Warehousing & Fulfillment

How to Bring Your Supply Chain Into the Digital Age

Warehousing & Fulfillment
November 17, 2020
11 min read

Originally published on Database Trends and Applications, Ware2Go CEO Steve Denton examines the flexibility of digital sales channels and the need for an equally flexible supply chain to support them.

Digital Sales for the Digital Age

The rapid growth of eCommerce is old news. For several years, digital sales have been steadily expanding year over year by 12-15% and gradually taking more and more of the overall share of retail sales, but that expansion was quickly accelerated this year by the COVID-19 pandemic. Total online spending in May was up 77% over 2019, equivalent to 4-6 years of growth at the previously trending rate, practically overnight. This rapid and unexpected growth led to bottlenecks, backorders, and warehouse labor shortages for many major online retailers, and mandatory shutdowns and store closures forced many merchants to pivot away from their traditional sales channels in order to meet their customers on the digital channels where they were shopping.

Merchants were uniquely positioned to pivot and adapt to these changes in a way they wouldn’t have been able to if this same crisis had happened 30 years ago. Consumers immediately changed their shopping habits, and merchants quickly adapted with robust digital sales channels. Our own survey data shows that 77% of merchants changed their selling strategies in response to the coronavirus pandemic. Anecdotally, at Ware2Go, we’ve seen our mix of shipments shift significantly from about a 45/55 commercial-to-residential ratio to about 15/85 since the onset of the pandemic.

This trend isn’t showing signs of slowing down any time soon. Even as brick-and-mortar stores reopened, consumers continued opting for digital channels and having a wide variety of items shipped right to their door. Consumers have become more adventurous with their online purchases, driving up online sales of perishable goods and regular household items and have even tried out new brands. Our consumer survey data showed that since March, 55% of consumers made an online purchase from a business they had previously never done business with before. This exposure to new customers is an excellent opportunity for businesses to expand their consumer base but only if they can meet consumer expectations for a digital purchasing experience.

The digital customer experience doesn’t end at checkout — those expectations need to be met with delivery speed, customer service and easy returns. In fact, the delivery experience is driving customer satisfaction and brand preference. For example, 66% of merchants we surveyed reported higher cart conversion rates when fast shipping options were offered, showing clear consumer expectations for speed of delivery. And what’s more, a negative delivery experience can turn customers away forever, with 84% of online shoppers reporting that they would not return to a brand after one subpar delivery experience.

So, while this pivot to meet shoppers through eCommerce sales channels happened quickly and easily due to the flexible nature of current digital channels, merchants must be confident that their supply chain is positioned to fully support those channels and provide excellent customer experiences. This necessitates a robust yet flexible supply chain that can pivot and scale as easily as digital sales channels. And in the end, the merchants who can rise to the challenge of connecting their sales channels to their supply chain to meet customer expectations for delivery will see a spike in demand translate to customer retention and long-term growth.

It’s Time to Bring Your Supply Chain Into the Digital Age

Customer expectations for fulfillment through digital sales channels are clear. First, there is strong consumer demand for fast and affordable shipping, with 60% of shoppers reporting that they expect to receive their order in 1-2 days. With 63% of consumers citing high shipping costs as their reason for abandoning a cart at checkout, it’s clear that they expect this fast delivery at little to no cost to them. And the truth is, your competitors are already providing it. “The Amazon Effect” has officially taken up residence in consumer psyches and will continue to drive this expectation as a bottom-rung point of entry rather than a top-shelf upgrade.

Merchants who don’t have the supply chain in place to meet this expectation are likely overpaying for expensive solutions like overnight air and have one of three options. They can absorb the cost of pricey shipping solutions, cutting into revenue. They can pass the cost on to consumers, pricing them out of a competitive market. Or they can offer 1-2 day shipping as an expensive add-on, driving shoppers straight to their competitors who are already offering it for free.

Merchants who choose not to meet this customer expectation will see lower overall conversion rates to begin with but will also suffer low retention. In this market, waiting 5-7 days to receive an order is an unsatisfying experience that will sour your brand for shoppers who will likely never return. Customers will also be more likely to return an item that they feel they had to wait too long to receive and are much more likely to leave a bad review. And as merchants expand their digital sales channels, customer reviews will become more and more important. The power of consumer choice has never been stronger, and shoppers scrolling through a digital storefront have the ability to turn away and leave immediately for a competitor at the first sight of a bad review.

