How Logistics Data Builds Smarter Supply Chains

What Is the Role of Data Analytics in Logistics?

The logistics industry is not historically known for its use of data, but it really should be. The nature of logistics, being near the bottom of the supply chain, is that data from higher up the chain trickles all the down to the final mile. And actually, logistics data can be fed back up the supply chain to help inform decisions at the top of the supply chain. Logistics data can be used to help merchants forecast their demand and know when and how much inventory to order for replenishment.

Logistics data can also be used in business functions outside of the supply chain, like in marketing and demand generation. Merchants who have a clear understanding of where their customers are located can craft marketing campaigns that target their most profitable geographies. Those merchants can also build a distributed fulfillment network to enable 1- to 2-day ground shipping to their best customers.

The key to distributed fulfillment is understanding exactly where inventory should be stored, how much inventory should be stocked, how often new inventory should be restocked, and what the most efficient delivery options are. When these decisions are made from a merchant’s own historical sales and shipping data, they can realize bottom-line cost savings as well as use fulfillment to drive top-line growth.

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How Can Data Analytics Improve Logistics Planning?

Ultimately, using logistics data to build a distributed fulfillment network will give merchants the best of both worlds: they will be able to deliver on customer expectations for fast and affordable shipping options as well as lower their time in transit (TNT) to control final mile delivery costs. It will also help merchants determine which 3PL can offer the most effective service for their unique product set and customer base.

Five Logistics Data Sets for Network Optimization

• Geographic Customer Distribution: As opposed to brick-and-mortar storefronts that require a customer’s physical presence, the rise of ecommerce has enabled buyers to effortlessly search for and purchase items online from virtually anywhere. For merchants, this means that many of the traditional barriers associated with gaining broad market exposure have been eliminated. However, ecommerce has also added new challenges for merchants, such as that of having to quickly deliver goods to customers that are spread across the globe. As ecommerce merchants increasingly recognize that their sales are coming from customers in numerous regions, many are transitioning towards fulfillment structures that offer a distributed warehouse network. This allows them to store portions of inventory in multiple locations. However, in order to leverage this type of network effectively, merchants must know where the bulk of their customers are located so that they know exactly where to place their inventory. In practice, this type of strategic analysis can enable merchants to rely on just three warehouses to reach their entire U.S. customer base in 1-2 days through standard ground shipping options. And with numerous 3PL and 4PL providers that offer distributed warehouse networks, knowing where their customers are located enables merchants to shop for the network that gives them the best coverage.
• Seasonal Order Volume: For merchants with distinct busy seasons, understanding how order volumes rise and wane throughout the year is essential for optimizing 3rd party fulfillment. In some industries, it is common for 30-40% of order volumes to occur within a 1-2-month period, such as the November-December holiday season. And because most warehouses will charge storage fees based on the amount of pallet space used throughout the year, the ability to reduce inventory capacity during the slow season and then ramp up in time for the busy season enables merchants to save significantly on inventory carry costs. However, it is imperative that accurate data is gathered here, as stock outages caused by unforeseen demand or unanticipated order spikes will do more harm than the costs of carrying extra inventory. Also, it’s important to ensure that a merchant’s selected warehousing provider will allow inventory to be scaled up or down throughout the year in this fashion. Reason being, some warehouses require year-long contracts with pre-specified inventory parameters that can prove restrictive for merchants that try to implement a seasonal approach to inventory management.

• Order Volume by SKU: Just as important as understanding a business’s general seasonality is understanding the specific level of demand for each unique product. Although some businesses may choose to stock equal amounts of inventory across all their products, this can lead to unforeseen costs as slow-moving SKUs stay on the shelves longer and rack up additional storage fees. This approach can also complicate the restocking process, as varying demand levels for different SKUs will likely necessitate different restock amounts and cadences. Instead, analyzing demand for each unique product throughout the year enables merchants to determine how much of each SKU should be stored at any one time, how much is needed for restocking, and how often each should be restocked. This will ultimately allow them to reduce the carry costs associated with each product without running the risk of stockouts.
• Order Size and Transit Mode: When it comes to selecting the transportation methods used to deliver orders, there are several elements to focus on. For instance, if merchants are selling to other businesses (particularly retailers and wholesalers), goods are typically bought in bulk. But for individual consumers, products are commonly bought as single units. Therefore, if merchants are selling to both businesses and consumers, they’ll likely need to leverage multiple transportation methods, including small parcel delivery services for customer orders all as well as LTL and FTL freight options for wholesale orders. Getting a handle on the range of order types and volumes that will occur is very important because different carriers (i.e. UPS, DHL, or FedEx) offer different rates depending on the size of the shipment and who the end recipient is (i.e. a business or consumer). For this reason, identifying the type of delivery options needed and the frequency with which each type is needed will help merchants select the best carrier(s) to service their business.  
• Product Requirements: Across the full landscape of fulfillment providers and shipping carriers, the charges associated with handling products of various weights and sizes can vary broadly. For example, some warehouses might specialize in storing heavy or bulky items (i.e. products over 50 lbs.) and charge much less than their competitors, while others may only handle small retail goods and will charge hefty premiums for items over a certain weight or width. The same goes for shipping providers, who may charge premiums to ship items over 10 pounds or with dimensions exceeding 3-4 feet. Taking this a step further, products that require refrigeration or kitting or that are classified as hazardous materials are much more expensive to store and ship, and many providers may choose not to handle these types of items at all. So, if merchants are to truly optimize the costs associated with their fulfillment process, documenting these types of product specifications is a crucial step. This will ensure that across their full portfolio of SKUs, the warehousing and shipping partners selected can provide effective service.

How to Improve Shipping Logistics

Logistics data is the most powerful tool that SMB’s have at their disposal to improve shipping speeds without increasing fulfillment costs. Historically, access to logistics data has been an enterprise-level function. Most SMB’s don’t have the internal resources to interpret data into actionable insights to improve the efficiency of their fulfillment and shipping.

However, SMB’s can partner with a tech-enabled 3PL or 4PL with logistics and fulfillment software that integrates with all of their sales channels to aggregate WMS, TMS, and OMS data into real-world actions they can take to improve their business. For example, at Ware2Go, merchants can set alerts to notify them when inventory is low at the SKU level and the warehouse level. This allows them to get ahead of their replenishment orders to avoid costly stockouts and helps them get a high-level view of the geographic distribution of their customers. Ware2Go’s team of analysts also regularly reviews shipping data to identify warehouses that may be over-indexing on long-zone shipments and make recommendations for merchants to move their inventory to reduce time in transit and realize cost savings on their final mile shipments.

Leveraging Data for an Ideal Solution

For small and mid-sized merchants that are serious about competing in today’s fast-paced ecommerce landscape, leveraging logistics data is essential for achieving 1 to 2-day delivery speeds without negatively impacting their bottom line. When looking for the best-fit fulfillment partner, asses not only their network scale and capabilities but how they plan to help you build your network strategically and whether they are analyzing the right data sets to transform fulfillment into a revenue driver for your business.

For a free network analysis and optimized network recommendations, try our free application, NetworkVu or reach out to one of our fulfillment experts for a free consultation.