Drip..drip..drip. Listen closely, that’s the sound of net income leaving your ecommerce business.
Time to stop the leak.
There are two broad ways to increase net income: Increase prices or cut costs.
In the world of ecommerce, increasing prices is tough. It’s a world of almost perfect competition. Competitive product and prices are only a Google search away. Or – in the case of Amazon and many marketplaces – they are displayed on the same page as your product. You can raise your prices, but unless you have the brand equity to help justify the higher price in the shopper’s mind, you’ll probably lose the sale.
Increasing the value of your brand helps, but that takes time and is an investment in itself.
So, especially for Ops folks, increasing net income on an ecommerce order involves cutting costs.
But cost cutting had its own challenges.
Delivery matters to ecommerce consumers. Orders need to arrive complete. On time. Undamaged. With supporting invoices, directions or other inserts. So you need to approach cost cutting systematically – cutting waste while ensuring that customer expectations are still met.
Sometimes, broad changes to your order and inventory management platforms are called for. Cartonization, for example, ensures that every order is packaged in the right carton that meets customer expectations for product protection, while also minimizing packaging and shipping expenses. Distributed order management software ensures that every order is routed to the best – usually lowest cost – fulfillment option. The customer gets their order on time; you get the shipping cost savings by using the best fulfillment option (which isn’t always the closest option).
At Etail, we offer these solutions. We’ve seen the impact they’ve had on customer operations and profitability. But, even though we’ve designed our software to work with the IMS, OMS and WMS systems customers already have in place, we appreciate the time, expense and commitment involved in making these kind of large-scale changes.
So we designed another tool.
We call it Ideal Order Insights.
Etail Solutions recently introduced Ideal Order Insights, an analytical tool for Shopify and other platforms works with your current OMS, IMS and WMS systems to simulate where your orders should have shipped from to realize the most margin possible if inventory placement and other factors been “ideal”.
Ideal Order Insights measures nine different factors that directly influence customer satisfaction and profitability on every order. Then sums them up to help create an overscore that is a single, quantitative KPI for your ecommerce fulfillment operations.
Looking at individual factors helps pinpoint where you are leaking net profit from your ecommerce operations. By order. By SKU. By fulfillment location. By shift and more. Use it to spot opportunities for increased training, automation or better workflows.
There’s also an overall KPI – called the Ideal Order Ratio – that provides a trackable metric for organizational improvement and performance management.
They work together in a five step process to reduce net income loss. Here’s how Ideal Order Insights works.
1. Ideal Order Insights evaluates every order.
Is an order ideal or is it a drag on profitability? Orders are evaluated across nine criteria that contribute to customer satisfaction and order profitability.
The goal isn’t to fix specific orders – at least not at first. The goal is to understand where your fulfillment operations are working and where there are opportunities for improvement.
2. Ideal Order Insights aggregates the data to attack lost net income
Aggregating the data from all orders over a period of time for the nine categories highlights areas for improvement.
Etail’s Ideal Order Insights also calculates the fulfillment cost difference between what it actually cost to fulfill an order and what it should have cost if all factors had been ideal. Although the individual impact might be small on a per order basis, when aggregated, the result in an overall amount is often eye opening.
These are opportunities for redistributing inventory to cut shipping costs, implementing cartonization to ensure the most cost-effective packaging is used, and other projects to improve profitability. Best of all, Ideal Order Insights provides a rough measure of the cost saving associated with solving the issue – a good, back-of-envelope ROI for determining which projects are worth digging into further.
Along with internal metrics, you can build performance scoreboards for your 3PLs and other fulfillment partners, drop ship suppliers and carriers to ensure they are meeting your service level agreements – and have the data to back up claims for rebates or performance improvement plans when they miss the mark.
3. Ideal Order Insights creates a qualitative metric for improvement
An Ideal Order is an order that met all nine fulfillment criteria: You know you made the most margin possible on that order while still meeting customer expectations. By dividing the total number of Ideal Orders by the total number of orders processed for a given time period, function or location, you can create an Ideal Order Ratio. It’s a single, qualitative metric that captures both customer satisfaction and operational performance. This can be tracked over time to see how the company’s fulfillment operations are performing.
4. Ideal Order Insights helps you manage inventory using Ideal Demand
If you are using stocking level triggers to manage inventory, you may be making a mistake.
Think about it. A stocking level trigger reorders inventory when it reaches a certain level at a given location. But that assumes that all of the inventory shipped from the location should have shipped from that location. It completely ignores the possibility that some of that inventory may have been shipped from that location to compensate for a lack of inventory somewhere else.
Because Ideal Order Insights calculates the difference between the actual fulfillment cost and the “ideal” fulfillment cost if inventory was available, it can help you quantify the opportunity cost of not having the right inventory in the right place at the right time.
That way you can make inventory stocking decisions based on what should be happening, not based on what had to happened due to faulty – or at least less than “ideal” – inventory trigger assumptions.
5. Ideal Order Insights provides the basis for automation
Ideal Order highlights major areas where your ecommerce fulfillment operations are leaking net income.
Often, large increases in net income come from just moving a couple of pallets or inventory here or adjusting carton sizes there.
But the real power comes through ensuring every order is optimized every time. That comes through integrating insights with automation and technologies such as cartonization and distributed order management.
By implementing the insights gained from our "IdealOrder" simulator, you can make data-driven decisions to optimize your inventory placement.
If your order volume is large enough or your fulfillment challenges are complex, you’ll want to check out our other product offerings like Ideal Order Optimization and Ideal Order Enterprise to take your fulfillment capabilities – and profitability – to a new level.
We’ve just scratched the surface of the opportunities to improve net income using Ideal Order concepts. For a deeper dive, check out our eBook "The Five Critical Concepts to Attack Lost Net Income".
Click here to learn more about Ideal Order Insights.