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Warehouse Management Blog

Our team of Fulfilment Consultants share warehouse management best practice and advice.

Top 5 ways to reduce your logistics costs

How To

WRITTEN BY Jonathan Bellwood /

30 April 2015

 A recent study conducted for JDA showed that the majority of retailers (67%) reported high logistical costs in eCommerce as the main struggle for fulfiling omni-channel orders. In a world where omni-channel sales are becoming so prevalent, only 16% of companies feel they can fulfil these orders profitably. The quote that stood out to us was this:

“Every time retailers receive an online order, they have a number of options to fulfill that demand. They can pull the product from a local store, send it from a centralized warehouse or ship it directly from the supplier. JDA’s new study demonstrates that most retailers lack the insight to make these decisions in a profitable manner — and are not sufficiently focused on this critical capability gap.”

Problem: First-time delivery

One of the main costly logistical expenses for eCommerce companies is failed first-time deliveries. Naturally, if a driver has to be sent out a second or third time to deliver a package the cost of fuel and labour add up. So how can the rate of first-time delivery successes be improved?

Solution: Click & Collect

Delivering to a store instead of people’s homes guarantees that there will be someone available to accept the package. Retailers with coverage across the high street are already onto a winner with omni-channel order fulfilment as they can simply add a customer’s order to the delivery van shipping to store with no additional logistics cost.

In order to encourage more Click & Collect orders, offering them for free would be a big incentive for customers, particularly those who work during the day so cannot be at home to receive parcels.

[Related: MetaPack Delivery Conference 2015: Innovating through delivery]

2. Fleets

Having your own fleet of drivers not only eliminates the cost and reliance on carriers, it allows you to set your own delivery cut-off times without having to factor in when carriers can collect orders. Many retailers with high Average Order Value (AOV), like Mattressman, are seeing the economical benefits of establishing their own fleet to fulfil deliveries in their local area.

A further benefit of using your own fleet is the customer interaction. Humans like to buy from humans but unfortunately eCommerce is primarily faceless. The delivery driver is often the only human interaction customers get with a company and who is likely to care more about this meeting: an independent carrier with a hundred more parcels to deliver for twenty other companies, or a member of your own team who was hired to uphold the company image?

This was touched upon by Yossi Erdman, Head of Brand and Social Media for Ao.com, at the eCommerce UK event in March. Their company have an excellent method of ensuring their delivery drivers always put on their best smiles and you can read about it in our eCommerce UK highlights post here.

Solution: Hub-Spoke

Delivery drivers take stock from the main distribution centre and either take it to the store for replenishment or directly to the customer. Stock delivered to the store could, as we’ve previously stated, be used for Click & Collect where customers come to pick up their packages directly. But what if there were some form of service that combined these actions?

The Hub-Spoke system works as follows: The distribution centre is the hub which delivers stock to stores as normal. The stores then become the spokes from which independent Uber-style delivery drivers collect orders and deliver them to local customers. No extra distribution is required from the main warehouse, and prominent retailers, such as Oliver Bonas who have more than 40 retail stores in and around London, can capitalise on their high street coverage by reaching more customers locally.

Using the Uber-like pay-for-the-distance service, this could not only reduce the cost of logistics for eCommerce companies but also the price of delivery for customers. Win-win.

[Related: Can Uber double as a delivery service?]

Problem: London congestion

Another logistical expense, particularly in London, is parking tickets. Anyone who has driven through London will tell you that having your teeth pulled by an infant is often less taxing, and finding a parking space, even if only for a few minutes to drop off a parcel, is far from easy. As such, it is common to see delivery drivers park up in a restricted area, hoping to be back before the Parking Warden swings by. These tickets are often provisioned for in the logistics budget so how can they be avoided?

Solution: Smaller vehicles

Unfortunately we have no miracle solution to making any big city’s roads less congested. One way that you can reduce the cost of your logistics, however, is by using smaller vehicles. Provided your packages are a suitable size for this mode of transport, smaller vehicles such as motorbikes or scooters will up the odds that you find a parking space near your drop-off point.

Who could possibly use the space between that shoddily parked Corsa and the Land Rover taking up two spaces? A motorbike driver with a parcel to deliver, that’s who!

Problem: Warehouse management

When we talk about reducing the cost of logistics, what we’re really addressing is the entire process of order fulfilment. So long as costs can be reduced somewhere, without sacrificing quality, then spending a little more on delivery isn’t going to send your eCommerce business bust. We’d love it all, naturally, with low overheads on every action, but we take what we can.

Solution: Innovative warehousing

Most eCommerce companies don’t realise how much time and money they spend on processes within the warehouse, from goods in to despatch. The longer tasks take to do the more labour is needed which means more wages to pay. For one of our sports fashion clients, efficient warehouse management software sped up goods in by as much as two days. With optimised picking routes for single- and multi-item orders, picking can be completed quicker meaning order are packed and despatched much sooner.

[Related: Two ways to fulfil orders like Amazon]

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