May 1, 2012, 12:00 AM

Special Report: Fulfillment - New ways to drive efficiency

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As part of its consulting services LJM will review up to a year's worth of a retailer's shipping data, including box sizes, to identify how retailers can minimize shipping costs and avoid surcharges that can significantly raise their shipping costs.

International returns

As costly as domestic returns are for retailers, returns on international orders are far more expensive. However, there are ways retailers can reduce those costs. One option is to partner with an overseas fulfillment company like Hermes that operates local warehouses where returned items can be shipped and stored. An item returned in good condition can be held until another customer orders it, and then the product can be fulfilled locally, reducing the retailer's shipping costs.

"We constantly tell U.S. retailers that returns on international orders are expensive and that is it is more cost-effective to maintain a warehouse overseas where items can be returned and fulfilled at a later date," Bense says. "This type of strategy provides retailers with a lot of flexibility when it comes to managing returns. It also makes it possible for the customer to get their refund sooner, since the time it takes to process a return is shortened."

Fulfillment experts also recommend that retailers selling internationally find a shipping partner to help them properly calculate tax and duty so it can be included in the shipping cost at the time of purchase. "The last thing an international customer wants is to receive a package and owe tax and duty," says Innotrac's Toner. "When that happens he is likely to refuse the package, which results in a return and a surcharge for the retailer."

Although returns are an inconvenience for the consumer, one of the biggest inconveniences a consumer can experience is delivery of an incomplete order. Since manually checking an order can slow fulfillment, especially late in the day when retailers are scrambling to meet same-day shipping promises, automatically weighing packages before they leave the warehouse can reduce the risk of mistakenly shipping incomplete orders.

Warehouse management systems can include weight verification cross-check technology. Each package is automatically weighed and measured against theoretical weights that have been established. If there is any variance in the package weight, it is diverted to the exception lane for an audit.

"It's a way to automate what is typically a manual process to catch incomplete orders before they go out the door," Toner says. "It is a process we have integrated into our warehouse management system."

As part of its fulfillment services, Innotrac provides radio frequency verification of the UPC code as the product is picked, order and returns management, inventory and warehouse management, direct-to-consumer fulfillment, logistic solutions and gift packaging. The company guarantees a 99.9% on-time delivery and error-free accuracy rate.

Tailor-made boxes

As much as consumers want to receive exactly what they ordered, they also expect the orders will arrive in perfect condition. "Durable packaging that can withstand the rigors of shipping is a must because packages that arrive with dents and tears reflect poorly on the retailer," Bense says. "The quality of the packaging is part of the shopping experience."

With more consumers purchasing eco-friendly products, retailers can cater to the environmentally conscious by reducing packaging waste. "Consumers are becoming more conscious about product waste, and less packaging waste makes a better impression, because consumers know at the end of the day they wind up paying for it," Kiessner says. "Retailers that reduce their packaging waste also reduce their carbon footprint, which they can play up with consumers."

Packsize's custom box-making equipment allows retailers to produce boxes of just the right size on-demand, which reduces unused packing space. The table-top-sized unit is integrated into the retailer's warehouse management system. When an order is entered in the system, Packsize software calculates the size of the box needed based on the number and shape of the items in the order.

Corrugated cardboard is then fed into the machine and a box matching the exact dimensions needed to hold the order is produced. "Custom sizing reduces corrugated consumption in the manufacturing process by 20%," says Kiessner of Packsize. "Most of the boxes used to ship items sold over the Internet are 35% too large, and most of the materials used to fill the excess space are petroleum-based. Our system can reduce the use of filling materials by 85%."

Packsize's system is scalable to a retailer's order volume and can produce as many as 100,000 boxes a day. In addition, Packsize boxes are taped, as opposed to glued, which makes them easier to collapse and dispose of. "Consumers appreciate being able to dispose of a box more easily," Kiessner adds. "Our system has a positive impact across the supply chain from more efficient fulfillment, which reduces labor costs, to sustainability."

The free shipping dilemma

As much as sustainability resonates with today's online consumers, nothing drives them to purchase as effectively as free shipping. Consumers want to pay as little as possible, preferably nothing, for shipping, and they are more likely to patronize retailers that offer free shipping.

Free shipping, however, is not free for the retailer. Rather than offering to ship all orders for free and incurring a cost that in some cases exceeds the value of the item, fulfillment experts recommend using free shipping as an incentive to increase the order size or entice consumers to purchase immediately.

"Free shipping is the best promotional tool retailers have," says LJM's Wood. "More than 70% of online retailer's offer free shipping in some capacity. However, retailers need to have guidelines around free shipping, such as limiting it to free ground shipping."

Effective methods for attracting consumers and increasing average ticket size include setting thresholds for free shipping, such as for orders more than $100, or offering it on excess inventory or as a promotion during non-peak sales periods. "Knowing when to offer free shipping comes down to knowing what it actually costs," Toner says.

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