How Mistakes in Fulfillment Strategy are Hurting Your Retail Business

How Mistakes in Fulfillment Strategy are Hurting Your Retail Business

Retail fulfillment is defined as the process of receiving, packaging, and delivering an order to the customer.

A large portion of a retailer’s business activity—and their success—hinges on effective and efficient fulfillment strategies and processes. In fact, having an effective and beneficial fulfillment strategy is a competitive advance these days.

In today’s world, all retailers are feeling the influence of the “Amazon effect,” and many continue to struggle to keep pace with the growing demands of their customers for speed of delivery, convenience, and value. Being prepared and having the right tools to respond to business changes will ensure your continued success.

Delivering convenience (Retail Fulfillment Strategy Examples)

To ensure customer satisfaction, there are several approaches you can take. The world’s most successful retailers don’t just choose one, they leverage a combination of strategies, based on the needs of their clientele:

1.      Buy online pick up in store (BOPIS)
BOPIS allows shoppers to purchase their item online and then pick it up in person at a brick-and-mortar location. This method is a way for consumers to avoid paying shipping fees, and also a great boon to the store as well because it holds the potential for additional sales and engagement. In fact according to Business Insider, 94% of consumers pick up additional items when coming into the store.

2.      Third-party fulfillment (3PL)
Many companies outsource their fulfillment to a third-party. This is a great option for a startup whose dependability is gauged by the consistency of their service as much as the quality of their products.

3.      Drop shippers
Many online retailers leverage products from multiple manufacturers who have the capability to ship directly from their own warehouse. This removes the need to hold inventory, but it does require an extra layer of communication to ensure what products are available and that they get shipped to the customer accurately.

4.      Pick-up outlets
You could also partner with a local store or an alternate transport point (such as a UPS outlet) who will process your orders for you.

5.      Self-managed fulfillment
If you are a small company and just starting out, there may not be a lot of value in outsourcing to a 3PL company. However, if you do have the bandwidth to support your own in-house logistics, it gives you a lot of control over your brand and customer satisfaction.

Retail fulfillment Cost/Benefit Analysis.

Offering a range of flexible fulfillment options can make your customers happy, offer you a competitive edge, and help you avoid lost sales. However, a recent Gartner report showed that retailers that offer “too many” options might be spreading themselves too thin.

The report quotes Robert Hetu, VP Analyst at Gartner, who says:

“Costly levers such as same-day delivery, free shipping, and free returns are annihilating any gains in revenue, leaving retailers in the red.”

This insight highlights the notion that retailers need to figure out the fulfillment options that work best for them and their customers and double down on those.

By narrowing their scope, companies can focus on delivering customer service consistency and improving communications to increase customer awareness and engagement through these fulfillment channels.

Retail Fulfillment Forecasting

One of the top mistakes that retailers tend to make is that they don’t have a good fulfilment forecasting strategy.

Fulfillment forecasting is a way to obtain proactive visibility into how future customers will want their orders fulfilled. Essentially, it’s like a crystal ball that helps them see what their demand will be in the future, allowing them to proactively purchase and distribute merchandise correctly across their business with the end in mind (stores, warehouses, DCs) to reduce fulfillment costs.

Traditional Forecasting Methods Don’t Work!

One common problem is that most retailers use traditional or manual methods to forecast fulfillment. They typically look at past sales to give them a hint about what the future will look like, and the results can be misleading.

You need to consider that this year’s sales will be different from last years. You will have a different product mix, different prices, and the competition will have evolved.

Using AI predictive analytics tools, you can gain visibility into your actual past demand (your past sales plus lost sales). These tools can then help you build a much more accurate picture of what the future demand will be. This approach also provides retailers with the ability to work more granularly and account for more factors that influence demand across all channels of their business.

Inventory Management Challenges

Heading into 2020, efficient and successful retailing requires multiple retail teams working together in unison to execute accurate forecasts as well as integrate plans with operations and execution.

From supply chain managers and planners to buyers and category managers to inventory analysts and order fulfillment managers, the entire process needs to be united and supported by advanced retail-specific systems.

Today, most of these processes have very poor integration, which results in:

  • Retailers running promotions without knowing what additional inventory they need at each store to make the promotion a success. As a result, they will often run out of stock and lose sales in the process.
  • Purchasing, allocation, and supply chain teams are not in sync. Multiple systems and unintegrated forecasts produce too many exceptions, require too much manual labor, and offer poor visibility of inventory through the entire process.

A recent survey we conducted with over 5,000 retail professionals indicated that: 73.5 percent of retailers view the integration of these processes to be “very important” to their business’ success and yet less than half are actually putting this into practise revealing a strong disconnect in the retail industry.

Essentially, this tells us that retailers are aware of the problem and are starting to seek out solutions using predictive analytics and AI technology.

Retroactive Approach to Fulfillment

When a customer walks into a store to pick up the new hot item and finds out that it’s already sold out at that store, or if they can’t find the shoes they like in their size, the store will often transfer the product from another location. However, this happens retroactively, which is a risky prospect. Some customers refuse to wait that long, preferring to go to your nearest competitor or online, resulting in a lost sale.

If this item is an item that usually goes with another product, like gloves for a kid’s snowsuit or paper for a printer, you need to keep these “family groups” in mind when forecasting, purchasing, and allocating, or you may be only partially able to fulfill that order. Conversely, you may need to send the order in multiple packages, increasing your shipping costs.

Using predictive analytics & AI to Optimize Retail Fulfillment

Predictive analytics and AI technology that is designed specifically for the retail industry optimizes all the critical functions discussed above, from forecasting and planning to purchasing, allocations, replenishment, and promotions.

These tools allow retailers to perfect their fulfillment strategy and reduce costs while increasing fulfillment speed and customer convenience.

Moreover, when these solutions are working together, retailers have reported ground-breaking results, including

  • Reduction of inventory costs (between 25 – 40 percent)
  • A healthy boost in sales (10 – 25 percent)
  • More accurate demand forecasting
  • Improved visibility into the business, its products, and categories

If you are ready to optimize your fulfillment strategy, we are ready to help. Reach out today to learn about what kind of benefits your specific business can experience with Retalon’s predictive analytics and AI.