Methods to Maximize Your Distribution Processes

Dave Dutch, Senior Vice President, Business Solutions, CDS Global

In the decade following the explosion of Internet commerce, consumers and merchants have become connected like never before, with the ability for merchants large and small to distribute their goods in the world of eCommerce. Merchants marketing their products are realizing that it is becoming a necessity to no longer be restricted by the brick-and-mortar storefront, and instead embrace eCommerce. Welcome to the global marketplace.

To satisfy the specific needs of each and every customer who now demands multiple shipping options, the expeditious shipment of products is highly relevant in this era of rapid communication and instant gratification. Since consumers are now used to the convenience of quickly accessing the Internet to purchase their products, these consumers also insist that they receive their products in a quick, convenient manner.

This insistence has led today’s eCommerce marketers to feel the pressure inherent in delivering their goods to tech-savvy consumers. As Jeff Pattison stated in a March 2009 E-Commerce Times article, “As everyday technology continues to innovate, consumers’ expectations of the online shopping experience continue to rise. As such, the expectations of the e-commerce shipping process rise as well.” Many organizations are therefore evaluating the distribution channels within their fulfillment operations. This evaluation serves to reduce costs and drive efficiencies across their value chain, yet many organizations are still unsure how best to reach this mission-critical goal.

Other organizations have found that an outsourced distribution model helps them reach this goal of maximizing efficiencies and reducing costs. By partnering with a vendor that can deliver the economies of skill and/or scale that are lacking in their own organization, eCommerce marketers can focus on their core competencies while successfully meeting the distribution expectations of their consumers. A May 2010 article in Internet Retailer stated, “Delivery that is consistent with consumer expectations is critical to satisfaction and, importantly, can reduce both customer service costs and the cost and quantity of reshipments.” By providing a seamless delivery experience, the eCommerce marketer can not only establish and retain positive relationships with their customers, but also better control expenditures and increase productivity in the process.

Market Trends

With consumer expectations in regard to the processing and delivery of their orders ever increasing, eCommerce marketers are evaluating this critical piece of their value chains. Careful consideration of the warehousing and shipping of products is crucial. Internet Retailer also states in its May 2010 issue that “Retailers with well thought-out shipping programs are better able to provide consumers with the free or low-cost shipping options they desire. And those web merchants can cater more effectively to the desires of customer sub-segments … .” This deep dive into their business processes, while spurred by these expectations, is also motivated by a deep desire to keep costs in check and drive efficiencies.

To that end, many companies are taking a back-to-basics approach when it comes to their order management and distribution operations. They know that in order to succeed in today’s global economy, they must deliver their products on time, ensure that their orders are correct and guarantee that their shipments are not damaged.

To do this most effectively, many eCommerce marketers realize that trying to be a jack of all trades can cause you to be a master of none. Although they are very knowledgeable regarding their products, many organizations lack core competencies in the back-end portions of their business to remain successful in an increasingly competitive market. Whether it be a lack of economy of skill or scale, these eCommerce marketers have seen the advantage of outsourcing the distribution of their goods to a third-party provider.

The Outsourced Model: Maximizing Efficiencies

In today’s marketplace, there are many advantages of outsourcing distribution services to a third-party provider. By partnering with a company that is proficient in handling this function, you can rest assured that the logistics management of your business is expertly handled, allowing you to focus your energies on what you do best. A trusted third-party distributor will manage best practices for processing your orders, bringing their knowledge and expertise to the back-end of your business functions.

Outsourcing your distribution processes also allows you to gain from a vendor’s economies of scale. Large providers who are well-experienced in the industry often have established partnerships with other organizations who are able to provide you with substantial savings on shipping supplies, as well as secure postal and mailing discounts for your business.

Third-party providers can also enable you to reduce the costs associated with the internal management of your business, which is often unrealistic to maintain for small- to medium-sized operations. Some of these include, but are not limited to, efficient warehouse management, inventory systems, human resources, materials handling equipment, forklifts and even pallets.

Geographic Drivers

When choosing an outsourced provider for your distribution needs, it is important to consider not only the provider’s economies of skill and scale, but also the provider’s location. Your distribution center’s location plays a critical role in driving efficiencies across your supply chain.

For most small- and medium-sized eCommerce retailers, a single warehouse inventory is easy to replenish and manage. If that is the case, it is most efficient to ship from distribution centers located in the central region of the United States. The Midwest/North Central region of the U.S. includes not only the geographic center of the contiguous 48 states, but also the population center of those states.

Distribution centers in the central region of the U.S. provide easy access to both coasts, as well as the Northern and Southern states. The easternmost section of this region includes Chicago’s large inbound port, giving any Midwest distribution center a relatively close proximity to major transportation routes that support global commerce.

Conducting a Profit Center Analysis

These factors make the Midwest a prime area for your distribution center due to its centralized location. Yet the decision to locate the hub of your warehouse and logistics services in the geographic center of the United States requires a further profit center analysis.

The first step in conducting your analysis is determining whether or not your business fits a multiple inventory location or single inventory location model. You must consider the typical weight of your product orders, the location of your customers, and your customers’ expectations related to shipping time and payment.

If your product inventory costs are very low or your organization has the financial resources to stock inventory in multiple locations, a multiple location model may be most effective for your situation. This model also works well if your sales volume is fairly predictable across regions and your product is less than two pounds (making it affordable to transport to multiple distribution centers).

However, if your typical order weighs over two pounds and requires a less-than-truckload shipment, the cost of moving your products can become extensive, reducing your overall profit. In this case, you will see the greatest efficiency with product fulfillment by moving to a single inventory location in the geographic center of the U.S. A central states operation provides lower cost ground service to almost anywhere in the contiguous states with a shipping zone jump no greater than three. Getting your products in the hands of your customers quicker, for less cost, will increase customer satisfaction and reorders while reducing customer care costs by decreasing the demands on your customer service center due to shipment-related inquiries.

Selecting the Best Place for Business

Partnering with a distribution center in the Midwest has its benefits – but with so many locations to choose, which area is the best for business? According to a Forbes report released in April 2010, Des Moines, Iowa, offers the best option. In the report, Kurt Badenhausen states that the metropolitan area features business costs that are 15 percent below the national average, with 33 percent of the labor supply holding a college degree. Ninety-two percent of the labor force possesses a high school diploma.

A business climate such as this one not only helps you reduce costs by partnering with a vendor located in an area where business can thrive, but offers you a well-educated, dedicated workforce that realizes their company’s success depends upon your success.

Conclusion

As your organization strives to reduce costs and make its business processes more efficient, selecting an outsourced provider can greatly enhance your distribution functions. Choosing a vendor in a centralized geographic region can provide the greatest return on your investment, allowing you to focus on your core competencies and drive future success to your organization.