Secondly, customers expect a quick and easy return process. Migrating to digital sales channels will inevitably yield a 12-20% increase in returns over traditional sales channels, and merchants have to be prepared to close the loop on fulfillment with a reliable system for returns. More than two-thirds of shoppers reported that they had stopped short of making a purchase because they would have to pay for return shipping or restocking fees, while 96% of consumers who reported a positive return experience stated that they would shop from the merchant again.

In order to meet these customer expectations, merchants need a geographic footprint and technological capabilities to meet 1-2 day delivery expectations. The most affordable way to accomplish 1-2 day delivery is to forward stock inventory in multiple warehouse locations to get it as close as possible to end customers. This distributed network of warehouses should be comprehensive enough to allow merchants to reach their customers anywhere in the country with 1-2 day ground shipping. The warehouse network should also be supported by a robust technology platform that connects all sales channels to the fulfillment channel, manages inventory allocation, and sets reorder points based on regional demand.

Digital merchants should also be equipped with advanced and intelligent inventory management. Managing multiple digital channels means that merchants have to ring their inventory to strategically move it between channels and feed their highest performing channels based on both volume and profit margin. I’ve seen merchants leverage this type of inventory strategy to squeeze the maximum profit from a limited inventory much more effectively than with a standard FIFO model.

Flexibility in Times of Uncertainty Gives You Certainty

Above all else, digital sales channels are flexible. They give merchants the ability to scale up or down on their market exposure based on their available inventory and capital. This is a distinct advantage in times of uncertainty like the recent and ongoing pandemic. As effects of the pandemic emerged, retailers had the ability to pivot their strategies and bolster their online presence in response to traditional sales channels being shuttered, but, ultimately, traditional fulfillment models were unable to pivot to support this shift. Customer satisfaction hinges on the delivery experience, and when this critical piece of the buyer’s journey fails, even the most highly optimized digital sales strategies crumble.

This shift to digital channels has catapulted us into the era of Business to Everyone (or B2E). We see the same customer expectations across the board, whether a transaction is B2B or B2C, which tells me that those long-accepted business models are now a thing of the past. This means that a digital supply chain should be flexible in handling order and transportation mix — able to handle small parcels, pallets, and LTL/FTL seamlessly from end to end.

Many eCommerce businesses are already operating at peak levels and should be prepared if there’s an additional 20-30% increase in demand at peak season. Alternatively, merchants should be ready if there’s no spike in demand at peak season, a sudden turn in the economy as a result of the election, a continued spike in COVID-19 cases, or any other number of factors that would affect commerce in the course of a “normal” business year. The truth is, no one knows what the future of this market will bring. Historical sales data is inconsequential this year, and there is not a handbook for the types of challenges we’ve faced so far. In times of uncertainty, a business’s greatest asset is the flexibility to be ready for whatever may happen.

However, traditional supply chain models are anything but flexible. They require fixed assets invested in warehouse space and staff or rigid contracts with restrictive storage or ADV minimums. These types of inflexible models are difficult enough to scale up (particularly with the current state of packed warehouses and labor shortages) but can be nearly impossible to scale down, leaving merchants with little to no certainty that they will be able to pivot if things turn for the worse. To achieve flexibility in their supply chain, merchants must find partners that allow them to flex up or down warehouse space and labor at a moment’s notice. These types of partnerships allow digital merchants to keep inventory as their sole fixed asset, keeping them nimble in an uncertain economic landscape.

Facing an Uncertain Future With Confidence

Ultimately, any digital sales strategy that is not supported by a robust and flexible supply chain is doomed to fail. Today’s shoppers can shop not only from the comfort of their homes, but they don’t even have to leave the comfort of their preferred digital sales channel to find the products they need. The digital merchant’s advantage lies in the flexibility of these channels and the ability to seek out customers and get products in front of them wherever they are. The frontrunners on these channels support and compound those sales by meeting customer expectations for fast delivery, simplifying the returns process, and delivering the same experience to both B2B and B2C customers. In an uncertain landscape, I believe the merchants with flexibility across end-to-end operations, from sales to last-mile delivery, can face the future of this economy with confidence.

To learn more about how Ware2Go is helping merchants build a flexible supply chain to support digital sales channels, take a look at Our Solution.

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