eCommerce order fulfillment must use consumer patience in sourcing and fulfillment to optimize cost of shipping to the customer
There may be couple of options to fulfill such orders.
Option 1 - Customer receives separate shipments - one from the Hub DC and another one from alternate DC. It should be noted that the retailer will likely to incur higher cost of multiple shipments
Option 2- Customer receives single shipment – The alternate DC ships order lines to the Hub DC and order lines get merged and single shipment is sent to the customer
In case of Option 1, the customer will likely to get his order lines in shortest possible time. However in case of option 2, the order is likely to get delayed because one shipment needs to be first received at Hub DC from alternate before sending it to customer. However, for the retailers’, option 2 may be cost effective because there may be regular transportation (trucks) between DCs that makes the cost of transfer negligible.
Consumers’ patience to wait for the order to “arrive” is an extraordinarily important parameter to take into account in cost savings. Just illustrate this with an example; let’s say customer gets both the shipments in 5 days in case of option 1 however option 2 may take as high as 10 days. Hence there is a need to evaluate this option before making the decision on cost optimization. i.e. If the delay is more than certain threshold then I go with option 1, otherwise option 2. This threshold must be defined based on consumer patience to wait. A simple way to define this could be in terms of customer cost of delay per day.
To further optimize the cost of shipping Zone skipping and labor scheduling can be considered. In case of zone skipping, the retailers can delay a group of regional orders until they have enough orders to fill the trailer and then ships them directly to carriers’ regional distribution center. This will reduce the carrier charges. This is typically achieved by retailers having pre-existing relationship with consumer-direct shippers.
Ensuring warehouse operations operate at peak during the normal hours of operations, thereby increase in labor utilization rates during this period instead of overtime. Extended warehouse operations by running sub optimal labor utilization will lead to higher overtime costs. However it should be noted that all the options described above looks at optimizing cost to the retailer but there is a cost of customer shipment delay. Consumer patience to wait for the shipments must be used to retailers’ cost advantage!
