event that hit fast, hard, and unexpectedly, companies made e-commerce shipping decisions based on a desperate need to stay in business. They were under fire to completely change their distribution models (either permanently or temporarily) away from brick-and-mortar to alternative online fulfillment strategies. Already underway pre-pandemic, the movement to sell more online was stepped up quickly as B2B and B2C customers began placing significantly more orders from their laptops, tablets, and smartphones.
The rapidly changing state of the world created a never-ending ripple effect, altering all areas of life and business. This meant snap decisions were often essential to business survival. With limited time, those decisions did not always include a complete analysis of the true cost of shipping goods to customers. As added costs emerge, including peak parcel surcharges from UPS and FedEx, the true cost picture became blurry. By properly assessing exactly what your COVID-related e-commerce strategy is costing your company, you can seize on the savings opportunities that do exist.
So, let’s take a look at how we can effectively manage shipping costs in this seeming un-manageable environment.
Get a Handle on Your SKUs
Taking control over your SKUs requires an acknowledgement of the Pareto Principle (80/20 Rule), which asserts that roughly 80% of the effects come from 20% of the causes. Recognizing that 20% of your SKUs typically represent 80% of your sales volume, determine a baseline. Focus on what it costs to pick, pack, and ship each of those different SKUs. Weed out the products that are not making money, and focus on the ones that are profitable.
Drill Down to the Package Level
If you are handling multiple pick-and-pack orders, you need to know what you are putting into different sized packages. Align that information with the actual transportation costs, and then figure out the profitability level on each. It is important to understand that the dollar amount on your transportation invoice does not tie into your product profitability. Once you determine what it costs to ship each SKU, it becomes clear that offering free shipping at a $50 order threshold, for instance, may not yield a profitable order for your company. A third-party logistics company experienced in audit can be an invaluable resource to call on.
Harness Your Data
While assessing carrier data is important, don’t forget about sales data, product costs, fulfillment costs, and other metrics that go into a single order. This data must be gathered and consolidated to put it to work to allow you to accurately track trends, pinpoint “winning” and “losing” SKUs, and single out areas where you are losing money. Making the most of your data goldmine is best accomplished with the help of a logistics partner.
Make It a Team Effort
Your marketing and sales teams must be committed to driving more profitable orders. When the “Spend $100 and get free shipping” promotion launches, make sure the “losers” do not fill up e-commerce shopping baskets and drive your cost above profit. Share relevant information across your organization to keep everyone following a coordinated and smart approach.
Properly Place Your SKUs
Place SKUs as close to the end buyer as possible to reduce your shipping expenses. Importantly, this also creates “wow” moments for customers who will come back and spread the good word about their experience. Putting your SKUs in the right place may be straightforward under “normal” operating conditions, but it becomes extremely difficult during disruption. Prepare ahead by knowing your network’s strengths and weaknesses. Have contingency plans ready to roll for all your “What if?” scenarios.
Get the Tools
With enough money and resources at their avail, many companies will choose to build versus buy. Is a new “build” really a core focus for your company — or will it detract from your mission? For a sporting goods distributor to drill down into SKU-level profitability, for example, it would require a team of logistics, data, and IT professionals — all of whom will either be hired or redeployed from other tasks. A better approach might be to partner with a reputable provider that has already built out the necessary systems and spreads the value of those systems across numerous different users. The latter allows providers to leverage economies of scale and offer their services at an affordable cost.
Turning the Page
While we are often reminded by heath officials that COVID-19 is a temporary problem and news about the vaccine rollout is extremely promising, the changes COVID-19 generated in the retail and parcel shipping world will almost certainly not disappear with the disease. Utilizing these tips to optimize your transportation spend and delivery service will remain relevant in the post-pandemic world.
Todd Benge is Vice President of Parcel Operations, Transportation Insight.